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Council rushing through closed meetings to forward the Pension Obligation Bond, Staff reports misleading – they want to ram this thing through before the taxpayers catch on

15 Mar

Last week Chico City Council and Staff confirmed my suspicion that they are using closed meetings to run Staff’s Pension Obligation Bond by the taxpayers. Without any notice to the public, and only 46 members of the public participating via Zoom, they combined two agenda items. The POB was supposed to be discussed as Item 5.12, but they summarily decided to discuss and vote on it during the Item 5.1 – Scott Dowell’s 5 year projection report.

While the POB was a small part of the 5 year projection, I don’t think it was appropriate to just move forward with the 5.12 discussion. Here’s the thing – I read the agenda ahead, and planned to participate in the 5.12 discussion. When I tuned in, there was no 5.12 discussion, and no explanation why. So, I got cut out. I don’t think that’s okay. 

So I asked the clerk what happened to Item 5.12.  She responded:

The POB was added to the 3/2/16 agenda (with items carried over from the 2/16/21 agenda). Because the POB was tied into with 5 year projection (Item 5.1.), staff discussed the items together.

Council took the following action:  A motion was made by Councilmember Morgan and seconded by Councilmember Denlay to authorize staff to continue exploring the CalPERS Unfunded Accrued Liability (UAL) restructuring including a legal validation process, applicable public outreach and analysis for possible pension obligation bonds, with it noted that this action does not commit the City to move in this direction. Staff was also requested to bring back more information to the Council regarding the process as it becomes available. The motion carried by the following vote:

AYES: Brown, Denlay, Morgan, Huber, Tandon, Reynolds, Coolidge    NOES: None”

I was just floored. Another smooth move under cover of COnVID. 

And of course the report is misleading.

“Staff is requesting approval to continue exploring the CalPERS Unfunded Accrued Liability (UAL) restructuring
including a legal validation process, applicable public outreach and continued analysis. This process would take
approximately four months and prepare the City should City Council decide to issue POBs in the future.”

It’s not a “restructuring,” it’s NEW DEBT. The “legal validation process” is completely administerial – no ballot measure, no voter approval. “Applicable public outreach“? Here’s what it says in the report: “Continued public education and information shared through reports to the Finance Committee and other public forums.” Really? There are no “public forums” right now, only Zoom meetings, with poor reception and limited participation. And that “continued analysis” is going to cost “$10,000 – $20,000”. That in addition to $25 – 30,000 for the “legal validation process“. 

Staff’s report also recommends “initiate a legal validation process” as Step 1, while “Continued public education” is Step 3.

Public education? Shouldn’t it be “public input”? 

So you see this whole thing is being ramrodded in as quickly as possible in closed meetings because they don’t want the public to find out what they’re really doing. 

Normally this is where I would tell you to write to or call your city council rep, but I keep hearing back from folks who have tried that, and got no  response. I can’t report any better from my rep Kasey Reynolds. And you see the vote above – unanimously idiots. So, I would say, don’t waste your time trying to contact them directly, write a letter to the editor of either the Enterprise Record or the News and Review, or both.

And if you really want to get your point across, you have to stick your neck out there a little.  Do your errands in a yellow vest, with “NO NEW TAXES FOR CHICO” scrawled across the back. Place a small sign in your car window saying same. If you have windows on your home facing the street, make 8 x 11.5 signs and post them in those windows. Get some blank postcards, write NO NEW TAXES FOR CHICO on one side, and send it to your rep via snail mail to their home. 

Arlo Guthrie said, “One guy is crazy, two guys are (bleeep!), but three guys – THAT’S a MOVEMENT. And he’s right.  They can ignore one or two of us, but I’m telling you, three, four, five more, and they start to pay attention. 

I will remind you until I’m blue in the face – if we let them sell these Pension Obligation Bonds, we are on the hook for the pension deficit FOR-EV-ER, not to mention, the new debt. Meanwhile, we will watch our streets and infrastructure deteriorate to 3rd World standards. As their investments fail, they will bottom out first the General Fund, and then all the other funds, to service the bonds and pay the still growing Unfunded Pension Liability. As you see in the report referenced above, Staff suggests “Projected costs [for the POB] are as follows and would come from the General Fund:  • Legal validation process: $25,000-$30,000.  • Public education and continued analysis by a municipal advisor: $10,000-$20,000.”

