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Pension board lowers San Diego’s annual payment $31M in response to stock market gains last year

San Diego’s pension board has unanimously approved lowering the city’s pension payment nearly $31 million during the new fiscal year, from $414.9 million to $384.3 million.

The smaller payment, which was recommended by the pension system’s actuary because of strong investment returns last year, gives Mayor Todd Gloria more money to spend in the proposed budget he’s scheduled to release April 15.

Critics say San Diego shouldn’t lower its pension payment when the city still faces nearly $3 billion in pension debt. But the actuary, Gene Kalwarski, stressed that the strong investment returns shrunk the debt from $3.34 billion to $2.95 billion.

Investment gains shrink the city’s pension debt and annual payment because a crucial part of the city’s long-term payoff plan is significant growth in the value of investments made by the city’s pension system.

The lower annual payment and reduction in pension debt reverse trends that have seen both numbers steadily rising in recent years.

The city’s annual payment spiked nearly $50 million last January, from $365.6 million to $414.9 million. The city’s actuary had projected the payment to climb again this year to $423.1 million, but it shrank instead to $384.3 million.

That’s primarily because of the robust stock market. Last year, the S&P 500 gained 26.9 percent, the Dow Jones Industrial Average gained 18.7 percent and the Nasdaq composite gained 21.4 percent.

The pension system’s investments have fared similarly, gaining 23.6 percent between July 2020 and June 2021.

The system gets the money to make those investments from city workers, who must contribute toward the cost of their pensions, and from city taxpayers.

The greater the return on those pension system investments, the less money from workers and taxpayers the city needs to spend long term to cover pension payments made to retired employees.

This year’s reversal — a decrease of nearly $400 million in pension debt instead of a projected increase — means the city is also projected to pay off the entire debt more quickly, in 2033 instead of in 2042.

The good news for the pension system must be tempered by the required payment of more than $80 million to unwind all the damage caused by 2012’s Proposition B pension cuts, which were overturned by the state Supreme Court four years ago.

The City Council approved this winter spending $73 million to create retroactive pensions for 3,850 workers hired after the pension cuts took effect nearly a decade ago, plus another roughly $8 million in court-ordered penalties.

That money and the city’s increased liability created by the new pensions will be part of a new actuarial analysis Kalwarski is expected to complete in the coming months.

The lower pension payment is one of many factors that give Mayor Gloria more money to work with than previously expected when he unveils a roughly $1.7 billion proposed budget next month.

Finance officials said last month that the city is projected to have $26.7 million in cash left over when the fiscal year ends June 30, primarily because sales tax and hotel tax revenues have come in at rates higher than projected.

The city also is projected to have $179 million in federal pandemic relief left over, significantly more than the $150 million expected when the ongoing budget year began last July.

The projections, however, don’t include San Diego making any scheduled payments to increase the city’s reserves to recommended levels.



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