Paying for Pool and Pensions

Damage to the plaster in El Cerrito's lap pool is covered with a black mat and one lane is closed.

Priorities for End-of-the-Year Spending

Faced with tough financial choices, the El Cerrito City Council is giving top priority to urgent swimming pool repairs and a fund to pay down pension debt. Council members also agreed to set aside money toward a replacement fire engine and fund a service delivery study to examine ways to cut the cost of city operations over the long term.

The consensus was reached at the May 20 meeting. A final vote is expected next month.

Council’s Careful Approach

City Finance Director and Treasurer Crystal Reams reported earlier this spring that city revenues are meeting projections. As a result, she said there would be a $2.1 million general fund balance that could be spent in the final month of the budget year that ends June 30.

Instead of spending the full $2.1 million, City Council members chose to spend $1 million of the general fund balance.

Transfer to Trust That Pays Pension Costs

And after a presentation on how the city’s unfunded pension debt payments could grow over the next decade, council members agreed to transfer $1.5 million from the city’s Emergency Disaster Relief Fund (EDRF) into a Section 115 trust fund which was established in 2023 to pay both current and unfunded pension costs.

A "Structural Deficit"

At the same meeting, City Manager Karen Pinkos said the city has a “structural deficit” of about $1 million and that’s “mostly personnel, as you know, and all of our professional services.” With a commitment to maintain reserves of 30% of annual general fund expenses, money is tight when it comes to maintenance and capital improvements.

Some Unfunded Needs

Several other projects were mentioned but not funded, including tree and vegetation management work in the Hillside Natural Area and parks, demolition of the former church building at 10936 San Pablo Ave., replacement (by 2028) of Self Contained Breathing Apparatus carried by the fire department, a utility truck/van purchase for the public works department, and an audiovisual overhaul of the City Council chamber. Other unfunded projects include renovation of the Community Center, a new or renovated library, and a new public safety building.

The fire engine purchase would cost an estimated $1.6 million. The council approved $380,000 toward that.

Pinkos noted that the city is seeking grants to cover many of these project costs.

Long-Term Savings?

To address the city’s structural deficit, Pinkos said it’s important to complete a service delivery study to review operations and service levels and recommend ways to cut long-term costs. Pinkos requested that $120,000 to pay a consultant for the study be included in this year’s one-time expenditures.

Swim Center Work: $500,000 or $3.4 million?

For the swim center, council members faced a choice of spending about $500,000 to replaster the lap pool or $3.4 million to also replace the pool deck and meet the most current standards in the Americans with Disabilities Act (ADA).

Currently there is cracking in the bottom of the lap pool that is covered with a patch. Repair is needed, Pinkos said.

That will require that the pool be drained and replastered at a cost of about $400,000, so it makes sense to budget $500,000, Pinkos said. It wasn’t clear how long the lap pool would need to be closed, but the city would schedule the job for winter and keep the pool open through the summer.

Recreation Director Chris Jones said the $3.4 million option is to replace the deck at the same time the pool is replastered, which would require that the city bring the swim center up to date on meeting current requirements of the Americans with Disabilities Act.

Jones said some rust and cracking indicate that the deck will need to be repaired, and this could be coordinated with replastering. The full job could take up to five months and cost $3.4 million, he said.

Deck Repair Would Trigger New ADA Requirements

“When we start to touch the deck we not only have to replace the deck itself but we have to insure that the path of travel starting in the parking lot going through the gate into the swim center is fully ADA compliant,” Jones said. In addition, he said more exits would need to be added to the swim center.

City Manager Pinkos said borrowing is an option if the council urgently wants to complete the full swim center project. Questioned about the cost of borrowing at today’s interest rates, she said the city could look into borrowing from its own funds, such as the Measure H Parks and Recreation Facilities special tax fund.

All five council members strongly supported $500,000 for replastering but not the full $3.4 million project at this time.

Paying for Pensions

This slide by NHA Advisors projects how the city's unfunded accrued liability (UAL) for pensions could increase.

The city’s very large unpaid pension debt has been a subject of debate in recent years. Having adequate reserves has also been a hot topic at least since March 2021 when the city was placed on the State Auditor’s list of cities at high risk of being unable to meet its financial obligations. The high-risk designation was removed in December 2024.

