The beachside town of Santa Cruz, California (pop. 64,465) is grappling with a very sick pension program - despite several measures aimed at keeping it solvent.
As a flood of retiring city workers began put significant strain on already-rising pension liabilities, Santa Cruz followed the recommendation of the League of Cities and other authorities - issuing a bond to try and ease their own fiscal sinkhole, along with increasing demands from the California Public Employees Retirement System (CalPERS).
Santa Cruz, just a 20 minute drive over Highway 17 from, Silicon Valley, also shifted some employees into lower-benefit pension plans and hiked employee contributions into the plan.
In other words, not what city employees signed up for...
And yet - the city's pension system is now on life support, declaring a fiscal emergency in February - which will just ease the pain, as the city prepares to place a quarter-cent sales tax increase on the June ballot.
City Finance Director Marcus Pimentel said that increased sales tax revenue from the proposed ballot measure will not eliminate projected city general fund deficits slated to reach as high as $23 million by 2022, but rather serve to reduce them. Pimentel cited the following causes for the projected deficit: a drop in tax revenue, state pension investment shortfalls, increases to core city costs and infrastructure decay. -Santa Cruz Sentinel
"...our biggest challenge is the skyrocketing increases in health and retirement costs," says City Manager Martin Bernal. "These costs have gone from 28 percent of general fund salary in 2004 to 43 percent of salary in 2015, to an anticipated 58 percent of salary in 2020."
Despite the generally upbeat economy and Santa Cruz home prices hitting all-time highs, city operating costs continuing to outpace revenues - particularly for pensions, city officials projected budget deficits ballooning to over $20 million per year in less than two years.
Of course, absurd retirements such as Santa Cruz City Manager Dick Wilson's $217,056 annual pension doesn't help either... But hey, that's the utopia known as California, which is headed towards becoming the "great while it lasted" state.
Meanwhile, Santa Cruz isn't alone when it comes to California cities in financial peril. Throughout the state, city governments are facing budget shortfalls, while CalPERS has been hiking mandatory contributions to try and make up for it's $100 billion shortfall created during the Great Recession - and which has not fully recovered. In fact, CalPERS needs to double in value to meet its funding obligations after an 8.25% projected return failed to materialize.
“We’re in a brave new world of public finance and our community values its municipal services and we do want to be able to fulfill those expectations,” said Santa Cruz Councilwoman Cynthia Mathews during the declaration of the city's fiscal emergency.
That's nice - but the city's meager ballot measure will still only generate $3 million per year - coming nowhere near the additional $9 - $11 million the city says it's paying to cover CalPERS shortfalls, and just 15% of what's needed of the city's $20 million projected annual deficit.
And this is during the "good times"... What happens when the tide really turns?