SAN DIEGO -- A report expected to be released Wednesday suggests the city of San Diego may not be able to pay all of its pension and retiree health care obligations without new sources of cash, a newspaper reported.

A confidential draft of the report obtained by the San Diego Union-Tribune lists city retiree and health care obligations of about $1.1 billion in future liabilities not listed on official balance sheets.

In the draft report, retirement officials paint a sobering picture of the $2.3 billion San Diego City Employees Retirement System, according to the newspaper.

The draft report suggests that the remedies to the system's fiscal problems might become a massive drain on city budgets for decades.

The report, according to the Union-Tribune, underscores new difficulties in a pension system already struggling with a $720 million deficit driven by years of declining financial markets, benefit increases for current city workers and years of underfunding of City Hall's obligation to the system.

Although officials say retirees have no reason to panic, the report says that some reserve funds might be depleted within three years, including one used to pay retiree health care premiums, according to the newspaper.

It also warns that even if City Hall follows through on its current policy of ramping up annual payments, achieving full payment by 2009, the city will still owe the system more than $423 million, counting interest. That does not include the health care costs.

According to the Union-Tribune, the most stunning aspect of the report to city officials is the $1.1 billion estimate in current dollars of the future costs of retirement health care insurance, for current retirees and for today's municipal workers when they retire. That liability is not being funded and appears on no official balance sheets.

"It's not the world's prettiest picture," retirement administrator Lawrence Grissom told the Union-Tribune. He said it is "without a doubt" the most challenging situations he has seen in 15 years of overseeing the fund.

Grissom manages the fund and reports to a 13-member board of trustees. He is scheduled to brief the City Council's Rules Committee and its chairman, Mayor Dick Murphy.

The report suggests remedies ranging from doing nothing to issuing pension obligation bonds to close the system's deficit, which would saddle the city with large new annual debt payments, according to the Union-Tribune.

Not detailed in the report is the import of decisions by the retirement board and City Council last November to allow the city to continue underpaying, according to the Union-Tribune.

A repayment plan calls for full payments by 2009. The report estimates the city's annual payment in 2009 at nearly $240 million. Last year, the city paid $54 million, according to the newspaper.

According to the Union-Tribune, the report also found that:

The city's Retiree Health Insurance Reserve, used to pay retiree health-insurance premiums, "will be depleted in two to three years absent any replenishment." That assumes no further benefit increases and 10 percent annual growth in health-insurance costs. The annual bill to the city is $15 million.

The city will owe $38.5 million to retirees by 2009 if it continues to not pay a benefit required under settlement of a court case known as the "Corbett litigation." Under that settlement, the city must pay retirees an amount each year equal to 7 percent of their total annual retirement pay. For a retiree receiving $24,000 annually, that's an additional $1,680.

Another reserve fund, the Employee Contribution Rate Reserve, is also predicted to "be depleted in two to three years." The reserve was created in 1998 to finance the city's obligation, struck in labor negotiations, to pay a growing share of the employee contribution to the system.