So don’t wait until it’s too late, and then complain – COMPLAIN NOW!

 

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Is Andrew Coolidge stupid or a liar?

10 Mar

I know, Chico First is a more fun website. I know, Rob Berry is more the action type, chasing Scott Huber around with a camera. Unfortunately, that circus is distracting people from something they should be paying attention to – that boring old Pension Obligation Bond that Mark Orme is currently trying to end-run around Chico voters/taxpayers. 

Luckily there are other eyes on council right now, folks who are educated and number-savvy and also hip to this scam. A friend of mine recently contacted council to discuss his concerns about the POB, and he got a response from his district representative, Mayor Andrew Coolidge. My friend told me I could use Coolidge’s response for a letter to the editor, so I did. Coolidge is either stupid or a liar – you decide.

Chico Staffers are asking council to implement a Pension Obligation Bond.  Recently a friend expressed his concerns to Mayor Andrew Coolidge, who responded, “That bond is basically financing the city’s obligation (around $147 million to cal pers) at a lower interest rate so it can be paid off over the long term, rather than on Cal Pers rollercoaster payback schedule.”

That is not true. A POB is new debt. The consultant explained, the city would invest the borrowed money in the stock market, hoping for  return enough to pay both the bond debt and the CalPERS debt. The consultant speculated an interest rate of 3 – 4% on the POB, compared to 7% paid to CalPERS. But, the consultant was clear – if investments don’t do well, then we still owe CalPERS, and we also owe the bond holders.

Government Finance Officers Association says POBs are not worth the risk. But Coolidge, without really understanding what he is talking about, says, “I do believe faced with this huge burden the city may wish to pay it through a bank with minimal interest rather than to a state fund (cal pers) with an awful history of robbing from taxpayers.”

That is not how a POB works,  we will still have to pay CalPERS. I don’t think any member of council really understands POBs, they are trusting Staff, who have everything to  gain. Meanwhile, the taxpayers, who will be permanently on the hook for the pensions, are left out of the conversation.

Contact Coolidge, and your district representative.

Yes, Charlie Harper was an idiot – are we idiots too?

6 Mar

Sorry to be a broken record these days, but I can’t emphasize enough that this Pension Obligation Bond that Staff is trying to force through will tank our town. While there is a complicated mess going on in our town right now, all related to poor management, the POB is the worst thing coming at us right now. I’ll repeat – this bond would cement the taxpayers into paying the pension deficit created by Staff. Meaning, all our resources would be drained into paying the deficit by way of the bonds – not to mention, a proposed sales tax increase. The POB comes before any other “obligations” – like roads, park, sewer and other infrastructure. And, as the economy tanks, the revenues will turn into debt, the biggest debt the city has ever taken on. Don’t be a dupe – the sales tax measure and the “roads” bond are just part of the exhaustive scheme to finance the POB.

Our biggest financial problem is Staff and their unsustainable salaries and benefits. Instead of trying to control employee costs, City Manager Mark Orme and Financial Services Director Scott Dowell have convinced council that we can just put it all under the rug with a POB. 

I’ll guess I’ve done more research on this topic than any member of council. I’ve tried to share what I’ve found – here’s an article I sent to Kasey Reynolds and Sean Morgan. I chose them because I’ve had a pretty good rapport with them in past, and the other night when they voted YES on the sales tax increase and the “roads” bond, they at least tried to fake wanting to vote NO. So, I think they are malleable – you know, like metal – if you put enough heat on it and beat it with a hammer, you might get what you want. 

A recent article from municipalbonds.com, 2/17/21

https://www.municipalbonds.com/education/pension-obligation-bonds-can-it-be-a-prudent-investment/

“In the recent years, the Government Finance Officers Association (GFOA) came out with a stern advisory for local and state governments to NOT issue pension obligation bonds (POBs) to meet their unfunded liabilities and made a case for them being ‘complex instruments that carry considerable risk.’ It’s also important to note that some of the large municipalities that filed for bankruptcies in the United States had some exposure to pension obligation debt – including the City of Stockton and City of San Bernardino – in the years leading up to their insolvencies.”

