Could Gov. Brown's pension proposal help Central Coast cities?

May 17, 2017

Some Central Coast cities are facing budget deficits in the coming years partly due to large public employee pension liabilities. This week Morro Bay officials held a budget study session to start planning for cuts. 

“Without significant increases in revenue, the city’s new [pension] contributions will require a cut of around $1.3 million in services and programs over the next seven years to maintain a balanced budget and appropriate financial reserve,” Morro Bay City Manager David Buckingham wrote in his initial staff budget proposal.

The Brown administration has plans for an innovative money swap that could pay off billions in pension debt over the next two decades, but nonpartisan analysts say the proposal isn’t fully cooked. 

The plan would borrow $6 billion from this treasury fund that’s essentially the state’s main checking account—it’s holding tens of billions of dollars, but doesn’t earn much interest. State finance director Michael Cohen says CalPERS, the state's public employee pension system, can invest that money at a much higher rate of return and it’ll reduce the state’s pension liabilities. 

“We’re able to lower our long-term contribution rates by an average of 2.1 percent of payroll, that’s savings of 11 billion dollars over the next number of years,” Cohen said. 

The state would spend more than $400 million dollars this year, the first of about eight years of payments for the loan. But a report from the state’s Legislative Analyst’s Office says the Brown administration hasn’t conducted fiscal or legal reviews that would typically accompany such a complex financial maneuver. Nick Schroeder co-authored the report. 

“It’s possible that the state can get savings from this proposal. In fact, we think it’s probably highly likely, but really there just needs to be more analysis done,” Schroeder said.  

And the clock is ticking. Lawmakers and the governor have less than a month to agree on a budget.

KCBX's Greta Mart contributed to this report.