Modesto is heading into its new budget year in good shape, but the city is bracing for pension costs to jump in future years.
The City Council’s Effective Government Committee will hold budget hearings starting Monday for the proposed $373 million operating budget for the 2017-18 budget year, which starts July 1. The hearings are open to the public and could continue Wednesday, Thursday and Friday if necessary. The council will consider adopting the proposed budget in June.
Acting City Manager Joe Lopez said there are no major changes in the proposed budget. He said there are no staffing reductions, though he proposes to freeze nine vacant positions. The general fund, which primarily pays for public safety, makes up nearly a third of the proposed operating budget.
City officials will give committee members an update on what Modesto can expect to pay in rising contributions to the California Public Employees’ Retirement System. Those contributions are expected to start soaring in the city’s 2018-19 budget year, which begins in July 2018.
Modesto expects to pay CalPERS $21.2 million in its current budget, then $23 million in its 2017-18 budget, $27.9 million in its 2018-19 budget and $31.5 million in its 2019-20 budget. Modesto expects to pay $38.1 million in its 2024-25 budget, an increase of roughly $17 million from what it expects to pay in its current budget. Much of the pension costs would be borne by the city’s general fund.
“Our initial projections show significant increases in our CalPERS projections well beyond what is proposed for this upcoming fiscal year,” Lopez wrote in his 2017-18 budget message. “Those increases will present an increase in expenditures well beyond our projected revenue.”
Lopez said the city is taking steps now to prepare for the increased pension costs. He has said Modesto was resilient during the Great Recession and expected the city to meet the challenge of higher pension costs.
Cities and other public sector agencies across the state will be paying CalPERS more after its board voted in December to reduce what CalPERS expects to earn on its investments. Lower investment earnings mean larger contributions from the roughly 3,000 agencies that belong to CalPERS.
Lopez has said public agencies also are paying more because of other changes enacted by CalPERS in recent years, including increasing the life expectancy for retirees and accelerating the time period to fully fund the pension plan.
The budget workshops are in the basement chambers of Tenth Street Place, 1010 10th St. The Monday hearing starts at 9 a.m. If more hearings are needed they will be held at 9 a.m. Wednesday, 1 p.m. Thursday and 9 a.m. Friday.
Kevin Valine: 209-578-2316