The Elephant in Election 2020: The pension deficit and staff’s efforts to shift the burden fully onto the taxpayers

7 Oct

Yes, I am still pissed off about being locked out of the Finance Committee meeting two weeks ago. But, I got a flash drive from staff, and having loaded it onto my laptop, I will post that video asap, with my usual snappy narrative. 

I wish I had waited until I saw the  meeting. I had endorsed all three members of that committee – frankly, on a “lesser of evils” strategy. After I watched the meeting, I found myself even more in support of Randall Stone, while my feelings for Morgan and Schwab have cooled considerably. 

I still say those latter two are the best bet (mind you, we’re talking about gambling) in their respective races, but I can’t endorse them. If they were horses I’d turn them out to pasture. Both of them voted to take this Pension Obligation/Lease Revenue Bond scam to the full council. But I don’t expect their challengers would have done any different. They all have a vested interest in funding the pensions. 

Finance Committee Chair Stone was the one who reminded everybody at the meeting that the consultant’s proposal was assuming CalPERS would achieve their full investment target of 7%. The consultant acknowledged this fact, adding,  I quote, “but we know that’s not going to happen…”  He repeated almost those exact words several times in the subsequent conversation.

Even though Morgan acknowledged same – “we’re certainly not going to fix CalPERS, I don’t expect they’re ever going to do any better on returns…” – he also said “we owe it to staff...” to continue the conversation with full council. Schwab agreed. Admitting that the conversation “raised a lot of questions,” she predicted the consultant would have a “much better, more prepared presentation for council.” Yes, I’m sure he will, having heard the criticisms of the plan, he will downplay the risks and play up the supposed benefits. 

Stone was the only committee member to speak plainly about the risks of these schemes – namely, the CalPERS debt and the bond debt will be paid ahead of any other expenses, including staffing and services – including law enforcement and fire personnel. The consultant spelled that out very clearly under the power point heading “Eyes Wide Open to Risks” .  If these proposals were ski runs they would be labeled “Black Diamond”.

Stone was the only one to openly discuss the truth behind these bonds. ” I’m uncomfortable shifting the burden from the beneficiaries to the rest of the city.” Meaning, not only does this proposal shift the burden of payment from the employees to the taxpayers, it shifts our resources away from services to paying the pensions. Period. Both the consultant and Chris Constantin made it clear this was a risky proposal that could bottom out our General Fund and cause layoffs. The consultant specifically mentioned public safety. So, this proposal to guarantee the pensioners their pensions would come at the cost of future employees, and that means, city services.  

The pension deficit and staff’s efforts to shift the burden fully onto the taxpayers is the Elephant in the upcoming election, but nobody cares? Chair Stone announced that no other members of the public had signed in, having acknowledged that I couldn’t get in. So, I’m pretty sure the only candidates who “attended” the meeting were the committee members. I wonder where the challengers stand on any of this? You might want to ask your candidate about that, if your district is on the ballot. 

The consultant set a timeline for this bond – including the discussion period – staff hopes to be signing off on this deal by next spring. So the public needs to weigh in. Now, because, the “upside” to these bonds, as pointed out by the consultant, is there’s no “validation process,” meaning, no voter approval. Is that really okay with you? 

It’s not okay with me, so I wrote a letter about it:

The city Finance Committee discussed restructuring the pension debt – now at over $280,000,000, including $140,000,000 interest. Two schemes presented: 1) Pension Obligation Bond, 2) Lease Revenue Bonds, using our city streets as collateral. The borrowed money would be invested. Ideally, the investments would pay off, and staff would make bigger UAL payments, eventually achieving a lower interest rate from CalPERS.

There is a razor’s edge to this proposal. Worst case and very likely scenario: both CalPERS and the city fail to meet their investment goals, the taxpayers end up owing both the bond investors and CalPERS.

Committee member Randall Stone commented that the consultant’s recommendation assumes a CalPERS investment return of 7%. The consultant acknowledged this fact, admitting, “but we all know this isn’t going to happen.”

