The city of Bakersfield plans to use $12 million in revenue from its recent sales tax increase to help pay for its ailing pension system, a move long expected but objected to by some local residents.
The city will use the cash influx to change the way it pays for its pension system, CalPERS. It claims the money will only be used for cash-flow purposes, and still be in the bank at the end of each year through its new system.
Instead of making the CalPERS payments on a monthly basis, the city will instead pay for the entire system once a year.
The move is expected to save $8.7 million over the next seven years. CalPERS charges a 7.5 percent interest rate over the 12-month time period to cities who pay on a monthly basis.
Because expenditures exceed revenues for the first five to six months of the year, the city historically has not had enough cash in its general fund reserves to make the annual payment.
By paying annually, the city expects to ultimately save money, and potentially help the city’s bond rating.
“In addition to making it possible to save on CalPERS cost by making an annual up-front payment, increasing our cash reserves would also strengthen the City’s fiscal stability and firm up our standing with the rating agency and to least protect, if not improve our current credit rating,” City Manager Alan Tandy said in a memo released Friday.
The current balance in the general fund is $13.1 million, according to the memo.
The CalPERS payment due this July is estimated to be $20.8 million, the memo said, and will increase to $36.1 million by 2024.
The city plans to use a portion of the savings to add $1 million to the general fund reserve each year, to increase the reserve to $18 million by 2024.