Here’s an important point I want to come back to later – 

“Primarily, these pension liabilities are based on a few factors: retirement age, mortality, projected salary increases attributed to inflation, across-the-board raises and merit raises, increases in retirement benefits, cost-of-living adjustments, valuation of current assets, investment return and other matters.”

For now I’d like to look at how exactly these bonds work and why the risk isn’t worth it for Chico.

Right now Staffers, especially Mark Orme and Scott Dowell, are trying to mislead council as to the risk of this scheme. 

“One of the biggest challenges and largest variables in the aforementioned list of factors is the investment return on the pension portfolio; this single variable is also responsible for creating the large unfunded liabilities for many of the local governments.”

This is the risk that was ignored in the late 1990’s, when CalPERS said they could fund the outrageous pensions by playing the stock market, and here’s what happened:

“For example: a pension fund assumes an investment return of 7% for the year and bases its actuarial pension obligations for local cities and counties; however, the financial markets had a terrible year and the pension fund only generated 2% returns – this means that the 5% gets added to the unfunded liabilities portion for cities and counties – because that money, originally expected to be generated through investment returns, is still needed to fully meet the pension obligation for city and counties.”

On the one end, CalPERS was making bad investments – we see now, many of those were based on bribery and personal gain. On the other end, CalPERS kept promising better returns, and cities, counties and other local entities all over California started making unsustainable agreements with employees, giving across the board salary increases and overgenerous benefits packages. Even as CalPERS has failed again and again, government agencies like City of Chico have ignored the crisis, continuing to agree to over-generous salaries and perks, even lately creating three new management positions, with salaries over $100,000/year.

Here’s an older article (2013) that details “CalPERS’s three-decade-long transformation from a prudently managed steward of workers’ pensions into a highly politicized advocate for special interests.”

https://www.city-journal.org/html/pension-fund-ate-california-13528.html

It was at long before that – early 2000’s – when former city manager Tom Lando made an MOU (memo of understanding) for Chico employees (including himself) that “attached salaries to increases in revenues, but not decreases…”  That MOU resulted in Lando’s salary going from about $65,000/year to over $130,000/year. In retirement, he is now making about $155,000 (that’s where the COLA comes in). 

The gentleman mentioned in that article, Alfred Villalobos, committed suicide about a year later over allegations that he had been bribing/accepting bribes to unload bad stocks. Just a year ago, another scandal led to the forced resignation of Chief Investments Advisor Ben Meng.  Meng resigned Aug. 2019 after questions arose about why he did not recuse himself from decisions by CalPERS to invest in private equity funds in which he was holding stock!  CalPERS made a more than $1 billion investment in April 2019 in a Blackstone fundMeng owned stock in, and Meng never recused himself.

Meng’s successor, Henry Jones, was also asked to resign, critics accusing him of concealing ethics violations made by Meng. Jones denied everything, saying, “CalPERS has known about questions regarding Ben’s Fair Political Practices [Commission] disclosure filings...”

So there it is – Meng disclosed his investments in those private equity funds, but the board still not only appointed him Chief Investments Advisor, but approved a $1 billion investment in those same equity funds.

So, CalPERS is a total disaster of fraud and corruption, and everybody’s known it for at least six years,,  but the city of Chico didn’t change a thing, just kept doling out higher salaries and refusing to raise the employees’ share of the cost to a sustainable level. 

Let’s go back to that first article – “Primarily, these pension liabilities are based on a few factors: retirement age, mortality, projected salary increases attributed to inflation, across-the-board raises and merit raises, increases in retirement benefits, cost-of-living adjustments, valuation of current assets, investment return and other matters.”

Chico makes all of the above mistakes, failing to manage employee costs. I like to refer to this bit from “Two and a Half Men” – 

 

Yes, Charlie is an idiot. Get what I’m  saying? 

This is how the city of Chico spends money. New Public Information Officer? Homeless Coordinator? Another management position for Public Works? Complete with inappropriate shoes? All three positions created – not filled, created – in the last year, by Mark Orme, at salaries over $100.000/year. 

Does this sound like prudent management to you? Frankly, I think the first thing we need to do, is get rid of Orme, and send his buddy Dowell right out the door behind him. 

