Nearly one-third of the city’s general fund will be set aside to pay off a looming debt for retiree medical benefits.
Medical expenses in Menlo Park, like many California cities, have skyrocketed as the city struggles to offer benefits that keep its employees from leaving City Hall. Under state law, the city must figure out this year how to pay for $13.2 million in medical benefits for retired employees.
To do that, the City Council voted unanimously Tuesday to sock away $9.2 million in an interest-earning trust fund. Menlo Park’s general fund budget is $35 million this year. If the city earns a 4.25 percent return, the fund should earn enough to pay for retirees’ health costs, city Finance Director Carol Augustine said.
“It is a lot of money,” City Manager Glen Rojas said.
Government employees have been lobbying for good medical and other benefits when they retire. The Governmental Accounting and Standards Board instituted new rules in July 2004 requiring cities to come up with a payment plan for benefit-related expenses by the 2008-09 fiscal years.
But Menlo Park has struggled through a number of lean years, in which leaders made cutbacks in order to eliminate a $2.5 million structural deficit. In a cost-saving measure, the City Council allowed a private company to take over operations of the Burgess pool and considered privatizing Menlo Park’s city-run child care program.
“We’re stretched pretty thin,” Rojas said.
But a number of one-time revenues, which can’t be used for long-term expenses, have been stored in reserves, which now add up to $29.5 million.
After considering a number of options for paying off retiree-benefit costs, including paying a little bit each year, the City Council was more comfortable setting up a trust, said Councilmember Kelly Fergusson.
“These are financial liabilities put in place by decades of employment policy,” Fergusson said. “By doing this, we’ll be able to get a better interest rate, and we can put less in, in order to fully fund this.”
Getting these liabilities paid off now will help Menlo Park in the coming years, she added.