Spiking Pension Costs Squeeze San Diego Budget
The city of San Diego's projected budget shortfall for the next fiscal year has ballooned by nearly $10 million because of new data from the municipal employees' pension system, financial management staff reported Tuesday.
The looming deficit could force spending cuts or delays in implementing new projects and initiatives.
In a report issued two months ago, city officials estimated that they would have to close a $37 million gap between revenues and expenses when budgeting for the fiscal year that begins July 1.
Staff told members of the City Council that the initial projection was based on the most recent figures available at the time from the San Diego City Employees Retirement System, which reflected a valuation as of June 30, 2015.
An updated valuation — for June 30, 2016 — has since become available, and the city's contribution to the pension system that will come from the general fund will rise by $9.7 million. That pushes the budget shortfall for the city to around $47 million.
"It's definitely a challenging situation that we're in," said Councilman Chris Ward, who is just beginning his first term on the panel.
Barbara Bry, who also just joined the council, called the news "very sobering."
In the current fiscal year, the city's general fund — which pays for basic services like public safety and recreation centers — contributed around $191 million to SDCERS.
Because the pension system's investments didn't perform up to expectations, and changes to actuarial assumptions by the SDCERS board, that figure was expected to rise by around $36 million for the next fiscal year, to nearly $228 million.
The new estimate, which is scheduled to be presented to the SDCERS board for review on Friday, projects the city's general fund contribution to be $237.6 million. Because some self-funded departments, like water, also contribute to the pension system, the total city payment is expected to be $261.3 million.
City staff have made several suggestions to reduce the impact on the general fund, including spending reductions for city departments and slowing down the planned increase in the amount held in reserves.
Financial staff said the city might end the current fiscal year with an extra $20 million or so, which could be applied to next year's budget. Also, the City Council previously placed $16 million in a new pension reserve account in anticipation of higher-than-expected contributions.
However, the city financial outlook issued in November took a bare-bones approach to reaching some of the bottom-line projections, and separately listed some programs considered to be of high priority. Those items, including replacing city vehicles, fire station costs, replacement of the San Diego Police Department's antiquated computer-aided dispatch system and others, could be in danger with the updated figures.
The city is required to issue a balanced budget each year. Mayor Kevin Faulconer is scheduled to release his proposed spending plan for the next fiscal year in mid-April.