And then, in 2022, we should probably dump Reynolds and Huber. Because they just signed on to the sales tax increase and the “roads” bond. Coolidge already alluded to those revenues being used to service the POB. Another note from municipalbonds.com:

“Furthermore, the taxable form of pension debt is often secured by some sort of revenue sources, like sales tax or property tax, which means that the issuance of this debt cuts into a municipality’s debt capacity that could be used for other purposes. Issuing taxable debt to fund the pension’s liability increases the jurisdiction’s bonded debt burden, and potentially uses up debt capacity that could be used for other purposes. Also, the taxable form of debt is often issued without a call option, which makes it hard for a municipality to refund the debt at a lower interest rate in the future.”

Remember what Coolidge said at Tuesday’s meeting – “it’s open for discussion… what size bond and what percentage of that sales tax would go for a road bond…”

Orme, Dowell, and Coolidge, are knowingly trying to dupe us into thinking that sales tax increase would be for public safety, and the “roads” bond would be for roads. “Special” taxes, oh yeah! 

Don’t be a dupe, tell them you’re not buying it. 

 

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Coolidge’s tax increase proposals are the grist they need for their pension obligation bond. Chico cost of living will increase while quality of living will decrease.

28 Feb

This Tuesday Chico City council has an over-full agenda. I notice a lot of the remarks on Engaged Chico question the timing of some of the items, with meetings closed to the public. It seems like they’ve packed the agenda with stupid crap like a Downtown card room, after promising us they’d only discuss “essential business” during the shutdown. 

Nichole Nava sums it up, “This topic and a couple of others should be tabled until the E[xecutive] O[rder] has ended and FULL public participation resumes. Continuing to place items such as this one on the agenda while still under the PHE is not the responsible course of action.”

Hidden deep in this mystery meat agenda are two tax proposals from Andrew Coolidge. Coolidge is proposing not only a sales tax increase for “police and fire,” but a bond for “road improvements.” I feel this agenda has been packed for a reason – they want to distract us from the tax increase proposals they are trying to run under the wire. 

If you read the financial reports attached at the end of the agenda, you see that the city is collecting more revenues every year, and paying more toward the UAL every year. This year they paid out $11.4 million, just in “catch-up” payments, That doesn’t include the regular payroll payments they allocate out of each department budget. But Coolidge wants these measures to guarantee the POB that comes up later in the agenda. All the while the UAL is growing out of control because council has failed to control employee costs.

Hidden even more deeply in the casserole – Item 5.12 – is a request from City Manager Mark Orme (“Staff”) to move forward the Pension Obligation validation process. 

 “Staff is requesting approval to continue exploring the CalPERS Unfunded Accrued Liability (UAL)…”

Well, that’s interesting – “staff is requesting approval…” Meaning, Mark Orme. Orme knows they need that POB before CalPERS ups the ante again. And, he knows they need the sales tax increase and a bond to cover the payments on the POB. This is a desperate scheme, and we’re the ones who will be left holding the bag for this bond. If we don’t approve the sales tax increase and Coolidge’s bond, the POB payments will bottom out our budget. But even if we do approve those new taxes, we will not get street/road repairs, we will not see more police, but the cops and the rest of the employees will be guaranteed their overgenerous pensions. 

Right now the city is bargaining with the Chico Police Officers Association for a new contract. Instead of asking them to pay more toward their generous pensions and benefits, council is turning the stick on the rest of us. The public safety groups – CPOA and the International Firefighters – only pay 15% toward pensions of 90% of salaries exceeding $100,000/year. That’s ridiculous – $15 for every $100 they expect to collect for sitting on their asses in retirement. But here’s the funny thing – they also pay more than any other bargaining group. Management, with the highest salaries, pay the least – 9%. They expect us to pay their salaries now, and then pay them again, with Cost of Living Increase!  

If you haven’t already commented on Engaged Chico

https://chico-ca.granicusideas.com/meetings/354-2-slash-16-slash-21-city-council-meeting-continued-to-march-2-2020/agenda_items/6036bf36f2b6700d2c00a1ad-5-dot-12-pension-obligation-bonds-this-item-added-t

please do. This bond will tank our budget. The sales tax increase and (yet another!) bond on our homes will raise the cost of living in Chico even further, just in case things are expensive enough for you already. 

They raised the cost of our trash service 19% – have you seen any improvement in the street in front of your house? Coolidge is bullshitting us again, just say NO. 

