Although the economic downturn hurt our city as it did all government agencies, Laguna’s current financial situation has stabilized. Per the latest budget, we have about $22 million in the bank (albeit mostly earmarked for contingencies, maintenance, and specific capital projects), no long-term debt, and a positive cash flow projected for the next two years.
Two events threaten this stability. On June 11, the City Council voted to proceed with plans for the village entrance. This project would drain $15 million from the city’s coffers, and commit to roughly $2 million per year in added net expenses for the next 25 years ($2.1 million in debt payments on a bond and between $140,000 and $175,000 in operating and maintenance, mitigated by an assumed $300,000 in added parking fees.) The proposal fills the $2 million hole with a $1 / hour increase in metered parking rates.
By draining our cash reserves, and by taking on $29 million in debt, this proposal would leave us exposed to unexpected financial shocks. Unfortunately a huge shock has just landed. CalPERS announced starting July 2015 it will begin a seven-year phase-in of a 50% increase in retirement contributions. Laguna will be hit hard. How hard?
According to the city budget, in the year just prior to the beginning of the phase in, Laguna will contribute a touch over $7 million to CalPERS. They haven’t announced how the phase-in will work, but assuming a linear progression, Laguna’s retirement costs will increase $500,000 in the first year, rising to $3.5 million by year five. But there’s worse; that would assume no pay raises, no added employees, and no other retirement increases for seven years. That seems unrealistic. The current proposed budget projects between the actual FY 2011-12 to the proposed FY 2014-15, salaries increasing at 2% a year and retirement expenses rising 6% a year. If these trends continue, the eventual increased CalPERS payment will rise by over $5 million during the phase-in and will continue rising at 6% a year thereafter. I would hate for the city to have to face these annual bills having already exhausted our best financing resources on a parking garage.
Prudent management dictates the City Council move immediately to investigate this issue. Specifically, I urge the council to direct the city manager to:
1. Prepare a financial analysis of how Laguna will meet the financial burdens expected from the recent CalPERS decision.
2. Suspend all expenditures related to the village entrance until such analysis is complete.
3. Upon receipt of such analysis, review the village entrance and all budget projections in light of the new financial realities created by the CalPERS order.
I plan to attend the next City Council meeting on Tuesday, Aug. 6 at 6 p.m., not in anger, but to ask these questions and to offer whatever constructive advice I may provide. I would be pleased to see other concern citizens there too.
Tom Halliday, Laguna Beach