(From Press Release) – Earlier this week, the City of Davis received a report from the Yolo County Grand Jury titled The Looming Crisis of Yolo County City Pension and Retirement Medical Costs. The report outlines the increasing costs for each of the four cities in Yolo County to provide retirement benefits to employees through the California Public Employee Retirement System (CalPERS). Specifically, the report suggests that the four Yolo cities have not been transparent to the public in providing information related to the cost of providing retirement benefits.
While the City of Davis will provide a more thorough formal response to the report, as required by law, once staff and the City Council have had adequate time for review, and while we wholeheartedly concur with the Grand Jury that transparency is critical to the public discussion on this topic, the City does believe that the issue has been a significant part of the public discourse over the past few years. The City is likewise committed to ensuring that the discussion continues into the future.
The City of Davis has taken extra efforts over the past two years to provide information related to pension and other post retirement benefit costs, both short and long term, to the public, and we will continue to do so over the coming months and years. Below is a brief accounting of outreach where City representatives have discussed pension and other post-employment benefit (OPEB) costs:
- City’s Finance and Budget Commission has made this a central theme of many of its publicly noticed discussions over the past two years. The City’s actuarial consultant, John Bartel, has presented to the commission at public meetings in 2016 and 2017, walking the commission and the public through the City’s pension issues.
- The City developed a long-term fiscal model to show the effect of all General Fund obligations, including pension and retiree medical costs, over the next twenty years. This model was rolled out during multiple public meetings with the City Council and the Finance and Budget Commission. It has been widely referred to over the course of public discussion, and an abbreviated version of the model is available for the public to use. The City Council utilizes the model in planning for the annual budget, during labor negotiations and in other fiscal decisions.
- As part of the fiscal forecast model, starting with Fiscal Year 2017-18, the City added an entire chapter to its annual budget document specifically on forecasting. The chapter details the issues surrounding increased costs related to pensions. Pension issues are highlighted in the City Manager’s Transmittal letter and in the public presentations to the City Council.
- Both city staff and city councilmembers have spoken about pension costs at organizational meetings, including the Chamber of Commerce, the Rotary, and the Kiwanis.
- Mayor Robb Davis penned several articles over the past four years addressing pensions and post-employment benefit costs. These articles appeared in the Davis Enterprise, on the Davis Vanguard, and on social media outlets.
- The City Council has been working to educate and inform employee groups during labor negotiations and has reached cost-share agreements with several groups.
“As Mayor, I have written and spoken frequently about these issues and they have been dealt with openly in at least 10 publicly noticed meetings in the last two years alone,” said Mayor Robb Davis in response to the report. “Starting in 2016, in several articles published in local news sources and public presentations to the Chamber of Commerce’s State of the City event and local service clubs, I laid out the challenges Davis is facing vis-a-vis pensions. I used actuarial analysis done by Bartel to communicate the probable increases in pension costs over the next 10-15 years. Bartel, himself, in 2016 and 2017, at the City Council’s request, discussed the same data with our Finance and Budget Commission in publicly noticed meetings. Over the course of three additional meetings in 2017 and 2018 our fiscal consultant Bob Leland revealed the same data in the City’s new fiscal model. We discussed pension and OPEB liabilities during public meetings on Council Goal setting and budget decisions in 2016 and 2017. All this to say that we have been transparent and forthcoming about the challenges related to pension and OPEB liabilities.”
In addition to outreach, the City Council has been making efforts to reduce City obligations. The City made a $2 million payment from General Fund reserves in 2017 to pay down a portion of its unfunded liability for retiree medical costs. The Council has negotiated with labor groups so that employees pay a larger percentage of costs than is typical for other California cities. Both Fire and Police employees contribute 12% of salary to cover their shares of retirement costs, 3% more than is required by CalPERS. Two other labor groups have just agreed to pay in excess of the required 8% of salary if PERS costs increase beyond what is currently expected over the next few years. And, of course, employees new to the PERS system since 2013, receive reduced retirement benefits, as per the requirements laid out in the California Public Employees’ Pension Reform Act of 2013, also known as “PEPRA”. Each of these actions serves to address the City’s ongoing pension liabilities.
The City has placed a great deal of effort in developing a long range forecast model to include projected PERS costs, along with other City needs, costs and revenues. The model is intended to be both realistic and robust to allow staff, the City Council and the public to see the costs and effects of rising costs. The graph below illustrates the increasing pension costs, which are estimated to reach a peak by 2026 before starting to subside.
Rising pension costs are a real issue. It is also a complicated issue statewide that takes time to address. The City of Davis and its City Council agree that transparency and outreach are crucial and look forward to continuing and intensifying our engagement efforts with the broader community, amongst other leaders throughout Yolo County and across the state.