* Accounting changes aim to fully fund Calpers in 30 years
* City group concerned about dramatic rate increases
* Changes seen positive for state finances
By Jim Christie
SAN FRANCISCO, April 17 The board of
California's $255 billion public pension fund on Wednesday
approved accounting changes requiring state agencies, cities and
counties to pay rate increases of up to 50 percent in a plan to
fully fund the pension system's obligations in 30 years.
The changes at the California Public Employees' Retirement
System, known as Calpers, overhaul its so-called smoothing and
amortization of assets and will be used to set contribution
rates for public employers in the state beginning in the 2015-16
While employers' pension spending will rise dramatically,
the new policy will help avoid large rate increases in case of
future financial market slumps and bolster the pension fund's
Anne Stausboll, Calpers' chief executive, told the fund's
board before its vote that the revisions were one of the most
important initiatives facing the retirement system.
Rating agencies and the $3.7 trillion U.S. municipal debt
market should view Calpers' move to become fully funded as a
positive development for California's finances, Tom Dresslar, a
spokesman for State Treasurer Bill Lockyer, said.
"It makes the accounting sounder, puts the system on more
stable financial footing," Dresslar said. "We think the credit
rating agencies will acknowledge that. ... It definitely should
improve our standing in the market."
In California, local officials said rising pension expenses
will be difficult to face, but the accounting changes will work
in their favor if they make Calpers' finances more stable.
"It's tough, tough medicine," said Rod Gould, city manager
of the beachfront city of Santa Monica, which adjoins Los
Gould said some local governments with wobbly finances could
be pushed toward insolvency, and many others on better fiscal
footing will have to put on hold plans for reviving or expanding
services in order to make higher payments to Calpers.
"A lot of our folks are saying that full funding of the
system is the right thing to do, but these increases are
dramatic," said Natasha Karl, legislative representative for the
League of California Cities. "Something of this magnitude should
have involved greater vetting by cities and other stakeholders."
Local governments contracting with Calpers -- contracts are
unique to each municipality -- were already expecting to pay
more from July after the fund last year lowered its assumed rate
of return to 7.5 percent from a longstanding level of 7.75
percent, making the shortfall appear higher.
Two sizeable California cities, Stockton and San Bernardino,
filed for municipal bankruptcy last year, raising concerns that
other cash-strapped local governments in the most populous U.S.
state could follow their example. Pension spending is a major
financial issue for both cities.
Moody's Investors Service on Wednesday placed the ratings of
29 U.S. local governments and school districts under review as
part of its new approach to analyzing public pension
liabilities. Included in the review were Chicago; Cincinnati,
Ohio; Minneapolis, Minnesota; and Portland, Oregon. No
California cities were in the review.
Illinois, which has skipped or skimped on pension payments
for years, has the nation's worst funded states pension system.
GETTING TO FULL FUNDING
Calpers staff said in a report urging the accounting changes
that without alterations, the retirement system faced a 26
percent to 34 percent chance of seeing its funding level fall
below 40 percent over the next 30 years.
Calpers is about 70 percent funded, up from about 61 percent
during the 2007-2009 recession.
The value of Calpers' assets is near a peak of about $260
billion set in October 2007. The worth sank to about $160
billion during the financial crisis, prompting a hard look
within the fund for ways to mitigate investment risk and address
While the new accounting at Calpers will add strain to
municipal budgets, it marks a "huge step in the right direction"
for the fund, said Joe Nation, a former Democratic member of
California's Assembly who has been warning about rising public
pension costs in recent years.
"It'll be difficult for cities, counties and special
districts, but they'll be better off in the long run," Nation
said. "If you pay more now, you'll pay less later."
That also applies to state agencies, the reason Democratic
Governor Jerry Brown's administration supported the new
actuarial policies, said Richard Gillihan, a program budget
manager at the state finance department.
Gillihan said Calpers' new policy is a form of debt
reduction for the state: "The decision really is pay now or pay
more later. ... It's sort of like a home mortgage. The longer
you string it out, the more you pay on it."
Finance Department spokesman H.D. Palmer said the new
Calpers policy is "one of many steps we believe are needed to
take to get the state on a long-term path to fiscal stability."