Leaving CalPERS would cost Modesto at least $1.1 billion

MODESTO -- In November 2011, Modesto voters passed three nonbinding pension reform proposals, including Measure Q, which called for the city to replace its defined-benefit plan with a 401(k)-style plan.

The city now knows the price of reform — at least $1.1 billion.

That's how much the California Public Employees' Retirement System says it would cost Modesto to sever its ties with the state pension plan. The city had asked CalPERS for an estimate a year ago in the wake of the passage of Measure Q. The city's six employee unions also asked for an estimate.

Don't expect the city to jump at the chance to leave CalPERS.

"Clearly, it's a policy decision (for the City Council)," Deputy City Manager Dee Williams-Ridley said Wednesday. "But look at the numbers; they speak for themselves."

To put those numbers in context, the city would have to use every penny from its general fund for a decade to pay the termination buyout. The buyout is three times the size of the city's annual operating budget, which includes the general, water and waste-water funds.

CalPERS provided Modesto with two estimates to leave the pension plan: $1.11 billion and $1.26 billion. The difference is based on how employees' compensation is calculated.

The amounts dwarf the $106 million buyout figure then-Councilman Brad Hawn mentioned in July 2011 before the council voted 4-3 to put the three nonbinding pension reform measures on the November 2011 ballot. Hawn made them a central theme in his unsuccessful bid for mayor.

Williams-Ridley said the $106 million was a very rough, informal estimate that CalPERS gave Modesto.

The city has taken steps in recent years to rein in pension costs. The members of Modesto's six employee unions have agreed to pay more of the cost of their pensions. For instance, Modesto Police Officer Association members started paying 6.5 percent of the 9 percent of the employee contribution to their pensions. They had been paying 1.5 percent.

Members of the six unions have agreed to lesser pension benefits for their newer members, such as lower pensions, higher retirement ages and greater contributions to their pensions.

Still, pension costs remain a big expense.

CalPERS projects the total pension contributions for the city and for its employees at $23 million for the 2013-14 fiscal year, which starts July 1. Most of that will be paid by the city.

Modesto Human Resources Director Joe Lopez said the city got the buyout estimates in October but did not release them until this week.

He said there were several reasons for the delay, including the need to confer with CalPERS over the numbers and technical difficulties in accessing the data from the CalPERS system.

"You can see why we've taken our time and fully digested these numbers," Lopez said. "They are huge numbers. We wanted to make sure we analyzed them fully and vetted all of the information before going public."

He added that Modesto did not receive the estimates until October, despite their being dated Sept. 10.

CalPERS has more than 3,000 employer members, such as cities, counties, fire departments and other public agencies.

A CalPERS spokeswoman said that a few members typically leave CalPERS each year, usually government agencies with small numbers of employees. In contrast, Modesto has more than 1,000 employees.

CalPERS' most recent comprehensive annual financial report states that one agency left in 2011: the Lompico County Water District, which serves about 500 homes in the Santa Cruz Mountains.

Bee staff writer Kevin Valine can be reached at kvaline@modbee.com or (209) 578-2316.