Back in July, The Sheet reported on the implications of the California Public Employees’ Retirement System, or “CalPERS”, realizing a 6.1% loss for the 2021-2022 fiscal year.
The consensus was that the loss would increase the Town of Mammoth Lakes’ unfunded liability, i.e. the amount of expense required to cover the retirement and health security for Mammoth’s state, school, and public agency workers, compared to what they actually earn.
We spoke with the Town of Mammoth Lakes’ Finance Director Rob Patterson at the time, who shared that for 2021-2022, the town paid roughly $2.1 million annually in unfunded liability. This was before the 6.1% loss. “That number will probably increase based on CalPERS missing it by that much,” explained Patterson.
At the time, Patterson didn’t have the exact amount that the unfunded liability would increase annually. “We will utilize software programs to analyze exactly how much more money this [Calpers’ loss] is going to cost our community, so that we can track exactly how much the unfunded liability portion will go up,” he said.
The numbers would come in about 3 months, according to Patterson.
The Sheet recently caught up with Patterson to see if the numbers were in, and to ask if the stock market’s poor performance this year would further increase the town’s unfunded liability contribution.
The 6.1% loss will cost the town roughly another $200,000 for 2022-2023.
“But it’s not going to be something where we all of a sudden can’t clear the roads. It will just come right out of the general fund,” said Patterson.
According to Patterson, the town’s general fund has a set aside of $10 million or so, mostly from surplus TOT revenue, which will be more than enough to allocate towards the increased unfunded liability.
How does the stock market’s poor performance affect this cost?
“CalPERS is a three legged stool: they’ve got contributions they receive from the employers, they’ve got contributions they receive from the employees, and they’ve got expected rates of return from the stock market. And so if one of those things doesn’t perform, it generates more and more unfunded liability,” said Patterson. “When you talk about the impacts of the stock market, one of the things that they’re doing is that they’re lowering the expectations on the stock market side. So it used to be as high as 7.5% rate of return on an annual basis. And they’ve been lowering that slowly over time, and they’re down to about 6.8%. They’re going to continue to ease that expectation, but every time they lower that, it puts more pressure on either contributions from the employer or from the employees. Where things have focused so far has been solely from the employers.”
He continued: “What I foresee in the next year with the stock market is a strong challenge for CalPERS to hit their rate of return expectations; that’s going to have a similar effect to last year, where that side of the equation goes down. So the unfunded liability climbs significantly.”
The town therefore anticipates another increase in the unfunded liability for the 2022-2023 fiscal year.
However, Patterson is confident that the town’s budget is more than capable of covering the increase without an impact to essential services.
“Constituents and communities will not have to shoulder in more. The money will just be funneled away from the town government’s ability to provide other services. That’s essentially the impact we will face. Because we budget conservatively, we have the ability to weather the financial storms that may come.”