LA VERNE, Calif. — City administrators in La Verne will pursue multiple strategies — some meant to cut costs while others are designed to generate revenue — as part of a plan to pay off nearly $50 million in employee pension costs.
La Verne City Council members, who met in a day-long special meeting Thursday at University of La Verne, listened to presentations given by City Manager Bob Russi and various department heads on the various options available, some of which can be set in motion relatively quickly and others which require greater study before they can be pursued.
At the top of the list of tactics, to address what is referred to as the city's unfunded actuarial liability, would be the sale of pension obligation bonds.
"Pension obligation bonds are not adding liability. They are refinancing a liability we already have," Russi said at the end of the meeting.
La Verne, like many other cities across the state, is looking for ways to fund employees retirement costs. Since 2007 the California Public Employees Retirement System, or CalPERS, has been changing the manner in which it calculates the amount cities must pay to cover employees' retirement costs, according to a city staff report on the city's retirement system.
Based on a CalPERS report, the city estimates costs growing an average of $625,000 a year for the next six years, the staff report reads. Costs are expected to peak in the 2032-2033 fiscal year when annual costs are expected to exceed $11 million.
Projected revenue growth and city reserves will not provide enough to meet the expenses, the report said.
CalPERS has developed a 30-year payment plan for the unfunded liability that would include an interest rate of 7 to 7.5 percent.
By selling pension obligation bonds, the city can secure the money to pay off the pension costs in one lump sum and pay off the debt over the same 30-year-period at a lower interest rate of about 4.5 percent, depending on the bond market, according to the staff report.
That brings the city's debt down to somewhere between $3 million and $3.5 million annually, Russi said.
The city's general fund, which covers most expenses including employee wages and services such as library services and public safety, could absorb about $1.5 million of that debt but the city must still come up with the balance, Russi said.
City department heads have spent the last six months developing a series of options that could help achieve that goal. Among the shorter term options is the implementation of an annual business fire inspection fee, contracting out street sweeping, temporarily suspending general fund contributions to the city's capital improvement program and possibly selling a piece of property acquired decades ago for construction of a reservoir.
Longer-term options include adding a franchise fee to waster hauler contracts and reducing tree trimming maintenance contracts. Another possibility could involve working with neighboring cities to establish a regional public safety communications center which would reduce public safety dispatch costs.
The city's strategy would also involve beginning to set aside dollars that could be used to cover future increases in pension costs, which Russi said, would very well result should CalPERS make additional changes in its pension cost calculations.
Mark Alvarado, a consultant who has been working with Russi to develop a strategy to address the pension expenses, told council members the city could be ready to go to the bond market in about four months.
But Russi said the goal would be to have sold the bond before the end of the current fiscal year, which ends June 30 and have the pension debt paid by July 1.
Councilman Tim Hepburn said the idea of refinancing the retirement debt over 30 years doesn't appeal to him "but it's the best alternative."
Councilman Muir Davis said securing a bond provides a lower interest rate to work with and offers some certainty in addressing costs.
"It gives us a nice level playing field," he said. "I think this is a wise idea."
Russi said a plan with all the idea discussed will be put in writing and presented to the City Council next month for approval.