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Waste Management has raised rates 19% over the past year – why isn’t that money being spent on the street in front of your house?

14 Jan

Every three months I open my garbage bill and get pissed off. 

First of all, it took me the first 5 years to get Waste Management to stop charging me for the yard waste bin. In the very beginning of this forced deal, I told them I wanted to opt out of the $6+ charge for a yard waste bin that I don’t need. They agreed, but I kept seeing the charge on the bill. Rather than beating my head against the wall trying to contact them via their website or phone, I just scribbled a correction on the bill and made the check out for the correct amount. For five years. That finally worked, and as of January, 2020, they finally got it right, I stopped seeing that charge. 

But I also noticed, they were raising the rates slowly but surely, every bill seemed different. So when I sat down to pay my January 2021 bill, I dug out the January 2020 bill, and yes, rates are up. A 32 gal trash bin has gone from $52.89/quarter to $62.79/quarter, just over the past year. That’s an increase of 19%. 

Which led me to  do more math. I looked at my old Recology bills. We had Recology for 10 years, and they NEVER raised their rates. In fact, they had a fuel surcharge that fluctuated with the price of gas – meaning, it actually went down occasionally. Their average charge per quarter was about $82, for a 96 gallon trash bin, or about $27/month. Now I pay $20+ for a 32 gallon bin? 

In fact, my total bill, for a 32 gal and a 64 gal, is $134/quarter, or $45/month. Pay attention – I used to get a 96 gal bin for $27/month, now I pay $45/month for two bins totaling same. That is a 60% increase.

I’ve been talking about the franchise fee the city gets from the haulers – as of fiscal year June 2020,  $1,980,313. That’s almost $2 million dollars, of YOUR MONEY. You paid that in extra fees. For what? Well, I don’t think I’m the only one who remembers staff and council telling us the money would go to  fix our neighborhood streets. Former City Manager Brian Nakamura told us “too many” trash trucks were destroying our streets, and that he felt they should pay for that.  He led us to believe the money would be dedicated to the streets, and council members, including Andrew Coolidge, sat by and let him do it.

The first year the money was used on the section of Cohasset Road leading to the airport. Every year since, it’s been dumped into the General Fund, where it is used at the whim of council. Can you imagine what $1,980,313 would look like on the street in front of your house? Or maybe give Vallombrosa more than a patch job? Maybe upgrade the streets around the college beyond Third World Country? 

You know, the city also gave Waste Management a contract to empty the trash cans in the park, so they run those behemoths around the park roads once a week – a job that used to be done by a city employee with a pick-up truck. So maybe council should use some of that franchise money to fix South Park Drive before it falls into the creek. Ya think? 

Let’s write to council and tell them that Waste Hauler Franchise Fee needs to be spent on neighborhood streets. Let’s start with our new mayor, Andrew Coolidge – that’s andrew.coolidge@chicoca.gov

While you’re at it, tell him what he can do with his “roads bond” and his sales tax increase.

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Shasta County opens meetings – when will our “conservative majority” reopen council meetings? After they’ve already implemented the POB?

11 Jan

Almost a month ago, on December 13, I contacted my Chico city council representative Kasey Reynolds to ask her about the progress in removing transient camps in public spaces around town. We’d been having a conversation about the situation, and I forwarded her a conversation between Rob Berry and Chico PD officer Scott Zuchin regarding the DA’s unwillingness to prosecute City of Chico Municipal Code violations.

She responded, same day, “I will take a look at it for sure. However our City Attorney was meeting with the County and DA on Friday to talk about our newly passed resolution and the prosecution/enforcing aspect of it. I have not talked to the Atty since the meeting so not sure the outcome.  I’ll find out and let you know.”

I waited until the 22nd, then, realizing it was nearly Christmas, I wrote her again. I asked about the Shelter Crisis Designation, asking “1) if that’s still in effect, 2) if we are still receiving a grant for that designation, and 3) if so, where does the money go (into the General Fund?). I’ll add, 4) do we still get a grant for consolidating services at the fair grounds?” 

I also reminded her that she had previously promised to get back to me regarding the conversation our city attorney had with the county DA. 

