Tackling Unfunded Pension Liability with Innovation.

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Dear Carlsbad,

Carlsbad has aspirations around innovation and sustainability (social, economic, and environment), but the looming unfunded pension liability has many folks unsettled.

Carlsbad has been strategically paying down its share, on the advice of our stellar finance department staff. It's important to note that our finance department takes the lead on finance matters in the City, under the direction of the citizens of Carlsbad (Proposition H), and by Council policy based on General Fund Operating Expenditures methodology established in 2008 and amended in 2010.

Council policy states: "The minimum reserve of the General Fund balance would be 30% of General Fund Operating Expenditures and the target reserve would be a range of 40% to 50% of General Fund Operating Expenditures." These are extremely conservative targets.

Council policy, coupled with the expenditure limitation established by the citizens of Carlsbad in 1982 (Proposition H), requiring any general fund spending of over $1 million to be put to a direct vote of the people, have kept us fiscally resilient and steady over the years.

The people vote for the City Treasurer, who handles our investment portfolio and monitors our revenue streams and interacts often with our Finance Department Staff.

There is no single, elected individual on Council who makes decisions or gives direction to staff for purposes of budgeting, finance, or the crafting of policy that impacts our budget, reserves, or revenue streams. I have run into quite a number of folks who are under the impression that the position of Mayor holds more power in this area than is actually the case. Every budgeting decision that is made is a full Council decision, each member (including the Mayor) contributing equally. A balanced budget is the result of good, fiscally conservative policies (citizen and council crafted), great recommendations from our finance department, Proposition E–the growth management plan established by the citizens of Carlsbad in 1986.

There are decisions the Council majority has made recently, like approving studies that the people reject (Dover Kohl), or keeping property that is expensive in its upkeep (Farmer's Building), that represent just a few areas of opportunity for us to make more sound financial decisions for our City.

I would advocate for a more participatory, transparent budget process for our residents.

All that being said, the situation with unfunded pension liabilities (CalPERS) is the elephant in the room for every city in the State of California. Our Finance Department will be returning to Council this budget cycle with recommendations for a new, standing policy to address the paying down of the unfunded pension liabilities (UPF), but as a city nearing build-out (and with build-out, the cessation of developer fees that pay for infrastructure and facilities improvements), we are going to need to craft a way forward that keeps us economically thriving over time.

How we do this is a question that we need to have.

1) Do we increasingly focus on recreational tourism, relying on hotel room taxes, encouraging more hotels–quantity of hotel rooms emphasized so our Transient Occupancy Tax can remain 10% for hoteliers? Note: 10% is the same hotel tax Santee collects per room.

2) Find ways to focus on sales tax growth... autonomous vehicles and highway expansion that cuts into our neighborhoods to ensure sales tax pumps into the city through Car Country Carlsbad (the single largest source of sales tax revenue in Carlsbad)? More commercial along the coast (sales tax)? Or another attempt at building a mall on the lagoon (sales tax)...

The City is at the whim of consumers and economic mood when it comes to tourist dollars and sales tax. These are two of the three main sources of revenue for our City. If you haven't asked yourself why Carlsbad's policy for our reserve is 20%-30% higher than nearly any other government agency, it is exactly this: we rely largely on volatile sources of revenue to fund our City. The one exception, property taxes, has remained study.

How we remain economically vibrant and sustainable will shape who we will become. Or, we can choose our future's direction right now. 2018 is the year Carlsbad will make this choice.

What future aligns with our residents' vision of Carlsbad? What are our aspirations as a City?

I've pulled some thoughts directly from our General Plan ("regional leader in innovation and sustainability"), our Community Vision ("small, beach town feel, high quality education"), and from thousands of conversations with residents.

What we are looking for here is BALANCE. A future that sustains and preserves the quality of life we expect in Carlsbad, while fulfilling our aspirations to be a regional leader in innovation without losing our quaint, small town beach feel. Preserving our roots, while opening to the future.

Here are my thoughts:

If we are to maintain our high quality of life, without losing our identity in a rush to maintain our economic vitality, we need a fresh, long-term vision.

