The City is now soliciting suggestions on how to spend the $550 million Chevron windfall.

The best solution would be to use the bulk of it to pay off unfunded pension and OPEB liabilities. It is hard to find exactly what that number currently is, but in 2020, Richmond had a net pension liability of $330,395,675, not including OPEB liabilities, and it has surely increased since then.

The effects of pension and OPEB liabilities are not well understood by either the general public or public employees, but the short version is that these liabilities dramatically increase the annual cost to the City of employee benefits, thus reducing the amount of revenue that can be devoted to other programs and projects including such things as street and infrastructure maintenance, additional staffing and capital improvements.

Until the Chevron windfall, no one had a clue how the City could ever discharge those liabilities. In 2022, the state auditor reported, “the city paid more than $35 million in retirement costs in fiscal year 2020-21, which accounted for almost a quarter of all general fund expenditures. To make matters worse, CalPERS anticipates Richmond’s annual pension costs will reach $53 million within five years,” (https://information.auditor.ca.gov/pdfs/reports/2021-806.pdf).

While the public is suggesting spending the Chevron windfall on items such as streets, sports fields, police, and the homeless, it may be counterintuitive that paying down the pension and OPEB liabilities instead will actually free up tens of millions of dollars to spend on those things.

As the pension and OPEB liabilities are eliminated, the City also has an opportunity to move from a defined benefit pension plan to a defined contribution plan, similar to 401K plans, thus eliminating any future prospect for unfunded plans. The City of Lafayette uses a defined contribution plan that works well. Public employee unions are suspicious of defined contribution plans, but the fact is that they can be structured to deliver essentially the same pension levels as defined benefit plans, and the financial stability they provide can provide even more resources to public employees.