Pension Problems: Santa Cruz, CA

I was scanning through Pension Tsunami and came across a couple articles on Santa Cruz and their pension problems. I happened to spend a couple months up in Santa Cruz and so have an interest in the area. I decided to read the articles.

First up is the Sacramental Bee that uses the word "clobbered" in the headlines. As with many cities, health and retirement costs are a growing part of the budget. The article mentions that as a percent of general fund salary it has grown from 28% in 2004 to an estimated 58% in 2020. That's a touch above a double.

To me, the following is the killer quote:

With operating costs, particularly for pensions, continuing to outpace revenues, even during a generally upbeat economy, city officials projected budget deficits growing to more than $20 million a year by 2021.


A lot of this is driven by the fact that CalPERS is requiring cities to contribute more to the fund. Yet, it is still worth noting that even though we've spent years with a growing stock market, pension funds are still under-funded. It would imply, to me, that pensions are too generous.

To deal with this pension problem, the city plans to put on the June ballot a proposal to increase the sales tax by a quarter-cent. It should be noticed that the city is putting this on the June ballot versus the November ballot. I suspect because city employees and retirees will be a larger percent of the voting public at that time.

And then there's this sneaky quote:

However, cities rarely cite pension costs as the specific reason for the tax increases, because doing so might generate more opposition. Typically, they just say the money is needed for “police and fire services,” which is a half-truth since police and fire pensions are the biggest drivers of rising retirement costs.

Then there's the Santa Cruz Sentinel, which provides a hometown view. The quarter-cent sales tax would generate $3 million per year and would help deal with a budget deficit that is expected to hit $21 million by 2022.

Here's an interesting quote:

Pimentel, the finance director, also has cited steadily increasing health care premiums, projected shrinking tax bases due to online sales, annual employee cost increases, increasing maintenance and emergency capital work and a minor economic slowdown forecast for 2020.

One has to give it to Santa Cruz for planning for a recession. And there's the Amazon effect.

The article also mentions that the city sees pension costs starting to decline between 2024 - 2026. Well, let's see if Wall Street doesn't go into a serious bear market between now and 2026 (though admittedly they do have a planned slowdown in 2020, but I do wonder if that includes that a slowdown might require CalPERS to require even a greater pension contribution).