Foster City uses funding surplus to pay down pensions

“I think this is the biggest threat to Foster City,” Hindi said.

Mayor Sanjay Gehani said if the city didn’t put money down on unfunded accrued liability, which are promised benefits greater than the assets of a pension plan, costs for the California Public Employees’ Retirement System, or CalPERS, would grow and put Foster City in a worse position to borrow money.

“This thing is accelerating, and if we don’t pay it down, it’s just going to grow faster,” Gehani said.

The City Council approved transferring $4,055,505 from its 2019-2020 general fund rollover surplus to its pension stabilization fund and took $7.5 million from the pension stabilization fund to pay down its unfunded accrued liability. The city took around $3.5 million from its 2018-2019 general fund surplus to reach the $7.5 million in its pension stabilization fund.

Finance Director Edmund Suen said paying down the unfunded accrued liability was recommended to help earn a higher credit rating and avoid interest payments down the road.

“The credit agencies are constantly looking at unfunded liabilities because that’s such a large amount, and anything we can do to show consistency in addressing this in terms of paying down portions of it is obviously a good thing for the city,” Suen said.

Officials said the decision would improve the city’s balance sheet and credit rating, lower future pension contributions and decrease the city’s total long-term payments. The city estimated long-term contribution reduction from the additional discretionary payment is $17.23 million, resulting in a net savings of approximately $9.73 million.

As of June 30, the city’s general fund reserve was $50,503,421. Suen noted significant general fund reserves remained available for future decisions and costs, which the City Council asked him to consider when making future financial decisions.

“How are we using those reserves? Are we really maximizing the use of those reserves as opposed to just parking it in our investment pool, which unfortunately is not earning very much interest,” Suen said.

In January, the City Council discussed potential uses of the rollover surplus, including the paydown of its pension promised benefits. The ad hoc Pension Liability Committee, made up of Hindi and Councilmember Patrick Sullivan, recommended the council use the rollover surplus from the previous two fiscal years to pay down its pension obligations.

Vice Mayor Richa Awasthi advocated that the surplus be used for current or deferred infrastructure projects rather than spending more money on projects later.

“We do have strong reserves, but we do have liabilities. Pension liabilities are one of them. The levee project is a big project of that level of magnitude that is going on is another responsibility and liability. The recreation center, which the council decided to move forward to build, is another liability,” Awasthi said.

Councilmember Jon Froomin noted that the city is planning projects better now and would spend money more appropriately.

“I can really understand this discussion if we were down to our last $4 million, and we were trying to figure out where to put it, but we are not even near there,” Froomin said.

Sullivan agreed that the city needed to fund infrastructure projects but favored paying pension obligations with the surplus.

“I think we cannot ignore our infrastructure, and if we need to spend some of our reserves on infrastructure to keep that cost down, I think we still need to look at it,” he said. “But I am still in favor of the current proposal from our committee to move forward with the recommendation.”

curtis@smdailyjournal.com

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