San Diego's pension crisis is about to get a lot worse, and it's four times as bad as initially estimated. The city's annual pension payment is set to soar to a record-breaking $563.2 million, a staggering increase from the previous projection. This sudden jump is primarily due to substantial employee pay hikes, which have outpaced the pension system's investments and stock market gains.
The actuary, Gene Kalwarski, initially predicted a modest increase of less than $7 million, but this week he revised his estimate to a staggering $30 million. This dramatic change highlights the city's struggle to manage its pension liabilities. Despite a strong stock market performance, which typically reduces annual pension payments, the city's pension system is facing a significant challenge.
The issue stems from large employee raises that took effect last July and this month, increasing the pension system's long-term liabilities by over $140 million. This trend of unexpected salary increases has become a recurring problem, causing the pension system to face a more uncertain future. City officials argue that these raises are necessary to address a wage freeze from 2013 to 2018, which left municipal salaries in San Diego below those in other cities.
The average salary for city employees has risen to $113,800, a 7.4% increase from last year. General employees received a 5% raise, while police officers and lifeguards got 4%, and firefighters received 3% and 1% increases, respectively. These raises are in addition to automatic pay hikes tied to years of service.
Interestingly, despite the higher pension payment, the city's unfunded pension debt has slightly decreased from $3.49 billion to $3.46 billion. However, this reduction is not as significant as Kalwarski's initial prediction, which forecast a $131 million drop, more than quadruple the actual decrease. The funded rate of the pension system has climbed to 76.1%, the highest since 2008, but this improvement is relative to scaled-back investment and employee longevity projections from the past.
Kalwarski predicts the annual pension payment will rise again next year to $573.2 million, followed by a sharp drop to about $500 million for five consecutive fiscal years. This year's payment surpassing $500 million is unprecedented. It's important to note that not all of this higher pension payment will impact the city's general fund deficit, as only 73% of workers are paid by the general fund.
The city's latest projection for the general fund pension payment was $383 million, which will likely increase to around $410 million after Kalwarski's revision. The $110 million deficit already underestimates the city's budget challenges. A new $23 million deficit was announced last month, attributed to lower-than-expected revenues and higher-than-expected expenses, potentially leading to emergency cuts this winter.
