Retirement fund losses spur city’s budget pains
Economic forecasts released Tuesday predict the City of Santa Monica will face increasingly worse budget cycles for at least the next two years.
A series of bad investments by the California Public Employees' Retirement System will drive up the amount the city must contribute toward its workers’ retirement.
CalPERS lost its shirt in the stock market when the economy took a nose-dive into the recession last year. Instead of making interest on its investments as it had predicted, the pension fund actually lost money.
And CalPERS will be lucky to break even on this year’s investments, even though it had predicted an 8.25 percent return.
But CalPERS bases the amount municipalities pay into the retirement system on figures from the previous year’s budget, meaning the effects from those disastrous investments won’t come due until July 2003.
When the economy was strong, the payments the city made to the retirement system decreased by several million dollars. In 1999 the city paid CalPERS $10.2 million while this year it anticipates paying $8.54 million.
However, Mike Dennis, director of the Santa Monica’s finance department, said the city estimates those annual payments will increase by $2.6 million to roughly $11.2 million by the middle of 2003.
“We won’t have the exact figures until next fall,” Dennis said. “But it’s highly likely the rates we are currently paying will significantly go up.”
CalPERS provides retirement and health benefit services to more than 1.3 million municipal and public employees and nearly 2,500 public employers.
Unfilled hotel rooms and unsold merchandise in 2001 led to the first decline in tax revenue for the city in more than a decade. The shortfall has produced one of the most severe budget shortages in Santa Monica since the recession of the early 1990’s.
The city council began a series of detailed budget hearings Tuesday night to discuss the depth to which city services and departments will be cut. City staff have recommended a series of $23.1 million in reductions as part of next year’s $387.3 million budget.
While each department head was asked to come up with a 2.5 percent reduction in their operating costs, the bulk of the city’s proposed savings will come from deferring capital improvement projects.
City officials have asked council members not to enter the city into any new long-term obligations — like creating new services — and to consider how they want to increase the amount of money the city brings in each year.
However, the proposed budget is not cast in stone and the city council can still make changes.
“I wouldn’t say that we don’t want to create any more services,” Councilman Ken Genser said. “We may want to enhance programs in areas of public safety, where we are having some acute problems, but then that means we have to choose to cut something else — what exactly I don’t know.”
The council does not necessarily have to raise local taxes or increase the city’s levy on occupied hotel rooms to make up for the shortfall, Dennis said. Instead, he said the city could increase fees on things like street meters and parking tickets.
“We are looking hard at all of these variables, and if over the next two years things do not improve, we will have to look at those possibilities more seriously,” City Manager Susan McCarthy said Tuesday.
Another complication for the city council is finding more money to support the Santa Monica-Malibu Unified School District and its multi-million dollar deficit.
Currently, the city donates $3 million annually to support the school district. However, this year school officials have asked for an additional $2 million to help balance their books without having to make significant cuts.
“Even though its not a legal responsibility of the city, it’s a program many residents expect to be fully funded and we need to work with the school district as a team to solve that issue,” Genser said. “ We have to help fund schools. The city has stepped up to the plate but we need to do more.”
Originally published in the Santa Monica Daily Press print edition on May 30, 2002. Read the original PDF.