The Chico City Council will look for outsource alternatives to lower future pension obligations
By Ken Magri
At the November 4 city council meeting, Councilmember Tom Van Overbeek brought up an ever-present funding problem so unrewarding and complicated it rarely gets addressed.
What’s the problem?
The City of Chico has an underfunded pension obligation to its current and future retirees of approximately $169 million, as of the last audited report in 2023. It is part of a statewide liability among all California cities totaling $180 billion.
To meet this pension liability, also called an unfunded accrued liability, or UAL, each city makes annual payments to California’s Public Employees Retirement System, known as CalPERS. Chico pays $7 million annually for its unfunded liabilities.
Van Overbeek blames part of that shortfall on CalPERS investment policies, which he characterized as overly influenced by political considerations.
“When they come up short, it becomes an obligation to the city to make it good,” he noted.
Van Overbeek also pointed out that CalPERS underperformed the stock market in the past several years with riskier choices like green energy investments.
“I’m not saying they should buy tobacco stocks, but they got confused,” he said. “Their clean energy fund is down 70%.”
Nevertheless, the District 6 representative wants to talk about lessening Chico’s burden, seeing if it can be reduced without compromising quality of services. He wants city department heads to find opportunities for outsourcing certain tasks to private businesses. His idea puts these department heads in the uncomfortable position of possibly finding and recommending their own replacements. Nevertheless, Van Overbeek argues that proper outsourcing can provide the same services at lower costs without compiling more pension obligations.
“There are some functions we cannot outsource,” said Van Overbeek. “I don’t think we want police working for a private contractor, or our firemen to work for a private contractor. But do we really need city employees doing tree work in the park?”
Van Overbeek said that Chico already contracts out janitorial and information technology services, so why not find more opportunities?
But will outsourcing solve the problem?
“This is a structural problem,” said Van Overbeek. “There is no silver bullet here. It will not go away, but we can make it better.”
Councilmember Mike O’Brien complimented city staff for their constant attention to cost efficiency but agreed with Van Overbeek that a fresh look at outsourcing wouldn’t hurt.
“When you have that level of unfunded liability, it would be wrong for us not to continue those conversations,” O’Brien mentioned during the discussion. “I think you have to, understanding that our staff is doing the very best with what we have and are always looking for those opportunities.”
When asked how severe Chico’s $169 million UAL was, City Manager Mark Sorensen said it was a nebulous amount because it keeps shifting based on CalPERS financial performance from year to year.
“Is that a number we’re going to pay this year, next year, this decade? Unlikely, unless we try to exit CalPERS,” Sorensen explained.
Councilmember Addison Winslow observed that even outsourced workers still need to be managed.
“I hear a lot from city staff of difficulty managing contractors, which is something that continues,” Winslow said, “and is maybe even worse, especially when switching from one contractor to another over time.”
Councilmembers Bryce Goldstein and Katie Hawley also raised concerns about outsourcing more services, but Van Overbeek’s motion carried 4-3 along ideological lines, with Johnson, Vice Mayor Dale Bennett and Mayor Kasey Reynolds. Goldstein, Hawley and Winslow voted against it.
Why the split vote?
“These are very young people – they don’t have experience with business or have yet built a career,” Van Overbeek told News & Review about his progressive colleagues on the council. “I mean, the oldest one is 31, and I don’t think they understand the problem.”
He then elaborated. “I don’t think they understand their priority. My priority as a city council member is to deliver services to the citizens of Chico in the most efficient way possible, high-quality services. My priority is not paying the employees of the city as much money as possible.”
Councilmember Goldstein told CN&R that she voted against Van Overbeek’s motion “because I value our city employees: I am against outsourcing their jobs and micromanaging their work … Our City Manager and staff already assess potential savings when preparing our annual municipal budget. I don’t see a need to micromanage this process and make them use more hours and funds.”
She added, “This is frankly a disingenuous attempt to appear fiscally conservative by the Republicans on the Council. All four right-wing Councilmembers lost that credibility in June when they readily voted at the last minute, against staff recommendations, to slash our road repair budget in order to add more Fire Department staff.”
“We were presented with the option to reduce vacant positions within the Police Department to balance this cost, but the Council majority chose to cut Public Works funds instead,” Goldstein went on. “The right-wing Council majority has made it clear that they value certain public employees above others.”
Regarding the prioritization of police, fire and paramedics, Van Overbeek had a response.
“There are some things that are mission critical,” he answered. “Public safety is number one. People want to feel secure.”
But Goldstein and Councilmember Hawley both feel that ignoring police and fire departments is unfair to other city workers.
“I agree that policing and firefighting ought to be done by city employees,” said Hawley. “But their departments include a diverse array of services that are no less able to be outsourced than public works and community development.”
Hawley mentioned the “Chico Animal Shelter and many administrative services” as examples, saying that the motion itself was “biased towards staff of a certain job title.”
Hawley also told News & Review that city department heads already look for more efficiency, including outsourcing opportunities.
“It seems to be directing staff to do something they do in conjunction with our Finance Department already,” Hawley reflected. “Considering the cost and quality of services obtained from outsourcing city roles is done all the time, and regularly leads to alterations in city practices … That’s why minor staff changes are made during each fiscal budget cycle; if a city service can be done in a more cost-effective manner without inhibiting the quality of services, the department heads and city manager already recommend those changes to be made each budget cycle.”
Is outsourcing the best way to save money?
The Chico Taxpayer Association maintains that contracts with city workers should have obligated them to pay for more of their own retirement costs, and that Van Overbeek’s motion is irresponsible from a conservative point of view. On its website it asks the councilmember: “You have signed onto contracts offering guaranteed raises and abysmally low shares of benefits costs without wondering where the money would come from to pay for these raises, or what effect the raises and underpayments would do to our CalPERS obligation. Why didn’t you ask these questions during the Measure H campaign?”
Van Overbeek answered that 2022’s Measure H sales tax increase primarily funded a police force “that was literally melting down,” and not intended for the UAL. “We said we were going to spend the money on cops and roads,” he said.
Hawley thinks outsourcing is not the sole alternative available.
“The only way to significantly decrease our unfunded accrued liability is to reduce the number of city employees en masse,” Hawley argued. “Cities that pivot to more outsourced services often have higher costs of immediate service despite decreased UAL, have fewer benefited jobs locally, and this would hurt the stability of the middle-class labor force in Chico.”
She concluded, “I predict that the forthcoming report will be hurtful our city’s employee/council relations.”
TVO’s comments about his fellow council members are demeaning and disingenuous. Those are grown adults who campaigned and were elected to the council, and they are arguably more in touch with what everyday people need and want than Tom is. Personally, I’m thrilled by city councilors who prioritized people over the fantasy of saving money via outsourcing to businesses, which, as Winslow stated, still need to be managed, and now, apparently, held accountable by… whom? Thank you CNR and Ken Magri for your excellent reporting.
Thank you for the outstanding Reply. Logical, fact based, and accurate!