Lake Forest is doing what many cities aspire to do — it’s paying off its unfunded pension liabilities. The move is estimated to save taxpayers $3.4 million in interest costs over 30 years. “The cou…
Lake Forest is doing what many cities aspire to do — it’s paying off its unfunded pension liabilities. The move is estimated to save taxpayers $3.4 million in interest costs over 30 years.
“The council voted 4-0-1 on Tuesday, Sept. 19, with Councilman Dwight Robinson absent, to authorize a lump-sum payment of $2.45 million to the California Public Employees’ Retirement System, which it contracts with to provide pension benefits for the city’s retirees,” the Register reported.
This is the second time the city has had to do this, though.
“In November 2015, the city authorized a payment of $3.7 million to pay off unfunded pension liability as of Aug. 31,2015,” the Register noted. “Along with that authorization, the city established a CalPERS stabilization irrevocable trust with an initial deposit of $1 million.”
The need to do it again was caused by CalPERS recently lowering its invest return assumptions to more realistic levels, requiring cities like Lake Forest to pick up the difference. But, as we have observed in the past, paying off the tab now will save the city interest costs in the long run.
But Lake Forest is lucky: The city possesses that rare combination of being relatively new, being relatively small and being a relatively wealthy city. That means its pension liabilities will remain small in comparison to larger and older cities. But that doesn’t mean that these obligations can’t grow beyond a manageable level — and fast.
Earlier this year, when Newport Beach put an extra $9.1 million toward its pensions, the Register noted that the city’s pension debt “was $2 million a decade ago, and is expected to reach $353 million by next year.”
And other California cities aren’t as lucky. Unfunded pension liabilities remain a major cause for concern across the state. According to the State Controller’s Office, the unfunded liability of California’s public pension plans surpassed $234 billion in 2015, the most recent data available.
Yet, many still seem to think government debt doesn’t matter — until it does. Pension-fueled insolvency in the cities of Stockton, Vallejo and, closer to home, in San Bernardino, prove that spending and debt have consequences.
We wish those cities had the foresight of Lake Forest.