Consultant's Presentation

At the May 20 meeting, City Council members heard consultant Michael Meyer make the case that El Cerrito’s pension payments to the California Public Employees’ Retirement System (CalPERS) could increase significantly over the next 10 to 15 years. Meyer has worked with the city since 2018, he said.

Meyer said the city’s current unfunded pension debt is $89 million, including $63 million for 290 covered employees in the safety category and $26 million for 460 covered “miscellaneous” employees.

The city pays both current and unfunded pension costs to the California Public Employees’ Retirement System (CalPERS) each year.

Meyer showed a graph of how the city’s required pension payments are likely to increase in the future.

“In 2018 the city was paying about $3 million (for the year) but in fiscal 2025 you’re paying $7 million and then it starts to creep above $9 million for the next few years – and then it starts to drop off,” Meyer said.

Adding money to the Section 115 trust set up by the city in 2023 to pay pension costs when needed could allow the city to "smooth out" the payment schedule by drawing on the trust money in years when the bill is highest, Meyer said.

The unfunded pension debt for each municipality changes depending upon the investment returns that CalPERS achieves and its other assumptions, Meyer said.

Currently CalPERS is re-examining these assumptions. Results will probably be released in October.

One possible change is that CalPERS will reduce its discount rate – its predicted return on investments – perhaps from the current 6.8% to 6.5%, Meyer hypothesized.

A discount rate reduction from 6.8% to 6.5% would increase El Cerrito’s unfunded pension balance by $9 million and increase its unfunded pension debt payments by $1 million per year, Meyer said.

Saltzman Urges Action

Councilmember Rebecca Saltzman said Meyer’s presentation convinced her that the city should add $1 million – not just a smaller amount – to the Section 115 trust.

Saltzman said that, based on recent history, a reduction by CalSTRS in the discount rate is likely. “Then we’re going to have a lot more that we owe and our payments are going to go up,” Saltzman said. “I think we need to be preparing now.”

Saltzman said El Cerrito’s Emergency Disaster Relief Fund (EDRF), which contains $9 million, is funded beyond what’s required or needed. Now is a good time to transfer money from the EDRF into the Section 115 trust fund for pension costs, she said.

Saltzman said she wanted to hold spending from the general fund balance to a total of $1 million.

Motoyama Endorses $1.5 Million Transfer

Councilmember Lisa Motoyama agreed that spending from the general fund balance should be limited to $1 million, and argued that the city should transfer $1.5 million from the EDRF into the Section 115 trust.

The move would give the city a better cushion for when the spike in pension costs comes, Motoyama said.

Motoyama said she went to the California Policy Center’s local fiscal health dashboard to see what’s being considered financially healthy by the state.

“They’re really pointing to 30% (of general fund expenditures) as a minimum for a healthy fund reserve,” Motoyama said. El Cerrito currently has that, she said.

“My concern is we’re going to draw down and fall below that 30% by ’28 or ’29 so I would like to keep us to $1 million (from the general fund balance).

Ktsanes Agrees, Questions Return on 115 Trust

Councilmember William Ktsanes said he agreed with Saltzman and Motoyama.

He would like to see the EDRF grow over time but “I’m comfortable pulling from the EDRF now because of the urgency of the pension issue. Ultimately, costs need to be contained as there aren’t going to be extra reserves to pull from in the future.”

Ktsanes asked Meyer why the return on El Cerrito’s Section 115 trust fund is 3.5% while CalPERS’ investment return is 6.8%.

Meyer replied that the 115 money is in a “relatively conservative” option. Other investment options are available, he said.

Would More Pool Spending Help?

Mayor Carolyn Wysinger and Mayor Pro Tem Gabe Quinto both said they were generally in agreement but would like to spend more on the pool.

Wysinger said the pool is the city's "biggest money maker" and she would not want to see it suddenly have to close for urgent repairs.

Quinto said he did not want to "go cheap" on the pool, perhaps leading to greater costs in the long run.

However, Saltzman said it did not seem that raising pool spending beyond $500,000 would result in extra work being done anytime soon. Instead, she said it appeared the project costs were either around $500,000 for replastering or $3.4 million for a comprehensive project. Recreation Director Jones agreed.

Ktsanes asked whether the cost of pool repairs would affect pool revenues, causing fees to go up beyond rates that were just approved.

Recreation Director Jones said revenues will “certainly” be affected. “It’s a once in 20 years project. It just kind of goes with the territory.”