LA VERNE, Calif. — With future employee retirement costs expected to grow significantly in the future, La Verne, Calif., City Council members recently approved a three-year, multi-pronged plan expected to both reduce costs and generate revenue as the city prepares to meet its pension obligation.
City Council members approved the plan at their Feb. 5 meeting, said City Manager Bob Russi on Monday. With the plan approved, city staff can now begin putting the strategies in the plan into action, he said.
"The next step is to take that and roll it into the coming budget," Russi said, referring to the 2018-2019 fiscal year budget that begins July 1.
The combination of cuts and revenue-generating steps are expected to result in a savings of about $1.4 to $1.5 million, Russi said.
Cities across the state are facing significant costs associated with what is referred to as the unfunded actuarial liability for employee retirement expenses.
In La Verne's case, the unfunded liability totals nearly $50 million. The figure represents a gap between the retirement costs for current and past employees and the amount that the California Public Employees Retirement System currently has or expects to generate to fund those obligations, according to a city staff report.
City Council members reviewed the city's costs in a daylong meeting Jan. 11 where city administrators presented a series of strategies intended to both cut costs and generate revenue, a step necessary as part of pursuing a pension obligation bond that will be used to pay off the unfunded liability.
La Verne could pay the cost using a CalPERS developed 30-year payment plan that would include an interest rate of 7 to 7.5 percent, according to a city staff report.
Selling pension obligation bonds gives the city a means to secure the money it needs to pay off its pension costs in one lump sum and pay off the debt over the same 30-years at a lower interest rate, depending on the bond market, the staff report reads.
City staff will begin assembling a team that will handle preparations associated with the issuance of a pension obligation bond, Russi said. Once the necessary work and documents are drafted, the matter will be presented to the council for approval.
Parts of the plan to be carried out within the first year include implementing an annual business fire inspection fee; temporarily suspending general fund contributions to the city's capital improvement program; and selling a piece of excess property on Amherst Avenue. The land was acquired decades ago and was intended to be used for a reservoir but that land could not accommodate homes.
Other steps include contracting for street sweeping services with an outside company, a step that will require reassigning an existing city employee to different duties within the public works department, Russi said.
Some other steps involve La Verne's Fire Department and are drawing criticism from the La Verne Firefighters Association, which represents the city's firefighters, fire engineers and fire captains.
The plan calls for making three engineer/paramedic positions at the city's Station No. 3 Esperanza Drive into post filled with firefighter/paramedics taking the department from nine to six engineers and from 15 to 18 firefighter/paramedic positions. Russi said.
Firefighter/engineers would be reassigned to other engineering posts, he said. How those moves will take place will be addressed in July, Russi said.
Another change involves the bonus for firefighter/paramedics. La Verne pays a 5 percent bonus to firefighters who have paramedic certification who are not assigned to staff an ambulance. Those who are assigned to an ambulance receive a 15 percent bonus. Under a 2014 agreement between the city and the Firefighters Association, the city can roll back the 15 percent to a 5 percent bonus if a firefighter/paramedic is not assigned to an ambulance. This move would affect six firefighter/paramedics.
"We haven't exercised that" provision, Russi said. "Now we're putting it in place."
To meet operational needs, the city needs 12 firefighter/paramedics, Russi said.
The changes are an attempt to save money but hurt the affected firefighters and the public,said Caleb Mason, an attorney who represents the association.
If the city can't afford its own fire department then city leaders "should look at all the options," Mason said.
That would include seeking information to determine if it's more cost-effective for the city to contract with another fire agency for services, an idea the City Council turned down, he said.
"That's not a healthy way to manage public safety," Mason said.
Mayor Don Kendrick said the city is working to find a way to meet its pension obligation and at the same time "find a way to maintain the services that residents expect."
The plan and the use of the pension obligation bond provide a means of addressing those needs, he said.