Reserve Funds Explained
The only way City leadership can arrive at a structural deficit is by pretending large reserves and likely property tax revenue somehow don’t exist.
The facts are important.
The Section 115 Pension Trust Fund was created by Pleasanton in 2018 with taxpayer funds. At the time, the California Employee Retirement System (PERS) had just informed participating agencies, Pleasanton included, that whatever outstanding pension liability that existed must be paid up by 2042. Pleasanton had to figure out how to make that happen and set aside $28 million in reserves specifically to help retire the liability. Fast forward to today and the Pension Trust Fund totals $51 million due to an additional $10 million set aside and investment income.
For background, Pleasanton fully funds its current annual pension costs. There is no continued build-up of an unfunded liability. The problem stems from about a decade ago when that wasn’t true. In other words, the pension liability is a decreasing amount, currently $188 million (May 21, 2024), reduced each year by the City’s payments to PERS against that liability. The question for Pleasanton taxpayers is where the money should come from to make those annual pension liability payments.
When created, the Pension Trust Fund was intended to last through 2037. It is projected the City’s pension liability will be mostly retired by 2037-38, assuming use of the Fund along with General Fund dollars. Pleasanton employees joining the City after 2012 receive reduced retirement benefits and are therefore not materially adding to the unfunded liability. This is how all current PERS pension costs are fully funded each year.
When establishing the Pension Trust Fund, the then-City Council established guidelines for the withdrawal of funds (updated February 18, 2020). The guidelines set the Fund’s purpose to ensure the monies are only used for pension costs and to “reduce pressure to reduce City services to make pension contributions during financially difficult time.” Further, the guidelines specify the Fund objectives to include making transfer into the City General Fund when “the General Fund has a structural deficit that needs to be addressed.”
Here's an example of how the Fund could be used if the City properly applies the adopted guidelines. If Pleasanton were to take $5 million a year out of the Fund, and put it towards General Fund pension costs, and the Fund were to earn annual investment returns of 5% on the remaining balance, the Pension Trust Fund could make those annual transfers into the General Fund for 14.7 years, or through 2039. This is coincidentally the projected date for the full repayment of Pleasanton’s unfunded pension liability.
So, for the next 15 years, Pleasanton’s supposed annual structural deficit would be reduced by $5 million. That’s a substantial chunk out of $13 million.
Shouldn’t the people of Pleasanton insist the Section 115 Pension Trust Fund be used as intended, rather than pretend it simply doesn’t exist? Why should taxpayers be asked to fund BOTH the Trust Fund and the extra $5 million that should be available to balance the City’s budget? Should the City’s leaders try to justify a sales tax increase in this way?
The Retiree Medical Reserve was similarly created by the City’s prior leadership who had the foresight to set aside money to pay for the life-time medical benefits enjoyed by retired Pleasanton employees. This fund was created when medical costs began skyrocketing in 2008 in anticipation of a burden on the General Fund.
The Retiree Medical Reserve totaled approximately $67 million as of June 30, 2024. This amount covers about 90% of the outstanding liability for annual retiree medical costs.
Due to changes enacted by the City in retiree’s medical benefits, the annual cost has substantially decreased.
Similar to the pension costs, the projected annual $13 million structural deficit does not take into account any annual withdrawals from the Retiree Medical Fund.
Pleasanton taxpayers have a legitimate question – “Why not?”