Courtesy of The Island of Alameda

With little money in the piggy bank, Alameda is struggling to fund pensions

The numbers that crossed the screen looming over the dais in City Council chambers last Tuesday night were staggering: unfunded pension costs of $176.5 million and climbing, driven by investment losses of 24 percent in 2009 and the city’s running failure to pay more than the minimum balance on what’s due.

Annual pension benefits for Alameda’s youngest public safety retirees are now into the six figures, lifted by longer life expectancies, wages that have more than doubled since 1994 and a pension benefit that earns them three percent of their top wage for every year served.

“We can’t duck this any longer,” Councilman Frank Matarrese said in an interview Friday. “We have a lot of catching up to do.”

The council is set to begin working out a plan to cover its unfunded pension costs during a budget workshop Thursday. Council members have the daunting task of figuring out how to pay for skyrocketing pension costs that, in the absence of a gravity-defying market turnaround, threaten to swallow Alameda’s budget whole.

Alameda is far from alone in facing a crisis over pensions. Vallejo famously declared bankruptcy in 2008 in an effort to get out from under its high personnel costs and unfunded retiree health care obligations of $135 million. And a grand jury in San Diego recommended that city consider doing the same, to lift unfunded pension costs of $2.2 billion and retiree health care costs of $1.3 billion.

Others are considering different solutions. The city managers associations of Alameda and Contra Costa counties released a white paper in February that recommended cities consider reduced benefits for new employees and increased benefit payments from those in the existing system.

Like many cities, Alameda sweetened its pension offerings when economic times were good in an effort to attract top talent, allowing public safety workers to retire at age 50 with 3 percent of their top wage for each year served. Public safety employees also get retiree health benefits that cover any health care plan they choose for themselves and their spouses. Alameda’s unfunded retiree health care costs would add another $75.4 million to the pension amount if the city had to write a check for them today, the same amount of money the city budgeted to cover all of its general fund programs this year.

The city’s other employees can retire at age 55 with 2 percent of their top wage for each year. Their pensions are much smaller because they typically serve in more than one city, spreading those costs out, while public safety workers typically stay in a single city, said John Bartel, the city’s actuary, on Tuesday.

Bartel told the council that they should start paying more into CalPERS than the retirement system requires.

“To be perfectly honest, I don’t know where we’re going to get the money from,” Councilwoman Marie Gilmore said during an interview Friday.

Bartel also recommended creating a two-tiered system that would offer a smaller pension benefit to new employees. But council members noted that even under the most liberal scenario, the savings generated by such a system would be a drop in the bucket. Bartel’s analysis showed that setting up a two-tiered pension system would save the city less than $1.2 million a year by 2020.

“It’s a savings. But it’s not your saving grace,” Vice Mayor Doug deHaan said Friday.

Domenick Weaver, president of Alameda’s firefighters union, said he thinks the city should adequately pre-fund its pension obligations.

“Had the City initiated its own policy of pre-funding in the good years, it may have minimized the negative impacts of the fluctuations on the bad years,” Weaver said. “The CalPERS system is one of the most fiscally sound models in the world, and the city needs to work with its employees to protect their shared investment in that system.”