Local Transit Authorities Address Fiscal Concerns
On Thursday, local transit authorities managed to sidestep what they termed a “fiscal cliff” by implementing a significant reduction in employee pension contributions totaling $37.3 million over the next seven years—an overall cut of more than 26%.
This action is expected to free up over $5 million annually, aiding MTS in maintaining operations for the San Diego Trolley and over 100 bus routes. It also aims to lessen a future deficit for the Metropolitan Transit System, which is projected to exceed $100 million each year.
However, the decision, which passed with a contentious 12-2 vote, carries considerable long-term implications for both the system and the taxpayers who foot the bill.
The immediate relief was achieved by extending the pension plan’s debt repayment timeline from 2038 to 2045, along with increasing annual payments across an additional seven years.
MTS officials indicated that while savings from the lower initial payments could seem appealing, they forecast that the subsequent larger payments will actually result in an additional $51 million in costs over time. This figure was not included in preliminary documents, revealing itself only after persistent inquiries from board members and was presented in the context of potential service cuts.
“We need to consider the public interest we aim to protect,” stated MTS CEO Sharon Cooney. “This forms part of the broader strategy.”
This marks the first time since 2012 that MTS has taken the drastic measure of essentially overhauling its pension system and restarting the repayment of its $145.6 million pension debt.
Rather than adhering to the former 12-year repayment schedule, the MTS board opted to prolong it to 20 years to decrease immediate financial pressures.
Meanwhile, the city of San Diego also grapples with substantial deficits and attempted a similar approach in the spring of 2024 but was unsuccessful. The city’s pension board dismissed the request, citing insufficient creditworthiness.
Council member and MTS board member Vivian Moreno, who opposed the pension bill, expressed concern about the projected $51 million cost increase. “I’m not thrilled about this,” she remarked. “What legacy are we leaving for MTS’s future board?”
Moreno had to repeatedly urge MTS officials to accurately calculate the overall cost increase tied to the pension plan revisions, which was initially absent from the board’s documents.
After Moreno’s inquiries, staff provided an early estimate of $25 to $40 million, but after further review by Councilman and MTS Board Chairman Stephen Whitburn, they calculated a total of $51 million—more than double the earlier figure.
Moreno pointed out to Cooney that this request shouldn’t have come as a surprise, given that he had asked for it the day prior. Cooney mentioned that the request for Thursday’s early meeting, set for 9 a.m., came late Wednesday.
Later, Moreno’s concerns found support from Chula Vista Mayor John McCann in opposing the pension plan.
Despite the long-term costs, Whitburn expressed satisfaction with the actions taken on Thursday.
The new benefits plan decreases MTS pension payouts scheduled for July from $21.9 million to $16.5 million. If similar reductions continue over the next six years, total savings could reach $37.3 million over seven years, bringing total payouts down from $142.1 million to $104.8 million.
This year’s disbursement was expected to rise from $21.2 million to $21.9 million due to salary increases last fiscal year that exceeded pension actuary estimates by 3.7%.
While some critics deem such pension strategies as irresponsible, regulators and actuaries affirm that the approach remains within accepted actuarial standards.
Anne Harper, an accounting principal at Shearon, the firm overseeing MTS’s pension, noted that the new plan marginally reduces the pension plan’s liabilities each year, with no increases anticipated until 2045.
Harper mentioned that MTS has recently adjusted retiree life expectancy estimates upward while also lowering investment return forecasts to 6%—the most conservative rate in California.
It’s understandable that MTS adopts a cautious stance compared to other pension plans. This is primarily due to MTS operating essentially as a closed system, with most new hires since 2012 being enrolled in 401(k)-style retirement schemes rather than traditional pensions.
Closed pension systems typically favor conservative investments because of fewer new members and an aging membership nearing retirement.
Projected deficits of $120 million in fiscal year 2029 and $145 million in 2030 have led MTS officials to assess all transit services for possible cuts.
Harper emphasized the necessity for MTS to balance its annual payments with enough contributions to the pension plan, ensuring retirees receive their benefits when due.
MTS Deputy Chief Financial Officer Mike Thompson stated that the pension adjustments are part of an overarching strategy aimed at managing the impending budget deficit more effectively. “Our goal is to navigate through 2030 with a certain level of sustainability,” he said.
