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Pension deficit, unfunded accrued liability, whatever you want to call it – by any other name, a turd will still stink

31 Mar

Today I posted a piece sent in by a reader – 

https://chicotaxpayers.com/2020/03/31/will-states-use-covid-19-funds-to-bail-out-pensions/

It’s a good article because it touches on issues related to the pension deficit. I’m afraid a lot of people aren’t worried about the pension deficit because they don’t really understand what it is or what it’s doing to our economy. So let’s dive in.

What is the pension deficit? It’s the difference between what public employees have paid into their pensions and what they expect to get in retirement. In California that difference is well into the negative.

In the late 1990’s, our state retirement agency cut a deal with other state agencies, promising they would fund pensions of 70 – 90% of highest years’ salary with stock market investments, allowing local agencies to negotiate unrealistically low employer and employee shares with the unions. Many agencies negotiated contracts in which the employer would pay the entire employee share. This resulted in very low contributions from employers/employees.

At the same time, many agencies also raised salaries markedly – in Chico, during the early 2000’s, the city doled out raises of 14%, 19%, 22%, for several years running. City manager Tom Lando’s salary, for example, went from about $65,000/year to about $135,000 in just the last few years before he retired. His successor came in at $190,000 and retired in less than a year. The next city manager agreed to work for a paltry $180,000, but his successor, Brian Nakamura, got over $200,000/year, also leaving in less than a year. Nakamura’s successor Mark Orme agreed to an initial $180,000, but now makes over $220,000 with “extra pay”. 

Orme will argue that he’s taken pay cuts – no, he just hasn’t been given a raise in salary for a few years. He will also tell you he’s paying more of his pension – so fucking what? Orme went from having the entire tab picked up by the taxpayers to paying less than 15% of his pension cost out of his own pocket. The taxpayers pick up most of the other 85%, with minimal contributions from CalPERS questionable stock investments. 

The low contribution rates coupled with the irrational salary increases put Chico in deep doo doo. In 2013, Chico employees’ pension deficit was about $168,000,000. When Chico came close to bankruptcy back in 2012, local conservatives pointed the finger at a liberal majority on council, accusing them of bad spending habits, but nobody wanted to talk about exactly what the debt was made up of. The UAL – unfunded accrued liability – is our single biggest debt, far overshadowing any other debt the city is carrying right now.

This is a national problem.  Today, the national pension debit is over $122 trillion. Put that in relation to your life. If you own a home, a car,  really nice clothes, even an extensive collection of Hummel figurines, you are probably not even worth a million.  Well, one trillion is 1,000 times 1 billion. 1 billion itself is 1,000 times 1 million. 

Here’s how I put it into perspective – within my lifetime, Jed Clampett was a millionaire, and that was a really big deal. 

Who should pay the UAL? That’s next time, when we take up the subject of “pension protection clauses,” or, The California Rule. 

 

Will states use COVID-19 funds to bail out pensions? Let’s talk about true pension reform first

31 Mar

https://www.realclearpolitics.com/articles/2020/03/30/dont_let_states_rob_covid-19_funds_to_bail_out_pensions.html

Don’t Let States Rob COVID-19 Funds to Bail Out Pensions

COMMENTARY
.
By Ted Dabrowski & Mark Glennon – RCP Contributors
March 30, 2020

Now that Congress has passed its broader humanitarian aid packages in response to the COVID-19 virus, it’s likely that the nation’s most fiscally irresponsible states will request bailouts for something completely unrelated to the virus: their bankrupt pension plans.

Bad as that may be, it’s likely some sort of assistance will materialize from Congress. If that happens, any support should be conditioned on pension reform.

It’s not a stretch to think that federal money will somehow find its way into the nation’s most dysfunctional pension plans. New Jersey’s Phil Murphy, governor of a state with one of the worst pension crises in the country, is seeking a multi-billion-dollar, flexible block grant. Meanwhile, Chicago Mayor Lori Lightfoot, whose city is already junk rated largely due to pensions, has warned “this is a B-sized problem, meaning something that can only be solved with billions in needed stimulus support from the federal government.”

With the shortfall in pension funds exceeding what Stanford’s Pension Tracker says was $5 trillion even before the meltdown, you can bet those governments most mired in pension debt will seek additional help. They could demand direct aid for their state and local pensions, or for their own operations that indirectly support those pensions. But states and cities that bankrupted their funds through corrupted governance long before the current crisis shouldn’t get a free pass.

