Financial advisor lays out possible strategies to tackle CalPERS liability
The Solvang City Council met for the first in nearly a month for its regular meeting on Monday, Sept. 9.
The council hadn’t met for a while because the meeting for Aug. 26 was canceled due to lack of agenda items, and there weren’t a lot of agenda items for the latest, although there were a couple of presentations.
The second one, which closed out the meeting, was from Julio Morales, a financial advisor with Kosmont Financial Services, who was invited by City Manager Randy Murphy to talk about strategies to combat the CalPERS financial liability.
CalPERS stands for California Public Employees’ Retirement System, which is an agency in the California executive branch that “manages pension and health benefits for more than 1.5 million California public employees, retirees, and their families,” its website says.
Morales said the thing that’s the problem with CalPERS among municipalities is that it is unique in that it’s both an investment manager and a plan administrator, which means it not only uses the payroll deductions to put in investments,but to pay current retirees also. That brings essentially two costs, Morales said, normal costs (payment earned by current employees) and Unfunded Accrued Liability (the payment that goes to the retirees).
“Think of those two as a current bill (normal) and a ‘past due’ bill (UAL),” Morales said. “If you lay off all employeesyou still have UAL. Unfunded liability — that’s what we’re talking about.”
Which brought Morales to the next question: “How did we get here?”
For that, Morales went to a study done by the League of Cities which showed a few factors for UAL.
“Many people think it’s investment losses that has caused liability, but in truth, there are a number of factors,” he said.”Probably the biggest are the Enhanced and Retroactive Benefits.
“Back when things were good, some municipalities raises the pension rates for the unions, and the rest followed suit,” he said. “Then when things got bad, they didn’t feel they could undo that raise because then they were worried about retaining employees.”
Morales offered some strategies for paying off the UAL:
- Dipping into reserves or one-time monies
- A soft fresh start, where a municipality can adjust the paying schedule
- Fund exchange (internal loan)
- Pension stabilization fund
- Leveraged refunding
- Tax-exempt exchange
- Pension Obligation Bonds (POBs)
After the presentation, Murphy said, “this is a lot of information, and it’s particularly poignant when we get to budget time, but we will still keep in touch with Julio and consider strategies at a future meeting.”
To which Councilmember Robert Clarke replied, “It’s called tightening our belts.”
At the beginning of the meeting, the council heard one other presentation, from Doug McAllister, VP of external affairs for Frontier, who is putting up new fiber optics cables in Solvang.
McAllister who said he used to be the mayor in Murrieta, California, extolled the virtues of Frontiers fiber optics, calling them “future proof” and much more internet speed.
He explained what would be going on in Solvang as crew install the new fiber: Inspection and utility marking, leading to permit issuance and construction, and cleanup afterward.
He also promised any help he needs to give Solvang: “You say jump, Frontier says ‘how high?'”
After the presentation, Mayor Mark Infanti mentioned how the Chumash tribe has had success with the fiber optic product and that SBCAG has pushing the county broadband initiative to people in rural areas.
“When we had the pandemic, some kids couldn’t log on to school,” Infanti said. “So we really want to push that.”
During Council Comments, Clarke initiated a discussion to get two items on a future agenda.
“I’ve been getting complaints about Solvang not being business-friendly enough,” he said. “I’m tired of businesses getting roadblocks.”
Clarke proposed a guidebook for prospective businessmen that would lead them through the requirements, permits, and process.
“It would be like a guidebook for anyone who wants to build or open a business here,” he said.
The other councilmembers seemed to like that idea although his second one — dissolving the Design Review Board.
Infanti said doing away with the DRC wasn’t necessary, but then caught himself because he wasn’t supposed to criticize the idea, just consider it for a discussion.
Councilmember Dave Brown spoke up, saying that it was worth a discussion whether or not, so the council directed Murphy to get both subjects on a future agenda.
The next Solvang City Council Meeting will be on Sept. 23, at 6:30 p.m.
