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Pacific Grove staff outlines pension and capital shortfalls; council signals interest in pension trust and capital reserve
Summary
Finance staff presented projected deficits and long-term pension liabilities, proposed options for reserve design (pension trust, capital reserve, vehicle replacement) and recommended further council direction. Council asked staff to return with options including pension-trust startup and amortization scenarios.
Finance staff presented a broad review of the city's reserves, pension liabilities and capital needs and outlined options for establishing targeted reserves and other measures to reduce long-term costs.
The presentation, led by the finance director, summarized current reserve policies (general fund reserve target of 35%), projected near-term deficits driven by stagnant discretionary revenues and rising pension and insurance costs, and the city's unfunded pension liability (reported in the presentation as roughly $55 million in unfunded actuarial liability and about $61 million when combined with pension obligation bonds). The director noted, "Our expected liability plan payments are expected to go up pretty significantly over the next 5 years," and presented alternatives including setting up a pension trust, establishing a capital reserve for vehicle/facility replacement, and altering amortization schedules to shorten CalPERS liability terms.
Council members discussed trade-offs and priorities. Several members expressed support for creating a pension trust or similar mechanism, and for initiating a capital/vehicle-replacement reserve. Council members asked staff to model amortization scenarios (10-, 15-year options) and to return with recommendations on how to phase any new reserves, including an approach that would redirect part of any annual surplus to targeted accounts. Staff said the city could start a pension trust with a small initial deposit and that a trust would provide flexibility to invest for long-term returns and be used to offset pension payments if needed.
The presentation also highlighted that the city's general-fund reserve projection remains above the 35% policy in the near term but that built-in pressures (PERS, insurance increases, added positions) are pushing the five-year projection closer to policy minimums. Staff recommended that council provide direction on priority reserves and on whether to create a policy addressing the disposition of annual surpluses.
Ending: Council provided direction to staff to return with more specific options and modeling, including recommended reserve targets, a pension-trust startup plan, and amortization alternatives. No ordinance or budget appropriation was approved Wednesday; staff will incorporate the guidance into the May budget work and bring concrete options back to council.
