Jul 4, 2008

Benefits put Atherton in red

Council eyes paying obligations now

By Banks Albach / Daily News Staff Writer

The city of Atherton is looking to pay off a $2.7 million retirement benefit deficit and save money on interest in the long run.

At a meeting Thursday, the city council crunched percentages, projected salaries and examined other figures that play into its growing deficit with the California Public Employees' Retirement System and came up with a simple - and expensive - answer: pay off the $2.7 million today and save about $600,000 over the next 10 years, or about $5,000 per month.

"We're paying more interest on the debt than we're earning in our reserve," Mayor Jim Janz said after the meeting. "Maybe the council can pay off some of this liability and save money in the long run."

CalPERS is servicing Atherton's $2.7 million debt at a fixed 7.75 percent interest rate. The city has a matching figure available in its savings, but is only earning 3.2 percent on a variable interest rate. The difference - which comes out to roughly $600,000 over 10 years - looks like lost money to some council members.

Incoming Council Member Jim Dobbie urged caution paying the whole amount off. The council should first determine whether it can spend that money in a better way, such as on capital improvements.

"Once we pay that off, we don't have that money," Dobbie said.

Atherton's situation isn't unique. Several other cities are facing similar debts, or what's commonly referred to as "unfunded liabilities." A recent report from the Public Employee Post-Employment Benefits Commission looked closely at the issue and made about 50 recommendations to cities in debt. The tip at the top of the list wasn't a surprise - pay off the balance as soon as possible.

Like any market-based account, economic booms and busts will affect a city's standing with CalPERS, which is part of why Atherton and scores of other cities are in the red. Between 2000 and 2003, after the dot-com bust, the retirement system saw lower than expected returns and even lost money one year, said Bill Yoemans, the city's acting finance director.

But the trend of boosting retirement benefits over the past 10 years is also playing a role. Most public safety workers, such as firefighters and police, can retire at age 50 with 3 percent of their salary per year of employment. In the mid-1990s, the rate was about 2 percent.

Besides saving money, the council has a duty not to burden future city councils and generations, Council Member Charles Marsala said.

The council took no action Thursday and plans to bring the item back for further study and discussion at a future meeting.



E-mail Banks Albach at balbach@dailynewsgroup.com.