As of today, 1/11/21, I have had no response from Reynolds. I know she’s busy – you realize, candy and ice cream are considered an “essential business”, so her shop is open.  

https://www.facebook.com/ShubertsIceCreamChicoCA/

We’re open and ready to scoop your favorite flavors and pack your favorite candies! Stop by the shop until 10:00pm to pick up your favorite sweet treat and see all the new renovations 🎉🍨🍫  We will now be open regular hours, Monday through Friday 10am-10pm, Saturday & Sunday 11am-10pm

Well, isn’t that just nice!

But the same woman thinks it’s okay for council chambers to be CLOSED TO THE PUBLIC? You can run out and grab yourself a SCOOP OF DIABETES, but forget about participating in your local government, especially when they are discussing a tax measure that does not require voter approval. 

So, instead of trying to contact my “representative” again, I wrote a letter to the newspaper. Hope you will do same.

On January 5, while Chico City Council prepared for another closed meeting, Shasta County Supervisors Les Baugh and Pat Jones opened their meeting to the public. Residents were invited inside to redress their grievances, no mask required.

Meanwhile, Chico City Council and Staff continue to hold the public out while they discuss their Pension Obligation Bond. It’s hard to believe we have a “conservative” majority on our council – 5 people voting unanimously to raise taxes? Without voter approval?

That’s right, the consultant reports this bond requires no voter approval. This bond, he explained, requires only “judicial validation”, a purely administrative process. In fact, the consultant assured council, “they all get approved, it’s just a matter of time.”

Staff reports the UAL has grown 43% over 5 years, even while making bigger payments toward the deficit every year, this year over $11 million. Staff blames poor CalPERS investment returns, but the real reason is drastically unrealistic employee shares,  just 9 – 15%, for pensions of 70 – 90% of salary. The situation is exacerbated by incredibly generous salaries, including three new hires in the last year at salaries over $100,000. 

The payments for both CalPERS and the bond service will be appropriated by percentage from all city funds. But POB revenues are restricted to paying the UAL, because, as finance director Scott Dowell has said, “otherwise we’d be tempted to spend it on needed things…”  He means, infrastructure maintenance and public safety – the needs of the citizens.

Employee demands have officially superseded the rights and needs of the public.

Juanita Sumner, Chico CA

 

 

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Staff trying to get their pensions bond under the wire by end of January

31 Dec

Next Tuesday city council will hear a presentation on a Pension Obligation Bond. They are trying to slide it under the wire as “restructuring debt,” which is really deceptive – they don’t mention the part where they take on millions in NEW DEBT.  This is really dirty and sneaky, and you need to let your council members know, you know what they’re up to. You can contact them directly through the clerk’s office – debbie.presson@chicoca.gov – or you can go to Chico Engaged. I’d recommend both.

Here’s the link to the agenda:

https://chico-ca.granicusideas.com/meetings/351-1-slash-5-slash-21-city-council-meeting/agenda_items

And here’s the POB presentation:

https://chico-ca.granicusideas.com/meetings/351-1-slash-5-slash-21-city-council-meeting/agenda_items/5fe748e0f395e716e400a434-5-dot-1-calpers-pension-costs-and-ual-restructuring-p

I also wrote a letter to the editor. Staff is trying to  get this thing done within the next two meetings, let’s stop it in it’s  tracks. 

Also, get a load of Coolidge’s request for a “streets bond”! 

https://chico-ca.granicusideas.com/meetings/351-1-slash-5-slash-21-city-council-meeting/agenda_items/5fe748e1f395e716e400a439-5-dot-6-mayor-coolidge-request-bond-for-improvement

Here’s my letter about the POB:

January 5, Chico City Council will consider Pension Obligation Bonds. Staff calls it “restructuring pension debt/Unfunded Actuarial Liability”, but it’s really millions in new debt. A new twist on the old Shell Game, Staff will invest borrowed money in the stock market, hoping to make enough to pay both the pension debt and the new debt. If their investments fail,  the taxpayers will be forced to pay not only the pension debt but the new bond debt, at the expense of city infrastructure and basic services.

Over the last couple of years,  surveys, letters to the editor, and comments on social media have demonstrated two main concerns: lack of law and order, and lack of maintenance to public infrastructure.  While Staff has claimed they don’t have enough money for either, they’ve continued to appropriate more money each year from city departments into the Pension Stabilization Trust – this year, $11.4 million, roughly 20% of tax revenue.  