Many states, including Illinois, New Jersey and Connecticut, have refused real reform for decades, wreaking havoc on their residents and the retirement security of their workers. That’s reason enough to require preconditions for any federal support.

The rationale for requiring reforms with any aid is threefold. First, supporting irresponsible states with no strings attached is fundamentally unfair to those states that have already enacted major reforms. Second, structural reforms reduce the risk of future federal bailouts by setting those states on a path toward stability. Third, requiring reforms would reduce the cost of any potential federal aid to those states.

Illinois is a perfect example of a state that shouldn’t be bailed out at the expense of fiscally responsible governments. Gov. J.B. Pritzker, the state legislature and Chicago Mayor Lightfoot all reject structural pension reforms that would fix Illinois’ problems. They continue to block efforts to amend the state’s pension-protection clause through a constitutional amendment and they refuse to authorize the option of municipal bankruptcy, something that only requires a legislative majority.

Instead, like their predecessors, they’re protecting the status quo. As a result, Illinois’ Net Primary Position – basically its net worth – has worsened by $190 billion since 2001. Those losses resulted primarily from growing unfunded pension and retiree health insurance liabilities. Illinois’ pension crisis is now the nation’s worst, both in terms of total shortfall and on a per capita basis, according to Moody’s Investors Service. The agency rates Illinois just one notch away from junk.

Conditions in New Jersey are no better. The Garden State’s pension funds were flush at the turn of the century, but since then, gross bipartisan mismanagement and pension holidays have led to near insolvency. S&P warned in June of 2019 that: “[The state’s] inability to contribute [its] annually determined contribution after 10 years of national economic recovery raises questions about what could happen in another recession.”

Connecticut is also swimming in unfunded pension and retirement health care debts. Those obligations equaled nearly 40% of its GDP in 2018 – the highest among all states, according to Moody’s. And like Illinois, the state has resorted to decades-long reamortizations and is considering asset transfers instead of real, structural reforms.

If that’s not evidence enough, consider this. In 2018, the plans for Chicago’s 30,000 active and retired public safety workers were just 22% funded. The funding for Kentucky’s 90,000 state workers was even worse, at just 16%. And the plan for New Jersey’s 136,000 public employees was only 32%. All those workers lost their retirement security due to politicians’ corrupt practices long before the current crisis.

The unwillingness of such states to make hard choices on their own is precisely why any help from the federal government must come with preconditions.

Defined contribution plans, cost of living reforms and increased retirement ages are all part of the suite the federal government should require. And for states that have constitutional protections, lawmakers must commit to removing them or lose out on aid.

Whether the federal government eventually provides direct aid to state and local governments remains to be seen. However, it’s imperative that any such support not be used to bail out pensions or enable irresponsible states to further ignore their retirement crises.

Ted Dabrowski is a former international managing director for Citibank and current president of Wirepoints, an independent, nonpartisan research and news organization focused on fiscal and economic policy.

Mark Glennon, a former bankruptcy lawyer and venture capital investor, is executive editor and founder of Wirepoints, an independent, nonpartisan research and news organization focused on fiscal and economic policy.

A conversation that needs to be had before November – WHO will pay the pension deficit?

14 Feb

Here’s a NO on A letter that merits further discussion – this is a conversation that needs to be had. 

Before we hand CARD $3 million a year with Measure A, here’s why we’re smarter not to. First, we have a massive pension debt and no solution yet. I’m willing to vote higher city taxes this fall to help with that, but not to launch CARD on a spending spree for new toys – the main one being an aquatic center we didn’t all want. But about $3 million a year in new money should get that done in a few years, so why a permanent parcel tax? And why is CARD putting the money into a $36 million bond? Bonds mean one hell of a spending spree ahead, and losing a third or more of the money on interest payments. It’s kind of like how we’re funding pensions, except CalPERS and the unions never mentioned how much we’re about to lose by the state and them not paying it up front like we were told. Tricky thing dissembling.

There’s one more problem. The reason we don’t already have an aquatic center is that the city council wouldn’t buy CARD one. Council members have to think when it comes to what city agencies want and what our taxes can cover. If Measure A fails that will keep happening. I like that. We don’t even know what all the toys are CARD will start throwing money at once nobody can get in its way anymore. CARD will be a pretty hefty sow by the time it shows up at city council overextended again.

