As Gov. Jerry Brown chips away at California’s “wall of debt,” the city of Sacramento’s version keeps getting bigger. That’s troubling news for taxpayers.
City Treasurer Russ Fehr will report Tuesday night to the City Council that long-term unfunded liabilities grew by another $102 million in the past year and now stand at nearly $2.3 billion. Barring miraculous economic growth, that debt will hit taxpayers sooner or later, through higher taxes and fees or reduced services or both.
While the city avoided long-term borrowing for big projects during the recession, its outstanding debt for land, equipment and facilities still totals about $985 million.
That number will increase as the city borrows its share to build the new downtown arena – a bond issue of $280 million to $290 million to be repaid mostly from city parking meters and garages downtown. Construction debt could rise even higher if the city moves forward with proposals for a new performing arts venue and a convention center expansion.
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More than half of City Hall’s unfunded liability total is from pensions, retiree health costs and other post-employment benefits. There is a $1.2 billion gap between the projected bill and what the city has set aside, according to Fehr’s third annual report on the city’s 30-year debt.
While about 70 percent of the city’s pension plans are funded, the unfunded amount has jumped by $515 million since 2005, according to Fehr. That bill is coming due sooner because CalPERS has accelerated payments for local governments.
Even scarier is the situation with retiree medical benefits. Because only recently did the city start putting in cash for those costs, the unfunded liability is 99 percent and tops $450 million. The city is now budgeting about $11 million a year, but that’s $35 million short of what’s needed to keep up – money the city doesn’t have.
Fehr warns that paying off these liabilities is eating up a growing share of the city budget. “This is a real loss in flexibility and City Council discretion over future spending,” he writes.
For his part, City Manager John Shirey has been sounding the alarm over the “fiscal cliff” the city will confront when Measure U – the half-cent sales tax increase to restore basic services – expires in March 2019. The city could face a general fund deficit approaching $50 million by 2019-20. It’s a good bet that voters will be asked to extend the sales tax hike.
Council members, however, made the city’s fiscal state worse earlier this month by unanimously approving a new contract with firefighters that includes a cumulative 12 percent pay increase by December 2016 – raising the pay on which pensions will be based – and that continues giving retiree health benefits to newly hired firefighters, unlike all other city employees.
If they’re going to do that, the least council members can do is to be more forthright with the public about the enormity of the challenge facing the city. Maybe some will surprise us Tuesday night. Maybe Mayor Kevin Johnson will mention it in his State of the City speech Thursday night.
Debt is not a happy or exciting subject for elected officials, but ignoring it is irresponsible.