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FAQs on City Budget and Spending

Post Date:10/05/2018 10:29 AM

Measure N on the November 6, 2018 ballot will ask voters in South Pasadena to repeal the City’s Utility Users Tax. A “yes” vote on Measure N is to eliminate the tax; a “no” vote is to retain it. A repeal of the tax would cut $3.4 million from the City budget and force significant service cuts and layoffs in nearly all City departments, as indicated in previous fiscal impact analysis. Measure N has raised questions in the community about the South Pasadena budget and spending priorities. The following FAQs are intended as information to address those questions.

Has the City’s general fund spending increased in recent years?

Yes. In 2011, the City Council made a strategic decision to increase its investments in critical infrastructure such as street repairs by spending some of its reserves for this purpose. The City’s general fund has indeed seen a cumulative increase of $4.4 million due to an increase of $3 million in property tax revenue, and increases in sales taxes and service fees, in the seven-year period following 2011. The City’s spending increased by a cumulative total of $9.5 million over the same seven years, which included spending reserves for the purpose of investing in critical infrastructure improvements that reflected strong community demand for street repairs and maintenance.

In 2011, the City Council made a commitment to improving, rehabilitating, and replacing its aging infrastructure. At that time, the overall street condition in the City was measured with a very low Pavement Condition Index (PCI) score of 61 (on a 100 point scale). The backlog of street repairs citywide was estimated at $60 million.

Beginning in FY 2012-13, annual appropriations for street and sidewalk improvements averaged $2 million a year from General Fund reserves. In total, the City has spent over $11 million to fund street projects out of the City’s General Fund since FY 2012-13. The additional General Fund spending was the direct result of these infrastructure investments.

Did the spending increase due to employee salaries and benefits?
No. Increased spending between 2011 and 2018 was because of transparent and strategic decisions to invest in infrastructure projects -- not to pay or enhance employee salaries and benefits.

In fact, South Pasadena employee salaries and benefits have been and continue to be among the lowest in Southern California.

A recent survey showed that South Pasadena salaries fall below the median salary of adjacent cities. The median annual salary for all full-time employees is $68,184. The City did not increase wages or provide a Cost of Living Adjustment (COLA) as part of the approved labor contracts for 2018 and 2019.

Further, a survey conducted in 2017 indicated that South Pasadena employees receive among the lowest total benefits for medical, dental and vision insurance when compared to other public agencies in the region.

The City offers the lowest retirement formula permitted by CalPERS. For classic members, the City offers the lowest of six retirement formulas for miscellaneous employees (2% @ 55) and the lowest of eight retirement formulas for public safety employees (2% @ 50). Over the years, this results in significantly lower financial liabilities for the City when compared to many neighboring cities that offer higher retirement formulas. By comparison, the industry standard is 2.5% for miscellaneous employees and 3% at 50 for public safety employees. Some cities pay as high as 2.7% at 55 for miscellaneous employees.

The number of employees also impacts municipal pension costs. The City’s number of staff per capita is roughly half of that for larger cities such as Pasadena. There were no increases in the number of employees in the adopted budget for FY 18-19, and in the last five years only three full time positions were added, all of which were conversions of existing contract employees to City employees.

Finally, South Pasadena employees pay 100% of the employee’s contribution for their defined benefit retirement plan. In the past, it was common for cities to pay both the employer and the employee contributions. South Pasadena has shifted all of the employee contribution costs to the employee.

What about future pension costs? 

The City has implemented all feasible pension cost reduction strategies available under the law.  The significantly rising costs faced by cities are a result of policy changes and investment decisions made at the State level by the CalPERS Pension Board.

CalPERS’ investments suffered greatly from the economic recession that began in 2008, when the system suffered a gross impact of nearly 35% loss to its investment funds. As a result, CalPERS has become much more conservative in its estimates of return, and has shifted policies to account for longer lifespans among retirees, fewer active/working members in relationship to the number of retirees, and other factors. The financial impacts are not limited to South Pasadena; cities across the State are struggling to comply with the new demands.]

In the future, pension liabilities will be reduced as a result of pension reform at the State level.  The California Legislature took a significant step to lower future pension costs with the California Public Employees' Pension Reform Act (PEPRA), which took effect in January 2013. The legislation changes the way CalPERS retirement and health benefits are applied and places compensation limits on retirees. Under PEPRA, retirement formulas are further reduced and the retirement age increased. 

Could the City leave CalPERS in favor of a 401(k)-type plan for employees?

Terminating its contract with CalPERS will trigger a termination fee imposed by CalPERS that would increase pension costs substantially. Upon termination, the exiting agency is required to prepay all contractual future pension obligations, which are determined by a CalPERS actuary.  This is like accelerating all the payments that would ever be due for all current retirees’ and existing employees’ retirement pensions and requiring the existing city to pay that amount up front. South Pasadena would be subject to extremely high fees that would make an exit from CalPERS unfeasible.

Could a City require new hires to accept a 401(k) type plan, in lieu of CalPERS?

No, the City has no authority under its agreement with CalPERS to unilaterally determine that new hires cannot participate in the CalPERS retirement system.