San Diego is staring down a financial crisis that could be far worse than anyone anticipated, as the city’s annual pension payment skyrockets to a staggering $563.2 million. But here’s where it gets controversial: this record-breaking figure, revealed by the city’s pension actuary Gene Kalwarski, is nearly four times higher than earlier predictions—and it’s largely due to employee pay raises that have outpaced expectations. This isn’t just a number; it’s a looming threat to the city’s already strained budget, adding at least $20 million to a projected $110 million deficit for the upcoming fiscal year.
Kalwarski had initially forecast a modest $7 million increase in pension payments for this winter, from $533.2 million to $540.1 million. But in a shocking twist, he revised that estimate upward by a whopping $30 million this week. What’s even more baffling? This surge comes despite a booming stock market, which typically eases pension burdens by boosting investment returns. The city’s pension system saw gains of $89.2 million, yet these were overshadowed by employee raises that inflated long-term liabilities by over $140 million.
And this is the part most people miss: the city’s habit of granting larger-than-expected pay increases has become a recurring nightmare for its pension system. Kalwarski pointed out that for seven years, salaries have risen beyond his projections. City officials argue these raises are necessary to offset a wage freeze from 2013 to 2018, claiming San Diego’s municipal salaries lagged behind other cities. But with the average city employee salary now at $113,800—a 7.4% jump from last year—questions arise: Are these raises sustainable, or are they digging the city into a deeper financial hole?
General employees received 5% raises last July, while police officers, lifeguards, and firefighters saw increases ranging from 3% to 4%. These hikes come on top of automatic pay bumps tied to years of service. Meanwhile, the city’s unfunded pension debt has shrunk slightly, from $3.49 billion to $3.46 billion. Yet, Kalwarski’s prediction of a $131 million drop in debt fell far short of reality, with the actual reduction being just $27.9 million.
On a brighter note, the funded rate of the city’s pension system hit 76.1%, its highest since 2008. But even this silver lining is debated. Kalwarski notes that while the 2026 ratio is lower than 2008’s 78.1%, today’s projections are more conservative, stripping away the overly optimistic assumptions of the past. Still, the city’s annual pension payment is expected to climb again next year to $573.2 million before dropping to around $500 million from 2029 to 2033.
Here’s the kicker: not all of this burden falls on the city’s general fund, which covers only 73% of pension system workers. The revised pension payment will likely push the general fund’s share from $383 million to $410 million. And remember that $110 million deficit? It’s already considered an understatement, with a new $23 million shortfall announced last month due to lower-than-expected revenues and higher expenses. Emergency cuts may be on the horizon.
As Kalwarski presents these figures to the San Diego City Employees Retirement System (SDCERS) board, one thing is clear: the city is at a crossroads. Are these pay raises a fair correction for past wage freezes, or are they unsustainable luxuries in the face of mounting debt? The board won’t formally adopt the payment until March, but the debate is already heating up. What do you think? Are San Diego’s financial priorities in the right place, or is this a recipe for disaster? Let’s hear your thoughts in the comments.
