California League of Cities: local agencies cut maintenance because “revenue growth from the improved economy has been absorbed by pension costs”

6 Sep

Let’s have a good laugh, cause we probably need one.

 

 

I think that clip is a good analogy of the way public agencies spend money.

Seriously, I’ve been mulling over an article from Edward Ring, a financial analyst, co-founder of the California Policy Center. It’s a good read to get you ready for Halloween. See the link at the bottom of this post. 

Okay kids, turn down the lights and let’s sit around in a circle and see who pees their pants first.

In 2018, the League of California Cities released aRetirement System Sustainability Study and Findings.”

Key Findings”:  (1) City pension costs will dramatically increase to unsustainable levels, (2) Rising pension costs will require cities to nearly double the percentage of their general fund dollars they pay to CalPERS, and (3) Cities have few options to address growing pension liabilities.

According to CalPERSPublic Agency Actuarial Valuation Reports,”  over the next six years, participating agencies will need to increase their payments to CalPERS by 87%, from $3.1 billion in the 2017-18 fiscal year to $5.8 billion by the 2024-25 fiscal year.

And that, according to Edward Ring, is a “best case scenario”.   This guy could scare the shit out of Stephen King.

“Bartel Associates used the existing CalPERS’ discount rate and projections for local revenue growth. To the extent CalPERS market return performance and local revenue growth do not achieve those estimates, impacts to local agencies will increase.”

Now remember, the actual authors here are CalPERS and the League of California Cities, Ring is just the storyteller, and I’m just repeating what he says. Here’s what I’ll add – Chico is a member of the LCC, in fact, Mayor Randall Stone has held office in the League. So this story is about Chico.

Ring continues his analysis, “The report from the League of California Cities includes a section entitled “What Cities Can Do Today.” This section merits a read between the lines”

You can go ahead and read his full article yourself, at least he’s got a sense of humor, but I’ll tell you what the league said, as it relates to the city of Chico, as well as Chico Area Recreation District.

1 – “Develop and implement a plan to pay down the city’s Unfunded Actuarial Liability (UAL): Possible methods include shorter amortization periods and pre-payment of cities UAL. This option may only work for cities in a better financial condition.”

Both the city and CARD have already done this. For example, in 2015, CARD ignored a consultant’s report that Shapiro Pool could be saved for about $550,000, instead making a $400,000 side fund payoff to CalPERS.  The city of Chico has also been stepping up their payments, we’ll get to where that comes from in a minute.

2 – “Consider local ballot measures to enhance revenues: Some cities have been successful in passing a measure to increase revenues. Others have been unsuccessful. Given that these are voter approved measures, success varies depending on location.”

The city of Chico and CARD have been hiring consultants to pursue tax measures since 2012. The common factor is former Chico city manager Tom Lando, who has sat on the board at CARD for over 4 years now, and who has also managed the Feather River Park and Rec District in Oroville. Lando is a pensioner, and receives one of the biggest pensions paid out to a city of Chico employee since the death of his predecessor Fred Davis. Of course Lando Man wants CalPERS to be funded.

https://chicotaxpayers.com/2012/01/30/heres-why-lando-wants-to-raise-your-sales-tax/

Lando was the guy who floated an MOU in the early 2000’s to attach city salaries to revenue increases “but not decreases“. Ring discusses such measures.  We’ll discuss that later.

3 – “Create a Pension Rate Stabilization Program (PRSP): Establishing and funding a local Section 115 Trust Fund can help offset unanticipated spikes in employer contributions. Initial funds still must be identified. Again, this is an option that may work for cities that are in a better financial condition.”

Back to #1.  Despite claims that they are in poor financial condition,  both local agencies have established such programs, and have been siphoning money that should have gone into maintenance and capital projects to “step up their payments” into their pensions. That leads to # 4.

4 – “Change service delivery methods and levels of certain public services: Many cities have already consolidated and cut local services during the Great Recession and have not been able to restore those service levels. Often, revenue growth from the improved economy has been absorbed by pension costs. The next round of service cuts will be even harder.”

That’s where I had to stop reading for about a week, I felt like my blood pressure was going to blow my eyeballs out of my head. This is the evidence, I mean, we all knew it. This is where they admit it.  ” revenue growth from the improved economy has been absorbed by pension costs.”  We’ve been lied to – the economy has been improving but the public employees have been stealing all the money for their pensions. And now, as Chico Assistant Manager Chris Constantin has been threatening in his presentations, “The next round of service cuts will be even harder.” You know it and I know it – they’ve been screwing us on purpose. Think Bridgegate.

5. “Use procedures and transparent bargaining to increase employee pension contributions:  Many local agencies and their employee organizations have already entered into such agreements.”

Ring says,   “(reading between the lines) – MAKE BENEFICIARIES PAY MORE. Good idea. The League of California Cities might expand on the feasibility of this recommendation and provide examples of where it actually happened (cases where employees agreed to pay more towards their pension benefits but received an equivalent pay increase do not count)”

Yeah, cases where employees agreed to pay more towards their pension benefits but received an equivalent pay increase do not count.  Ann Willmann of CARD and city of Chico management have all been given raises to more than cover their “extra shares”. And now, only now, “classified” CARD employees (management) pay 8%, and PEPRA (essentially, non-management employees) only pay 5.5% of the total agency contribution of 14%. City employees pay confusing shares, covered below.

