Foster City leaders back a plan to keep a high reserve and prepay $20M to CalPERS to reduce pension costs

Finance staff presented a multi‑year forecast and a comparative review of reserve policies across nearby jurisdictions. The director explained Foster City’s unusually large reserve balance relative to other cities and argued that some of the excess could be redeployed for higher‑priority, one‑time needs without compromising fiscal stability.

He proposed a $20 million one‑time prepayment to CalPERS to reduce the city’s unfunded actuarial liability (UAL). Finance staff illustrated that an immediate $20 million payment could reduce long‑term pension payments by tens of millions over the amortization period and produce an estimated $34.6 million in gross savings over the next two decades, while still leaving the city with a strong reserve balance. Council members debated reserve targets and buckets—suggesting a 35% emergency reserve plus a 15% stabilization fund as an alternative—but collectively agreed to move forward with staff to formalize the $20 million prepayment recommendation and to return with implementation steps.

The director also recommended switching to a biennial budget cycle to free staff time to focus on capital planning and produce more accessible public budget materials; several council members supported testing a two‑year schedule in the next cycle.

Why it matters: pension liabilities are the city’s largest long‑term fiscal exposure. A prepayment reduces future required pension payments and can free recurring budget capacity. Changing reserve policy and budget cadence would be a policy choice that affects the city’s fiscal flexibility and capital program.