By Tom Moutes, RLACEI Legislative Director
Each fiscal year, the City Council’s Budget and Finance Committee and City Council consider the mayor’s proposed budget for the following fiscal year. By the time you read this article, the mayor will have proposed his budget to the City Council, and the budget hearings will be happening.
While the budget hearings are packed with information, here are two things to watch for in this year’s budget process:
The Projections of City Retirement Contributions
Each year, the actuaries for LACERS and the Fire and Police Pensions (LAFPP) are asked to project the City’s contributions to the systems for the next five or six years. There are quite a few factors and assumptions that go into these calculations. That said, there are only three sources of funding for the retirement systems: employee contributions, investment returns, and City contributions.
The employee contributions don’t vary that much year-to-year. LACERS had a great investment year last fiscal year (29.30 percent gross of fees according to its website) and very strong average returns over the last five and ten years (11.45 and 9.29 percent). These strong investment returns should put downward pressure on the City’s annual contribution.
Why this matters: The City’s annual contributions to its retirement systems generally have been rising for several years. It would be a welcome relief to the City if the annual pension costs flatten out or decline a bit.
The Projected Budget Deficits for Fiscal Years 2022-23 and Beyond
Most years, the City has run budget deficits. This and last fiscal year, the City has been flush with cash thanks to the federal government. Much of that federal money may go away for next fiscal year, and the City may again be in a deficit situation.
City Controller Ron Galperin has expressed concern over next year’s budget due to decreased funds from the federal government, the stabilization (not dramatically increasing) tax revenues, and an expected considerable increase in expenses.
Why this matters:
When the City experiences budget issues, it sometimes tries to get creative in how it would like to fund the pension systems. One hopes that next year’s revenues will be looking better by the time the Council reviews the mayor’s proposed budget, and this will be a moot point. The good news is that the City has always paid 100 percent of the contribution requested by the LACERS Board.
I hope to have updates next month on these two items to watch for in the City’s budget process.