FOR IMMEDIATE RELEASE
Sacramento, California, February 19, 2015
Contact: email@example.com; principal author Marc Joffe, 415-578-0558
Study Ranks San Rafael, Costa Mesa, San Jose, Richmond and Oakland Among Most Financially Distressed California Cities
The California Policy Center has released a new study analyzing how severely California’s cities are affected by their financial obligations to pension funds. The new CPC report, “California City Pension Burdens,” compiles key financial data for 459 California cities, with a focus on the impact of pensions on their financial health.
The composite funded ratio for California’s cities as of June 30, 2013 was a much improved 75%. This ratio has likely risen significantly since then, given the strong market performance over the past 18 months.
Based on the ratio of total pension fund contributions to total annual revenue, the most financially burdened cities in the CPC survey are as follows:
1. San Rafael, 17.6%
2. Costa Mesa, 14.4%
3. San Jose, 13.9%
4. San Gabriel, 13.4%
5. Sonora, 12.6%
6. West Covina, 12.1%
7. El Cerrito, 12.0%
8. Hemet, 11.6%
9. Montclair, 11.6%
10. Eureka, 11.3%
In the above list, for example, the city of San Rafael is currently paying 17.6% of its total revenue as the required annual payment to its pension fund.
Considering the ratio of total pension debt to total annual revenue, the most financially distressed cities in the CPC survey are as follows:
1. Oakland, 203.3%
2. Costa Mesa, 182.0%
3. Richmond, 180.9%
4. West Covina, 171.5%
5. San Rafael, 169.0%
6. Newark, 168.2%
7. Paradise, 156.0%
8. Pacific Grove, 151.5%
9. Foster City, 143.3%
10. Inglewood, 141.0%
In the above list, for example, the total amount owed by the city of Oakland either in the form of pension obligation bonds, or its unfunded pension liability, is currently 203.3% of the city’s total annual revenue. Some cities, such as Richmond, have pension obligation bond debt that is nearly as large as their unfunded liabilities. Moreover, in Richmond’s case, most of this borrowing was in the form of capital appreciation bonds, that require no annual payments but carry a huge bill for accrued interest at the end of their term.
The study also identifies ten California cities and towns that do not have defined benefit pension plans at all – relying exclusively on defined contribution and deferred income plans.
Marc Joffe, Principal Consultant at Public Sector Credit Solutions who wrote the CPC study said “most California cities can manage their pension burdens if the stock market continues to perform well and if elected officials resist pressure to enhance pension benefits. An extended period of subpar market performance could trigger fiscal crises in a number of the cities at the top of our lists.”
Ed Ring, CPC’s Executive Director noted that “it is important to recognize that if there is a market downturn, recent gains in funded status will be reversed. The 80% funded ratio that is considered the minimum acceptable level for any pension system should not be achieved during a bull market, but rather at a market bottom.”
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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.