Mayor: Pension Reserve Fund Should Not Be Delayed

Reform Necessary to Better Protect Neighborhood Services From Volatile Pension Costs

San Diego - Mayor Kevin L. Faulconer released the following statement on the vote by the City Council's budget committee delaying the creation of a Pension Reserve Stabilization Fund:

"San Diegans have seen firsthand how volatile pension costs hurt neighborhood and infrastructure services, but today's vote ignores that painful history and unnecessarily injects uncertainty into the City's ability to continue making big investments in streets, parks and other programs. Next year's pension payment is projected to be millions more than expected, so delay is not an option. Putting away money specifically to protect neighborhood services when pension costs unexpectedly balloon, and setting a policy to do so every year, is the right thing for our communities. I will continue to push for the City Council to adopt this proposal."

The annual pension payment fluctuates year-to-year based on investment returns and other factors. The San Diego City Employees' Retirement System had previously projected the City would owe $248 million in the upcoming fiscal year, but that number is expected to increase by $6 million or more because of investment losses and a potential lowering of the assumed rate of return.

Mayor Faulconer has proposed setting aside $21 million in budget surpluses to create a Pension Stabilization Reserve Fund. The fund would act as a safety net for the operating budget when pension costs go up (such as when investment returns are lackluster). The City would be able to use the reserve to help cover the increased cost instead of cutting neighborhood services to make ends meet as it did during the recession.

The $21 million for the Pension Reserve Stabilization Fund is equal to 8 percent of the City's average annual pension payment over the last three years, which was $264.4 million.

By having a reserve fund, the City is able to plan ahead and reduce the likelihood that it will have to make cuts to neighborhood services or public safety in years when the pension payment unexpectedly balloons. For example, the pension payment jumped by $75 million - from $154 million to $229 million - after the recession hit in 2008. The City was then forced to make cuts to close a massive budget deficit, including to library hours and police and fire services.

CONTACT: Craig Gustafson at (619) 453-9880 or [email protected]