On November 19th, the city council and staff marked the occasion of a $1.3 million contribution to a Section 115 pension investment. Notably, their consultant had advised a minimum contribution of $5 million, but the account was opened with only about 20% of that recommendation. Typically, cities that establish a Section 115 investment account are financially well-positioned, with ample unrestricted reserves and pension obligations adequately managed.
However, El Cerrito faces a mounting financial crisis as its pension debt to CalPERS—referred to as the Unfunded Accrued Liability (UAL)—reaches unprecedented levels. Over the years, the UAL has surged from $57 million to a staggering $98 million, with the city paying 6.8% interest on this debt. This alarming growth, fueled by rising payroll costs and limited fiscal reserves, threatens the city’s financial stability and underscores the urgent need for action.
How Did We Get Here?
A key driver of El Cerrito’s pension liability is its payroll structure. Compared to neighboring cities like Hercules, Albany, and Pinole, El Cerrito employs significantly more staff, particularly in police and fire departments. These public safety positions contribute disproportionately to pension costs due to higher salaries and more generous retirement benefits. For example:
- Hercules, with a comparable population, operates with half the staff and significantly lower pension obligations.
- Albany and Pinole maintain leaner workforces, further highlighting the inefficiency of El Cerrito’s staffing model.
Public safety roles—while essential—carry greater financial burdens, as police officers and firefighters often retire earlier and with higher benefits than other municipal employees. El Cerrito’s reliance on a larger workforce, coupled with elevated salaries, exacerbates its pension crisis.
The Risks of Inaction
Failing to address the growing UAL poses serious risks, including:
- Strain on City Services: Rising pension costs siphon funds from vital community services and infrastructure maintenance.
- Higher Borrowing Costs: A downgraded credit rating could increase borrowing expenses for future projects.
- Taxpayer Burden: Residents may face higher taxes or reduced services if fiscal mismanagement continues unchecked.
The Path Forward: Strategic Workforce and Pension Reforms
El Cerrito must act decisively to safeguard its financial future. Key recommendations include:
- Reevaluating Staffing Levels: Conduct a thorough analysis of workforce needs, particularly in public safety, to align staffing with fiscal realities.
- Negotiating Pension Reforms: Work with unions to adjust benefit structures for new hires and explore other cost-saving measures.
- Increasing Contributions: Commit to paying more than the minimum required to reduce the UAL rather than letting it grow further.
- Exploring Regional Collaboration: Partner with neighboring cities to share public safety services and reduce overhead costs.
Rising Costs and Limited Information
Transparency is essential for addressing the UAL. However, El Cerrito has disclosed limited information about its financial obligations. For example:
- The city reported no UAL payments for FY 2024, despite escalating liabilities.
- Annual UAL payments have surged by 96% since FY 2017-18, rising from $3.2 million to $6.2 million in FY 2022-23, with further increases anticipated.
The city council must prioritize clear communication about its pension obligations and develop a robust plan to manage them.
Conduct Your Own Research
Residents can access CalPERS valuations to better understand the financial challenges. The 2022 valuation is publicly available and outlines El Cerrito’s total UAL and funded ratio. Understanding how CalPERS’ investment returns and local payroll decisions impact the UAL is critical for informed advocacy.
Join the Conversation
El Cerrito residents have a pivotal role in shaping the city’s financial future. By staying informed, asking critical questions, and advocating for responsible fiscal management, the community can hold city leaders accountable and push for sustainable reforms.
The Time to Act is Now
Every year of inaction compounds the problem, making solutions more difficult and costly. El Cerrito must prioritize fiscal responsibility through transparent governance, strategic workforce planning, and sustainable pension reforms. Together, we can ensure a stable financial future for our city.
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El Cerrito Committee for Responsible Government (ECCRG) 