The Public Employee Pension Reform Act (PEPRA) supposedly requires all employees pay 50% of agency costs. CARD “classic” staff has agreed to pay 1% more. I don’t know why CARD PEPRA employees are only paying 5..5%, they may still be phasing in.  

City of Chico employees have a totally different set-up, which confirms that the individual boards and employees have a lot more to say about this arrangement than either Chris Constantin or Ann Willmann will admit. 

I asked City Finance Mangler Scott Dowell (formerly with CARD, there’s just so much footsie in local government) what the shares were.  According to Dowell, the city pays different amounts for “miscellaneous” (everybody who is not a cop or  firefighter) employees and “public safety”, as well as “classic” and “PEPRA”.  Pay attention.

While CARD pays 14% total on all employees, City of Chico pays a  total of 21% for miscellaneous classic  and 20% for PEPRA.  For public safety employees (CPOA, IAFF), the city pays 31% for classic, and  33% for PEPRA. The employer/employee split is as follows:

  • miscellaneous employees: classic – employer cost  10.235%,  employee cost 11%;  PEPRA –  employer cost 10.235%   employee cost  9.75%
  • public safety: classic – employer cost 18.843%, employee cost 12%;  PEPRA – employer cost  18.843%, employee cost 15%

Dowell says the figures above include a 3% share of “employer cost” paid by employees. That’s confusing. That would make the “employee share” less than half the total cost. According to PEPRA, shouldn’t they just be paying half? Why say they are paying 3% of the employer’s share, and it only amounts to half? And, management (classic) make big yaya about paying 1% of “employer cost” – but PEPRA pay less than the employer share? What the heck?

Dowell also said that CPSA (public safety) employees pay 6% of “employer cost”. What? He says that is included in the figures above. You see, both classic and PEPRA public safety employees pay less than half.  And that includes 6% of the “employer cost”? What? Look – fire department classic members are paying 12% to the city’s 18.843% (19%). That’s not 50% of total costs. Do they think we don’t know the math?

So that all leads to the POB – pension obligation bond.

 6 – “Issue a pension obligation bond (POB): However, financial experts including the Government Finance Officers Association (GFOA) strongly discourage local agencies from issuing POBs. Moreover, this approach only delays and compounds the inevitable financial impacts.”

Both the city of Chico and CARD have said they will use the proceeds from their proposed tax measures to secure a bond. What kind of bond they have not specified, but I don’t know if they need voter approval to do this. Constantin has suggested issuing bonds for road and street maintenance. Whether or not Contantin is lying, here’s Ring’s analysis:

6 (reading between the lines) – GO INTO DEBT TO PAY OFF DEBT. Pension obligation bonds are at best a dangerous gamble, at worst a deceptive scam. The recommendation itself (above) dismisses itself in the final sentence, where it states “this approach only delays and compounds the inevitable financial impacts.”

Yeah, going into debt to pay off debt. I think the old people called that “robbing Peter to pay Paul.”

Ring makes an interesting observation. “Not everyone wants to blow up the defined benefit system,”  referring to the CalPERS’ model of guaranteed payouts.

“I think defined benefit is a tremendous opportunity. It can be sustainable. It was sustainable. And then they jacked up all the benefits by 50 percent and made it retroactive — basically doubled liability overnight. Now, they’re not sustainable. Make them sustainable again.”

Look back to #2 – that’s where Tom Lando, in the early 2000’s, pushed through a “memo of understanding”, getting a weak and stupid bunch of council members to sign off on attaching salaries to revenue increases “but not decreases”. That guy is the head of a very foul smelling fish.

Ring is a good read, he’s written extensively on this crises, how we got here, and how he thinks we can get out. 

https://search.yahoo.com/search?fr=mcafee&type=E2 LLP11US105G10&p=Edward+Ring+-+how+to+make+CalPERS+sustainable+again

 

How to Restore Financial Sustainability to Public Pensions

2 Responses to “California League of Cities: local agencies cut maintenance because “revenue growth from the improved economy has been absorbed by pension costs””

  1. bob September 6, 2019 at 5:44 pm #

    You sure would never see the ER or News and Review going into this kind of detail regarding the pensions. All they will do is repeat what they are told by CARD, the City Council and the bureaucrats. You can count on both papers endorsing CARD and the City’s tax increases.

    And it seems people just don’t care. Most won’t vote and the majority of those who do are feeding at the public trough or have no idea how ridiculous the truth is.

    And speaking of ridiculous now it looks like when CalPERs screws up and gives the retirees even more than what they are “entitled” to, the taxpayers will now be on the hook. Even Brown wouldn’t go for that as besides being ridiculous, it’s an open invitation to even more pension spiking.

    But again, no one cares. How can the public be up in arms about this when they vote these criminals into office and then vote for their tax increases?

    https://www.sacbee.com/news/politics-government/the-state-worker/article234770067.html

    • Juanita Sumner September 7, 2019 at 6:08 am #

      Thanks for reading this stuff, and I appreciate your submissions and comments. This news from CalPERS doesn’t shock me, but it’s something people need to know that they won’t hear from the local media.

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