Staffer Chris Constantin added, if the city’s not able to pay, “they could forcibly take the money from the General Fund… “ without regard to direct impacts on staffing and services. The consultant reported that a large Southern California county may soon lay off public safety personnel “so they don’t violate their bond covenants.”

Stone voted NO, commenting, ”I’m uncomfortable shifting the burden from the beneficiaries to the rest of the city.” Members Schwab and Morgan voted YES. Morgan admitted he doesn’t expect CalPERS “will ever do any better on their returns…” Schwab concurred.

The Government Finance Officers Association does not recommend these bonds, their first objection being CalPERS’ history of poor returns. What are Schwab and Morgan thinking?

 

2 Responses to “The Elephant in Election 2020: The pension deficit and staff’s efforts to shift the burden fully onto the taxpayers”

  1. BC October 7, 2020 at 7:27 pm #

    As a general rule, I don’t spend much time worrying about how the failures of municipal government affect rich people. If you are rich, you are far less effected by the bad decisions of a ineffective and thoughtless municipal governing structure,

    If you hit a pot hole, you simply go out and lease a new $125,000 BMW or Mercedes, or at least have your $1200 dollar alloy wheel straightened. ( And detail the car while you are at it) If they raise a use tax or add a bond interest, you just write the check-electronic bill pay is painless. It doesn’t matter that the One-Mile is a poorly maintained, unsafe, drug infested crime area, because you avoid it by taking your family to a private swim and tennis club. And why worry about the homeless camping in the park, when you vacation in Italy/Florida/Hawaii/Colorado/etc.

    The folks I worry about are the population most effected by expensive municipal decisions. While municipal rule making predominately serves the civic employees who write the rules, the most significant negative impacts of poor municipal government are felt by minorities, people of color, the poor and disabled, and those who depend on City Services. Its not a stretch to say that in Chico (as in Sacramento and Washington) the political class makes decisions that impoverish the most vulnerable while insulating themselves from the impact of their decisions.

    Which brings us to the inequity of municipal pensions.

    One of the most important benefits of a municipal pension, is that the taxpayers insulate the pensioner from CalPers Investment loss. Start with the assumption that the city makes a “full” pension contribution to CalPers each year. (They don’t) A full contribution would be defined as that contribution, which if it earns the CalPers projected rate of return, would grow into a large enough sum to pay the retirement benefits earned by the employees for that initial year of contribution. And CalPers says that they will earn 7% per year, net to the fund, after fees and charges. And if they fall short, who pays? The taxpayers, that’s who! Chico taxpayers are guaranteeing the stock and bond market returns of the well heeled, well paid city officials. Chico taxpayers with an average income of $24,900, who dont own a stock or a bond and live paycheck to paycheck, are guaranteeing pensions for the city’s privileged employees.

    If that makes your eyes glaze over, try this: Im going to take $100 million dollars ($100,000,000) go over to the local Indian Casino. Im going to gamble it in the hopes of making a $7 million dollar profit. If Im lucky, I get to keep the $7 million. If I lose, the taxpayers in the City of Chico will borrow that money, give it to me, and pay off their indebtedness over the next 30 years.

    To use a credit card example: The City has run up so much credit card debt, that they cant even make the minimum payment. So while they keep spending at the same or greater rate, they mortgage the house to pay down the credit cards. It ends when you lose the house-Bankruptcy. Along the way the can’t pay to keep the house up (deteriorating municipal facilities), cant fix the driveway (potholes and streets), cant afford a security system (fire and police), and eventually can not afford to put food on the table for the family (homeless).

    And the folks who will suffer are the people who depend the most on city cervices which can never be adequately funded because the spending on entitlements for the rich folks just never stop.

    • Juanita Sumner October 8, 2020 at 6:14 am #

      I hope you don’t mind I posted this as a regular page on the blog. Thanks!

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