Furthermore, even with 10’s of millions a year paid through payroll and the PST, the UAL has still grown, up from $126,000,000 only a few years ago to $146,000,000. Staff has recently revealed another $140,000,000  interest. This is the result of insufficient  contributions from employees, and poor returns from CalPERS investments. 

The Government Finance Officers Association says POBs are dangerous without a plan to manage pension costs. Instead, our city has increased pension costs through new hires and overly-generous salaries, without demanding more from Staff. 

The GFOA also determined POBs were the cause of bankruptcy in San Bernardino and Stockton. 

Juanita Sumner, Chico CA

 

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David Crane: “POBs are meritless products deliberately misnamed by bankers in search of fees. Just say no.”

7 Dec

Thank Dave for sending me this “5 minute read” on Pension Obligation Bonds from David Crane. It’s certainly worth more discussion.

https://davidgcrane.medium.com/pobs-bankers-as-pushers-f0963bf853b8

David Crane

David Crane

LecturerLecturer in Public Policy

About

David Crane is a lecturer in Public Policy at Stanford University and president of Govern for California. From 2004-2010 he served as a special adviser to Governor Arnold Schwarzenegger and from 1979-2003 he was a partner at Babcock & Brown, a financial services company. Crane also serves on the board of the Goldman School of Public Policy at the University of California and formerly served on the University of California Board of Regents and as a director of the California State Teachers Retirement System, Environmental Defense Fund, and the Volcker-Ravitch Task Force on the State Budget Crisis.

While I have no formal background in finance, I think it’s obvious that POB’s are a scam that is only going to benefit pensioners and bond holders. But maybe people would rather hear it from a guy with many degrees and respectable credentials. Crane puts it very simply, “Pension Obligation Bonds (POBs) do NOT reduce pension obligations.”

“POBs would be a truthful title if the bonds actually reduced pension obligations. But they don’t. All they do is increase pension assets, which produces an accounting benefit (more assets — the same liabilities = a lower unfunded liability). Economically, a POB is no more than a “carry trade,” which is borrowing at a low rate to bet on hopefully-higher-yielding assets (e.g. stocks, private equity, hedge funds, etc). Not surprisingly, Wall Street also sells and manages those products.”

And here’s an important point – these bonds are SOLD to public agencies by bond managers, people who make a lot of money selling and managing these bonds. Read on. 

“When the smoke clears, a POB issuer has (i) the same pension obligations it had before, (ii) more debt, (iii) paid investment banking fees, and (iv) gambled the proceeds on products that beget even more fees for bankers.”

That seems pretty clear to me, even a housewife can see what’s going on here. You must wonder, are there kickbacks to city staffers? 

Crane concludes, “POBs are meritless products deliberately misnamed by bankers in search of fees. Just say no.”

That’s right, say it loud, and say it now. Besides sending emails to your newly elected “fiscally conservative” council, you can comment in the consent agenda at Chico Engaged:

https://chico-ca.granicusideas.com/meetings/349-12-slash-1-slash-20-postponed-to-12-slash-8-slash-20-city-council-meeting/agenda_items/5fbdb04ff395e7fe1d013e64-2-consent-agenda-all-matters-listed-under-the

And, Mike Wolcott is looking for “Pro vs Con” writers to argue issues like this – you can reach him at mwolcott@chicoer.com

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While our town struggles with financial insolvency and sagging infrastructure, the staffers responsible skip off to another town, at a higher salary, with their pensions intact

3 Dec

A few points I’d like to make clear about POBs:

  1. amount to millions in new debt, with interest
  2. success dependent on the stock market, just like CalPERS investments
  3. don’t need voter approval but the voters/taxpayers will be on the hook for the payment
  4. POBs are guaranteed – that means, the payments come out of the General Fund at the expense of infrastructure and services
  5. without true pension reform POBs will lead to insolvency and bankruptcy – as was the case in Stockton and San Bernardino

Here’s a shocking article about San Bernardino, 

San Bernardino deficits grow after bankruptcy

What I get from this article, is that the police unions are the biggest threat to financial solvency facing California cities. They demand higher salaries and refuse to pay a sustainable share of their pensions costs. Instead of asking for concessions from the highest paid public employees in the state, “Stockton said from the outset pensions are necessary to be competitive in the job market, particularly for police.”  Vallejo backed down from pension reform after being threatened by CalPERS. 

