Salem’s growing obligation to pay out millions for employee pensions is worsening the city’s budget crisis.  The city faces an expected budget gap of nearly $18 million next year in its general fund, which pays for most city operations like emergency services and parks. Much of that gap is thanks to an unexpected increase of millions in the amount Salem must pay into the state’s retirement system next year. The city learned of the increase in October. The result is Salem will spend about $11 million more on pension obligations next year, including $6.6 million more in the general fund. “There is nothing we can do about it. It is one of the ones that is well outside of our control,” Chief Financial Officer Josh Eggleston said. “It is just one piece of the puzzle, but it is an extremely impactful piece.” The city now expects pension obligations to cost the city almost $40 million next year, including $25.6 million in the general fund, Eggleston said. The city’s total general fund budget for this year was $188 million. The amounts the city pays into pensions are set by the board for the state Public Employees Retirement System, usually called PERS. The state collects money from local government employers like cities and school districts, and invests it. Investment earnings make up the majority of benefit payments to retired city employees If investment earnings fail to keep up with the money owed to retirees for pensions, Eggleston said, the city must pay more to make up the difference. Starting next year, Salem will pay a rate of at least 24% of its payroll into the state retirement system, up from 18% this year. The pension cost increases affect budgets all across the state and at all levels of government. The Salem-Keizer School District will spend about $20 million more than expected on pension expenses next year, Superintendent Andrea Castañeda announced last week. Growing pension costs for Salem-Keizer would eat up proposed state school funding increase “It is a pretty dynamic system. It doesn’t take much for a bad year of investment earnings for those rates to just go up quite a bit,” Eggleston said. “This increase was above and beyond what we thought it would be, but we’ve seen significant increases.”  When the city got to work forecasting next year’s budget, it was already anticipating a sizable increase in expenses associated with pensions. Eggleston said a decade ago the city paid out around $10 million for pensions. Today it pays more than double that amount. Eggleston said while PERS increases are impactful, they are only one factor affecting the city’s budgetary crisis.  The difference is that while other payroll expenses like salaries and benefits can be negotiated with unions, PERS expenses are set by the state and are something the city has no control over. Pension rates “were impactful even before this unprecedented increase. But it is just like all of our other costs. They are going up faster than our revenues,” Eggleston said. “It is just continuing to create this structural imbalance where revenues don’t grow fast enough to keep up with expenses.” Contact reporter Joe Siess: [email protected] or 503-335-7790.A MOMENT MORE, PLEASE – If you found this story useful, consider subscribing to Salem Reporter if you don’t already. Work such as this, done by local professionals, depends on community support from subscribers. Please take a moment and sign up now – easy and secure: SUBSCRIBE. The post Ballooning retirement costs a major contribution to Salem’s budget crisis  appeared first on Salem Reporter.