Sounds scary, doesn't it? It should — it translates to you don't have the money set aside to make payments you have promised to make.
When I hear the phrase, it reminds me of all those credit card bills. When it relates to the city of Long Beach, it means all those pensions promised to employees. There's some other stuff too, but the pensions are the 750-pound gorilla in this fight.
Long Beach currently faces a touch more than $1 billion in unfunded pension payouts. I say currently because the number changes every year depending on, of all things, how the stock market does.
Bear with me here. The explanation is pretty convoluted, even with budget manager Grace Yoon patiently going over it again and again. But it's important to understand if we ever hope to get ourselves out from under that liability.
So here's how it works. One way we keep public employees who are being paid less than what they could get in the private sector — something that's true for most of Long Beach's workers, whether you believe it or not — is to promise them one of the best pension plans around. Most employees currently get 2.5 percent of their salary for each year worked if they worked 30 years and are older than 55. A few years ago, the unions representing those workers agreed to drop the formula to 2 percent at 62 years old for new hires.
Police officers and firefighters have it even better. For years, the formula for public safety workers was 3 percent at 50 years old. That dropped to 2.7 percent at 57 for new hires a few years ago, during the big pension reform push.
Still with me?
In most pension plans, employees put a percentage of their pay into the pension fund, and the employer pays an equal amount. That contribution is 8 percent (9 percent for public safety) in Long Beach.
Only in past years, the city has agreed to pay big chunks of the employees' contribution instead of raises as part of negotiated salary increases. It got to where the city paid 6 percent of miscellaneous (everyone except public safety) employees and 7 percent for cops and firefighters.
Gradually, that responsibility has been put back onto the employees as another pension reform. Now employees pay their full pension contribution.
So where does all that money go? To an entity called CalPERS — the California Public Employees Retirement System (teachers have something similar, but let's not go there today).
This uber pension fund was formed to protect individual cities from disaster and to take advantage of the economies of scale.
But, as is usually the case with these things, there were unintended consequences.
CalPERS, like most pension funds, invests the money it is given to add to the pension pot and, theoretically at least, lower the amount member cities have to pay. That was working so well in California that in 2000 Long Beach and other cities were told that their liability was completely covered. In laymen's terms, there was enough money to pay the pensions of all those already retired or currently working for the city.
Then 2008 came along.
Suddenly, the CalPERS investment portfolio didn't look so good. In fact, it looked downright bad. And the call went out to all member cities to start putting big bucks in again or face the specter of insolvency down the road.
Lessons were learned, but the attempt to catch up continues today. The financial gurus at CalPERS come up with multiple ways to keep the pension fund solvent (Grace had the, well, grace, to skip trying to explain all that to me), which primarily came down to getting more money from Long Beach and our sister municipalities.
Yoon and her boss, John Gross, say that Long Beach's unfunded liabilities will continue to grow for the next 10 or 12 years. Then, with luck, the curve will start going down.
Long Beach has been prudent with its pension reform efforts, but there's very little left to reform going forward. Making early CalPERS payments will ease the pain down the road, but will not eliminate it.
So what's left? According to Gross and Yoon, we're down to cutting costs and/or increasing revenue. In other words, budget prudently and hope CalPERS and its investments don't go belly up again.
Feel better? Me neither. But at least I have a better understanding of what the city faces now.