Pension Costs Are Killing Cities Like Santa Cruz

If something doesn’t change, Santa Cruz could be the next canary in the pension coal mine.

The city has taken several steps to mitigate fallout from its rising public pension costs, but none of them have been quite enough to stop the bleeding. Santa Cruz is now facing projected deficits of more than $20 million per year by 2021 in part because of those rising costs.

Santa Cruz is no outlier. As pension hawks have been warning for years, there is a reckoning coming. City after city is at risk of fiscal upheaval as CalPERS steps up mandatory contributions in an effort to shore up the system as a whole.

A number of municipalities have gone before CalPERS’ board begging for mercy. But the nation’s largest pension fund has made clear that its top priority is the system, not the line of cities facing potential insolvency.

Santa Cruz declared a fiscal emergency last month and it hopes voters will approve a half-cent sales tax increase this June.

“At this point, while we’re not in a crisis, we need to be prepared to ensure that our budget remains sound and have costs that are in alignment with what the public needs in terms of services,” said Mayor David Terrazas.

“We’re ahead of the curve on preparing ourselves for this,” added Finance Director Marcus Pimentel, who also cited increasing health care premiums, a shrinking tax base, and other factors as part of the city’s fiscal woes.

“We’re confident in our different options that get us through there, but they require voter help. They require reductions. They require some creative partnerships. So, there’s a lot of work and lifting to be done all around.”

Even if voters approve the sales tax increase, the city will be left with a substantial shortfall.

“The $3 million a year it would generate is just a fraction of the extra $9-11 million that the city calculates it’s paying to cover CalPERS shortfalls and even a smaller slice of the $20 million annual deficit city officials are projecting,” writes CALMatters’ Dan Walters.

The implications are clear: “California’s municipal finance crisis is likely to get worse before it gets better – if it ever does.”

See also:

League of California Cities Study Warns Pension Costs Are Becoming Unsustainable 

Between a Rock and a Hard Place: California’s Pension Crisis in a Nutshell 

Here’s How Much Each City and County Will Owe CalPERS 


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