Chico City Council has done same. When I asked my district rep Kasey Reynolds why such a high salary for the new police chief (higher than the departing chief), she responded, “ I just looked at other communities that are like size and their Chiefs are 20-40k higher.”  I sent her the publicpay.gov records for Chico and Sacramento – yeah, Sacramento salaries are a little higher, but city of Chico pays more of the pensions. If we are going to continue to offer these crazy salaries, Chico cops need to pay more toward their pensions. I never got any response from Reynolds.  They hired the chief above the old salary and just recently approved a new contract for CPOA without asking any concessions. 

So, letter writer Steve Wolfe is correct – our elected officials are complicit with our city employees in driving our town into the financial abyss. He’s right again when he predicts the city will pursue a new revenue scheme.  A POB would be just the vehicle to take us down! Here’s my response. 

Steve Wolfe is right – the city is seeking a new revenue measure. At the Finance Committee meeting September 23, a consultant was asked to pitch Pension Obligation Bonds to the full Chico City council. Staff said the bond could be implemented as early as January 2021 because POBs don’t require voter approval. 

POBs are a way of borrowing money to pay bills, while hoping to re-invest the borrowed money, producing a profit used not only to service the bond but to pay off the pension liability. If this outright gamble doesn’t work out, the taxpayers are on the hook not only for the unfunded pension liability, but the additional bond debt. POBs put Stockton and San Bernardino into bankruptcy.

This bond will not appear on your property taxes, it appears in the form of sagging infrastructure and service cuts – these bonds are guaranteed, bond holders take priority over our streets, our parks, our sewers and even public safety needs. 

Instead of taking on new debt, we must reduce the long-term cost of public pensions for future employees. That’s not happening.  With emergency powers, the city manager hired three new positions this year at $100,000+ salaries. New hires are paid more than predecessors.  There’s no accountability for these decisions.  While our town struggles with financial insolvency and sagging infrastructure, the staffers responsible skip off to another town, at a higher salary, with their pensions intact. 

Contact your new, “fiscally conservative” council super majority, and tell them what you think. 

 

 

 

 

 

 

 

 

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Good question Bob: Why do we need to replace Constantin with anyone?

14 Nov

One last word on the departure of Chris Constantin – from a comment Bob left the other day:

Why do we need to replace Constantin with anyone? The truth is the City is over its head in debt and we can’t afford a replacement.

Besides, why should we continue to pay hundreds of thousands of dollars every year for a bureaucrat who does nothing but scheme how to raise our taxes and get us deeper in debt with things like POBs while letting our streets and everything else fall apart.

Wow, good question Bob! So I wrote a letter to the ER about it.

When departing Chico administrator Chris Constantin was hired in 2013, he spoke to the Tea Party. He said our previous finance director was “Loosey Goosey”, bragging about his qualifications to “straighten out the mess” she’d left. He told us, once he fixed things, “you can hire someone cheaper, with less initials behind their name.”

Seven years later, I see a bigger mess. Constantin himself has told us, staff deferred maintenance on streets and other infrastructure while they continued to make bigger payments toward their pension liability (UAL) – this year $11,000,000. But the UAL continues to increase –  this year, the city manager created three new management positions with $100,000+ salaries.

When Brian Nakamura was hired, he went on a firing spree, gutting lower level staffers and bringing his own friends in for management positions – Mark Orme and then Constantin. Since then the assistant manager’s salary has gone from $142,652 to over $189,000/year. Orme and Constantin have also garnered themselves 457 Plans worth an additional $20,000/year each.

From a 2018 report to the California League of Cities: “City pension costs will dramatically increase to unsustainable levels.” Their first suggestion – make more aggressive payments to CalPERS. Meanwhile, “Change service delivery methods and levels of certain public services.” Meaning, squeeze the taxpayers for more money.

Top heavy management and perpetual demands for higher salaries and more benefits has our city upside-down. Constantin’s position should be eliminated, along with other unnecessary management positions, so we can hire the lower-paid workers we need to get this town “straightened out.” 

Juanita Sumner, Chico CA

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