Some worry about the government’s unfunded pension liability, which is about $32 million. The unfunded pension liability is the difference between the benefits current employees have earned versus the amount of assets we have set aside with the state to pay for those benefits.Now that we're three-plus years into our 30-year mortgage, how is our balance looking?
We contribute about $4.4 million a year toward pensions, which is what CALPERS requires us to pay. If we make our annual contribution as required by CALPERS for 30 years, we’ll no longer have an unfunded pension liability. It’s like paying off your home mortgage in 30 years. We could pay off this unfunded liability faster, if we as a city wanted to prioritize that over other things. In fact, we contributed an additional $260,000 toward this unfunded liability at the end of last year. Prepaying this debt faster could be a future discussion topic for the Council.
From the city's just-released 2018 financial report:
No, Mayor Blakespear. Unfunded liabilities are not like a 30-year mortgage. 30-year mortgages have fixed payments and certain balances. Pension liabilities have unknowable (but almost always rising) payments, and the balances are merely estimates of an unknowable distant future. Balances depend on things like stock market returns and city salaries (which Blakespear and the council are increasing much faster than inflation). What's worse, the balances are estimated using politically-driven optimistic assumptions, such as that CalPERS will continue to earn 7% per year forever in a 2% - 3% interest rate environment.
The "pensions are like a mortgage" trope has been used repeatedly by government unions to downplay the severity of the pension problem. It's no surprise that our small-town mayor, who relies on and frequently praises the expertise of "staff," fell for it hook, line, and sinker.