Since being elected to serve Carlsbad and running on a platform that included CleanTech, I have been working with folks (from Tesla to NRG to a variety of others in various sectors) to develop a way forward for utility-scale energy storage on the Encina Power Plant property. This will serve to move us toward energy and water security, while solving two of the main concerns with desalination: high energy intensity, which leads to high costs.

Sharing the concepts with local BlueTech innovators has uncovered the opportunity to develop multiple hydroelectric energy generators on the Encina site. The utility-scale storage facility would capture and store excess hydroelectric energy not being used. Coupled with an interactive and education-based Blue and Clean Tech innovation center on the property, Carlsbad would become a key center of education and innovation in the Blue and Clean Tech fields, while shifting toward a 100% clean, green, and blue future.

There is a great deal of interest and excitement at the prospect.

How do we move forward?

We first need to start where we are... and yes, how we tackle the unfunded pension liability and keep Carlsbad economically thriving is coming up.

What will the utility-scale energy storage facility capture? 100% renewable energy generated from small energy generators locally.

There is opportunity for rooftop solar throughout Carlsbad (and regionally). There is no need for solar or wind farms. However, Carlsbad does have about 60 acres on the border of Vista that has been studied as a potential site for solar, given no residential or commercial development can occur on the land (zoned public utility/gas lines beneath). This property also houses a 3 MW hyrdroelectric generator that the City owns and operates. To be effective and to eliminate the duck curve, we would need an energy storage facility on this site as well.

How we get to near total coverage on rooftops in Carlsbad will be dependent on how well the city is able to incentivize photovoltaic tech on both new development (commercial and residential) and through the retrofitting of buildings already present. This opportunity exists with the potential of Community Choice Energy and through the continued implementation of our Climate Action Plan.

A Community Choice Energy Joint Powers Authority would allow an elected board to negotiate energy costs for ratepayers they would be directly accountable to, while developing funds that would not go to shareholders, but would go to local, renewable energy projects (e.g. incentivizing rooftop solar, utility-scale energy storage, etc.) that would further decrease the costs of energy for our ratepayers over time, given the energy would eventually be generated and stored locally. The ratepayers would remain the sole beneficiaries of excess revenues.

This is both a unique opportunity for local energy control and a new source of revenue for cities who participate. There are multiple cities currently engaged in a feasibility study on Community Choice Energy. Carlsbad has chosen to take part in this study. Should we move forward, we could develop a Joint Powers Authority very much like the one we have currently with the Encina Wastewater Authority. Multiple local elected officials sit on the EWA board. They are held accountable for their decisions, rates, etc. by the people they were elected to serve.

Any excess energy stored in the utility-scale energy storage facility and generated from the multiple, local renewable energy sources (solar, hydroelectric, etc.), can be sold on the open market, generating substantial revenue for participating cities. Privately held systems such as this in South Australia have generated profit revenues to the tune of $800,000 in a matter of days.

This is exactly where Carlsbad will be able to not only tackle any unfunded pension liability issues, but will remain economically thriving for decades to come.

The future of energy and water globally is a cohesive system of local, renewable energy generators piping into large-scale energy storage, cleanly and efficiently fueling the desalination of water, while also keeping our residents' and businesses' lights on. California's last gas-powered peaker plant is currently being built on the site. The transition from one energy generating system to another will occur right here, in Carlsbad.

Carlsbad would be known as the first City to house such an endeavor, which is why a Blue and Clean Tech research and education campus with open space, room to roam, think, and dream even bigger would make an excellent addition on the property. Imagine a lab + aquarium/museum, similar to the Birch Aquarium.

The end results for our residents and for the region, will include decreased costs both in energy and decreased costs in water production via the desalination plant (100% renewable energy routed to the plant).

Finally, and importantly, I have been in a year-long conversation with local workers whose lives and livelihoods revolve around the kinds of jobs this effort would require. I have earned their endorsement. They know this means 100s of local jobs in the renewable energy and construction sector. This not only includes jobs in the development phase, but long term jobs in maintenance and operations.

We can do this, Carlsbad.

Dream Big. Act Locally.

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Please let me know if you have any questions or want to continue the discussion!
I'd love to hear your thoughts, Carlsbad!

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How you can help!