The Los Al city council has managed to craft a balanced city budget for 2020 amid voices from its own experts warning their pending pension obligations could lead to dire straits in the years ahead.
Finance Director Eric Hendrickson said while the budget was “balanced,” but that “going forward, it’s going to be hard.”
Also, pension obligations led to a somewhat heated discussion between Mayor Pro-Tem Richard Murphy and city staff, as Murphy initially suggested that an underlying report submitted to the council contained “none of the negatives” about a consultant’s recommendation to set up a pension trust fund nor, he said, were any other potential options included in the staff report.
The debate centered around fiscal sustainability consultant David Cain’s recommendation for the city to set up what is called a Section 115 Trust, which denotes a section of the Internal Revenue Service Code that allows certain provisions for government pension obligations.
Pension obligations in Los Alamitos are not only weighing heavy on the current financial situation, but officials are beginning to explain to residents that by 2025, the pension obligations could absorb the city’s entire reserve of $8 million, then some.
Murphy and city manager Brett Plumlee got into a back and forth about the provision, especially the recommendation that the city transfer $3.6 million into the Section 115 trust.
The mayor pro-tem complained that the backup materials included in the written staff report seemed to favor the creation of the trust account, suggesting that the members of the Budget Standing Committee received a more in-depth briefing of all potential aspects, both positive and negative.
“The fiscal sustainability (budget standing committee) got twice the presentation we (city council) did,” Murphy complained, suggesting the only info in the report made the trust seem like a panacea, saying as described “it’s like the magic beanstalk.”
Both he and council member Dean Grose questioned the commitment of city funds to this trust with a more robust discussion. Neither Murphy or Grose sits on the Councils Budget Standing Committee.
After the item was pulled from the consent calendar, Cain explained that the trust would allow to transfer money into the 115 trust, yet “retain control of the money,” meaning they would have more flexibility in investments of the trust fund.
Murphy, who is a financial professional, wanted clarification that once the reserves are placed into this trust, they may have flexibility but could no longer be used for anything other than paying the pension obligations.
“That’s correct,” said Plumlee, who told Murphy that the staff presentation to the council in the staff report was basically the same as the information presented during the financial sustainability committee meeting.
Nevertheless, both Murphy and Grose voted against a motion to create the Section 115 Trust, as it passed 3-2.
However, later in the meeting, when Murphy again asked for additional clarification, prompting Mayor Warren Kusumoto to ask for a ruling from city attorney Michael S. Daudt as to whether the item could be re-opened.
Once confirmed that only a Council member who vote in the affirmative could reopen it, Council member Shelley Hasselbrink, who favored the trust creation, agreed to reopen the discussion.
Plumlee reintroduced Cain who explained to the Council that there was no cost to the establishment of a Section 115 trust and that the motion was not to actually transfer the $3.6 million into the trust but provided only for the creation of it.
Also, said Cain, any money eventually put into the trust could lead to a “higher interest rate” on investments.
Therefore, the Council voted again, and the motion and Murphy this time voted in favor of creating the trust, as the Council voted 4-1 to create the Section 115 Trust. Grose was still opposed to the move.
In other action, the Council heard two requests from citizens during the public hearing on the upcoming budget vote.
Richard Varderman, who has valiantly lobbied the Council to replace the pumps at the pumping station asked for an additional appropriation, saying the $100,000 currently in the budget would not be enough to do the job.
He praised city staff, saying “they can walk on water but can’t stop it and that’s what we need.” City officials took the request under advisement.
In other action, the Council:
- Recognized Det. Delana Lopez for her accomplishment as police officer of the year and Catherine Howard as employee of the year.
- Welcomed Riley Hill as records bureau clerk and Detective Mark Gutierrez to the police force.
- Heard a presentation from Joseph A. Contreras. regarding the upcoming 2020 Census. Contreas said there were many local jobs available and interested citizens could get more information from the U.S. Census website.
- Recognized Parks Make Life Better month.
- Thanked Marilyn Poe for her dedication to the Los Al Museum and the city.
- Heard Hasselbrink outline her efforts to develop a sister city relationship with Pocheon, South Korea.