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New SLO Manager Deals Pension Costs

Derek Johnson had been on the job barely ten days as the City of SLO’s new city manager when he sat down for half an hour to discuss what he’s planning to do about the City’s $148 million public employee pension debt.

While the first meeting between a newly appointed City leader and a local journalist usually focuses more on goals that led one to apply for the job, or a little taste of personality for the public, the rising pension costs that had loomed in some corner of public consciousness for several years now took on the aura of a crisis with the start of the month.

On Oct. 5, residents gathered at Ludwick Community Center got front row seats to the launch of a public information campaign for the City’s new Fiscal Health Response Plan that came with the announcement that nearly $9 million per year will soon have to be found somewhere in the budget to send to CalPERS – the California Public Employees’ Retirement System.

“We’re talking about it now because we have an obligation to be proactive,” said Johnson, adding that, even though the expected increase in demands from CalPERS has been known since December 2015, he hasn’t seen any of the other affected cities address the situation yet. “This plan is getting started now to deal with some very complicated political, financial and legal issues.”

The SLO City Council will officially be asked to provide direction on the plan in November, but they’ve only got until June 2018 to adopt a budget that will set things in motion through 2020.

Johnson’s history with the City has left him uniquely positioned to make recommendations to the Council. Before the permanent appointment of Xenia Bradford as permanent finance director in July, Johnson served as both interim finance director and assistant city manager.

His path as heir apparent to recently departed SLO City Manager Katie Lichtig started in 2015 with the assumption of those roles after Wayne Padilla left as finance director having served through only one budget cycle. Johnson, then SLO’s community development director for four years, switched job titles with Michael Codron who continues to serve in that capacity.

Knowledge of what the new manager would be faced with in October might have played a role in Johnson’s name being reported as the only one considered in an internal search process for the position.

None the less, he said, he can’t afford a myopic viewpoint regarding the budget.

“Before this I was mainly working with economic development, yes. But fire, police, and waste water are all new to me,” he said. “I’m now responsible for the day to day operations of San Luis Obispo. It definitely feels different. Much different.”

The plan to transition SLO’s CalPERS spending from $7.8 million to a projected $19 million by 2024, tapering back down after 2031 will have four key areas.

Amorphous in title, as they each contain a plethora of individual options, they were listed to the public as: Revenue Options, Operational Reductions, Employee Concessions, and  New Ways of Doing Business.

During the budget crisis following the “Great Recession,” employee concessions was a strategy that garnered political and public support in SLO, but Johnson called that option “tough,” as promised deferred compensation is part of the reason current employees are in their jobs. As well the City already has a hiring freeze on.

Aside from the fact that the pensions are promised in lieu of Federal Social Security, the current crop of municipal employees aren’t the problem.  By 2025 the projections Johnson quoted, the ratio of retirees to current employees will be 0.6.

As for the other options, the City recently recalculated their fee schedule for services and, said Johnson, they’ll be looking at a lot of “discretionary services provided.”

Of the extra going to CalPERS, $1.4 million is estimated from City Enterprise funds; those are utilities mainly.

“We could do this every year,” said Johnson, but with he option to start looking through to 2032, “it’s better to plan it now.”

– By Camas Frank

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