WILLIAMS, CA (MPG) – The Williams City Council last week did something few municipalities are in the financial position to do: pay off the city’s unfunded pension liability to avoid taxpayers paying millions of dollars more in interest for local government employees who collect a healthy income long after they stop working.
At the recommendation of City Manager Frank Kennedy and Finance Director Rex Greenbaun, the city council voted 4-0 to use general fund reserves and enterprise funds (responsible for a share of the pension debt) to pay off the city’s $4.6 million unfunded pension liability rather than to continue making annual payments on the debt at 6.8% interest.
Kennedy likened the long-term financing of the debt to paying a home mortgage.
“When you buy a home, you buy a home for $400,000 but you end up paying, you know, $1.2 million because of interest,” Kennedy said. “This is kind of the same thing…but at the end of paying for your home, you have a home.”
The City of Williams, like most government agencies in California, takes part in the California Public Employees Retirement System to provide pension benefits for its workers. Despite promises to taxpayers decades ago by investment groups and public employee unions that taxpayers would never be overburdened by the generous pensions government workers receive, the investment scheme didn’t work out due to insufficient regulation and oversight of financial institutions that invested heavily in risky Money Business Services (MBSs) and derivatives.
Economists who analyzed the 2008 Great Recession, precipitated by the housing bubble collapse, concluded that such public investment schemes were not adequately understood and funds were excessively leveraged.
“Going back into the late 1990s and into 2000, PERS was making money hand over fist,” Kennedy said. “Our retirement system was making money hand over fist, and PERS wasn’t really even worried about collecting the dues and funds from municipalities. They were flush. Well, what happened in 2008, the bubble busted.”
Kennedy explained the unfunded liability is the difference between what the city’s pension liabilities are and what (PERS) have in funds to cover them.
“So, there’s a gap, which is unfunded,” Kennedy said. “It’s our unfunded accrued liabilities. That is what we are talking about here.”
Kennedy said that by making annual payments, which have escalated from about $90,000 in 2019 to $370,533 due July 1, 2025, it would take the city 32 years to pay off the principal, costing taxpayers about $7.2 million in interest and $11 million total.
City officials agreed that by paying the debt off in full, despite the fear of depleting reserves, the city would eliminate the interest expense, resulting in substantial long-term savings, stabilizing the city’s pension costs, and strengthening the city’s overall financial position.
“We don’t know what is going to happen if we don’t do something to get ourselves out,” said Councilman John Troughton, who, as the elected City Treasurer and member of the Finance Committee, encouraged the council to pay the debt.
At their Feb. 19 meeting, the City Council, absent Councilwoman Kate Dunlap, voted in favor of paying the city’s full unfunded pension liability by Feb. 28, utilizing approximately $2.8 million from General Fund reserves; $457,626 from Water Enterprise Connection Fees (which share the debt); $961,015 from Sewer Connection Fees; and $329,765 in the CalPERS Internal Service Fund.
Greenbaun anticipates that Williams will serve as an example for other municipalities with substantial pension debt, provided they have the financial ability to settle their obligations fully.
Following the payoff, city officials said they hope to keep up with unfunded pension accrual, which is significant.
According to Transparent California, public employees typically make far more than the local private sector whose median earnings for full-time, year-round work is $50,905.
In 2023, the median pay and benefits for a full-time year-round city employee was $109,912, costing taxpayers a total of $4.9 million annually or $889 per year per city resident.