The Sacramento region’s largest local governments will see pension costs go up by an estimated 14 percent next fiscal year, starting a series of annual increases that many city officials say are “unsustainable” and will force service cuts or tax hikes.
The increases come after CalPERS in December reduced the expected rate of return from investments, forcing local governments and other participants in the state’s retirement plan to pay more to cover the cost of pensions.
In recent months, local governments have found out just how much more they can expect to pay as CalPERS sent them notices of estimated costs. Ten of the largest local governments in the capital region can expect to pay a total of $216 million to CalPERS in fiscal 2018-19, an increase of $27 million over this year. Nearly half of that increase will be borne by one local government – the city of Sacramento.
Responding to widespread concerns from local government officials, CalPERS agreed to spread higher costs over eight years. That means cities will see rate hikes each year that are similar to this year’s, assuming that the fund’s investments make 7 percent annually under the new expected rate of return.
In a report this month, Joe Nation, a researcher at the Stanford Institute for Economic Policy Research, wrote that “employer pension contributions are projected to roughly double between 2017 and 2030, resulting in the further crowd out of traditional government services.”
