Amid all of the talk about passage of Measure Z — the one cent sales tax hike on the Nov. 3 ballot — allowing the City of Manteca to expand services is a ticking financial time bomb.
Assuming the 2017 report on Manteca’s unfunded retirement obligations that then Mayor Steve DeBrum pushed staff to provide to elected officials is still on the mark, the city’s payments to the California Public Employment Retirement System (CalPERS) will reach $25.2 million in 2025.
That is double the $12.4 million Manteca was projected to pay into CalPERS in the fiscal year that ended June 30. While not all of that is coming out of the general fund that pays for police, fire, parks and streets — retirement costs for wastewater, solid waste, water, and golf course workers come out of separate enterprise accounts underwritten by user fees — a good portion of it does.
When the 2019-2020 fiscal year budget was being adopted, staff at the time pointed out almost half of the CalPERS increase for that fiscal year was coming from the general fund.
The overall CalPERS increase was $1.9 million with $969,970 being charged to the general fund.
The significance of that increase is underscored by the fact last year’s budget saw an increase of $1,013,160 in property taxes — the single biggest source of general fund revenue. That mean 90 percent of all new property tax revenue went to covering the city’s pension obligations.
An updated status report on the city’s PERS liabilities in terms of projected impacts on Manteca’s finances hasn’t been made at a public meeting to the City Council or taxpayers since June of 2019. Part of that has to do with turnover in the city manager’s office and the fact the city has been without a finance director for 10½ months.
Based on the 2017 staff report the general fund’s share of CalPERS obligations could drain it of another $6 million annually by 2025. And while CalPERS has performed somewhat better than trends indicated it would do back in 2017, the fact it depends heavily on stock market returns to fund benefits means it will be close to a $1 million addition hit yearly on the general fund with the annual increase added to the ongoing pension payment hikes imposed in previous years.
That means pension costs — should Measure Z pass and generate $12 million annually as the city projects — would eat up almost half of the increased revenue the sales tax hike would deliver.
The city has been careful not to mention unfunded general fund pension liabilities in any of its educational postings regarding Measure Z. That is despite the fact it has clearly been identified as the biggest increase in general fund expenses on a five-year horizon that the city can’t avoid.
Touting unfunded pension liabilities isn’t exactly a glamorous selling point to encourage voters to back Measure Z.
The city in its Measure Z posting of frequently asked questions on the municipal website states it “would help maintain and enhance fire protection services, successful crime prevention programs, emergency response times, community-based neighborhood patrols, and disaster preparedness.” It also mentions it would allow the city to address deteriorating roads and maintain city streets as well as “maintaining youth, teen, and senior recreation programs.”
The city stresses “maintain” as opposed to “expand”.
Without the sales tax increase of one cent, the ever escalating pension costs will start eating into the $12 million worth of services the existing one cent sales tax already in place provides essentially diluting the municipal services buying power of each cent paid by 50 percent.
City Manager Miranda Lutzow has made references to pension costs being a concern in recent months although not during public council meetings. That is not an intended oversight as much as it is the current council didn’t make keeping tabs on escalating pension costs as much of a priority as their predecessors. It also doesn’t help that the finance department that is being reorganized has been without a finance director at the helm.
How pension funds
got into their current
financial condition
Thirteen years ago CalPERS was “super funded” at 106 percent of its outstanding pension liability. The investment returns went from 13.2 percent in 2013 up to a peak of 18.4 percent in 2014 and plummeted to 2.4 percent in 2015 and bottomed out at 0.60 percent in 2016 before starting to rebound.
A combination of factors sent CalPERS into a tailspin.
*There were multiple years when investments paid significantly less than was projected.
*CalPERS failed to respond quickly enough to investment losses made worse by a rolling 30-year amortization and asset smoothing.
*There are more retirees that are living longer.
*Agencies adopted enhanced benefit employees that used all future and prior service without charging the increase cost with employees.
Manteca got a bit ahead of most others after it took steps in 2017 to lengthen the amount of service of new employees in terms of how long they must work to qualify for pensions and increase employee contributions.
Sales tax proposal started
as search for money for
city recreation facilities
The current sales tax measure on the Nov. 3 ballot can be tracked back to a 2018 proposal to find ways to fund $80 million in recreational facilities such as an aquatics center, community gym, and additional playing fields.
A consultant the city hired indicated people responding to an initial survey wanted to see such facilities and were willing to pay for them. But by May in the third month of the pandemic a community survey showed voter stomach for increased taxes for recreational facilities waned in favor of maintaining and enhancing public safety and streets.
The council, in debating the tax measure, initially looked at a half cent hike. That, however, would have likely been eaten up almost entirely by rising pension obligations for the general fund by 2025.
The tax increase — if passed — would mean the revenues from other sources such as property taxes, the existing sales tax and Great Wolf room taxes that will bring in an estimated $2.6 million into the city’s general fund in its first full 12 months of operation won’t be decimated by rising pension costs.
At a cent, the city — assuming all revenue flat-lined — would also have an additional $6 million in new sales tax in 2025 from Measure Z if it passes after the rest of the $12 million Measure Z is projected to generate is absorbed by increased pension costs.
Crafted as a general sales tax increase without restricted spending means Measure Z requires only a simple majority approval on Nov. 3. If it had been restricted for specific expenditures such as roads it would have required a two thirds vote.
A restricted tax increase would not have generated funds that could be applied to rising pension costs unless specified. Even if the city did that, it would be an extremely tough sell to get voters to hike taxes to pay for existing pension obligations.
To contact Dennis Wyatt, email dwyatt@mantecabulletin.com