— David P. Smith, Chico

 

A line that I find very disturbing is, “I’m willing to vote higher city taxes this fall…”

 

Why the hell would you do that, Dave?  

And then he says, “It’s kind of like how we’re funding pensions, except CalPERS and the unions never mentioned how much we’re about to lose by the state and them not paying it up front like we were told.”   He assumes we all know how the pensions are funded, and what he means by “how much we’re about to lose by the state…”  I don’t think very many people really understand how we fund the pensions. Nor do I believe the average voter/taxpayers is aware how much CalPERS has lost in the stock market through bad investments. But the part that really interests me is “them not paying it up front like we were told.”

Thanks Dave, cause this is the conversation that needs to be had. 

First of all, the pensions are funded through payments made by the public agency and supplemented with stock market investments. Unfortunately, CalPERS made big, stupid promises, saying they could fund more than 50% of the pensions through investments. They amassed a lot of assets – a high rise building in NYC? – and began building a portfolio, promising a 7% return. 

But,  CalPERS investments have never held up to their promises because they continue to make bad investments. They have been lucky to get 3%. So, their investments end up costing money.  Some of these investments have been made inappropriately.  In fact, in 2015, “a federal grand jury indicted two former top officials on fraud, conspiracy and obstruction charges.”

https://www.cnetscandal.com/2015/11/ex-calpers-official-villalobos-commits.html

A CalPERS executive and a board member were found to have been taking bribes to buy poorly performing stocks. 

“Villalobos, collected tens of millions of dollars from Wall Street firms for steering CalPERS business their way.”

“At the center of the investigation was the role of placement agents, the middlemen or intermediaries hired by private equity firms and other financial institutions to win CalPERS business. The investigation came during a rough financial stretch for CalPERS. Its investment portfolio value had plummeted nearly $100 billion, to $169 billion, during the recession.”

Guilty as hell, Villalobos committed suicide before he could be sentenced. His partner was convicted and went to prison.  Since then, CalPERS claims to have cleaned up their act, but their portfolio continues to do badly. So they hired an “assassin” – a guy who comes in and cleans up the mess.

https://www.marketwatch.com/story/nothing-is-sacred-for-new-calpers-pension-leader-2019-12-11

In his first week, Mr. Meng surprised staffers by introducing himself to employees from the most junior to senior level. Over the next few months, he was taken aback by how little some staffers knew about the fund’s investments, a person familiar with the matter said. Mr. Meng concluded some lacked information he thought needed to be routinely monitored.

So there’s corruption and incompetence here, not surprising. What would surprise me is to hear that some management was fired, possibly even investigated. What would surprise me even more would be CalPERS actually making money instead of pouring it down the toilet. 

Unfortunately, CalPERS corruption and incompetence only add up to half the conversation.  

Here’s the conversation that still needs to be had.  Who should pay the deficit?

Right now, the taxpayers are picking up not only the monthly payroll amounts, but the semi-annual deficit payments as well. Here’s how that pencils out – I’ll use CARD as an example.

The agency pays 14% of the cost of it’s management pensions. The employees pay 5.5 to 8% of the 14%.  It works like this:  for a $100,000/year salary,  the agency pays (100,000 x .14) $14,000/year, total. This is a management salary, management pays 8%, so that employee would pay (14,000 x .08) $1,120/year. For a pension of 70%, or $70,000/year. That base figure goes up with cost of living increases, based on the Consumer Price Index. 

The agency only pays 14%, the other 86% is the deficit. As their stock market returns continue to disappoint, CalPERS demands more money. That money has been taken from CARD’s General Fund, by way of a “Pension Stabilization Trust”. Money that would have been better spent maintaining district facilities. 

Meanwhile, CARD employees continue to receive above market salaries and pay pennies on the dollar for very generous pension packages.

CARD General Manager Ann Willmann told us at her “informational meetings” that she has personally met with CalPERS officials and “begged” them to change the employee shares. Really? She should be talking to the board, because that’s who negotiates the salaries and the shares. City of Chico pays different shares than CARD, so these contracts are obviously negotiated in house.

What can we do?  The problem we need to solve is, the public is left out of the negotiations. We have no real representation – not in Chico, where too many pensioneers are on our council and various boards. For example, of the five members of the CARD board, two are public pensioneers – Tom Lando, former city of Chico manager, and Tom Nickell, former CHP officer.

I believe these people have a conflict of interest between their own benefit and the public benefit. I think it behooves them to keep approving the salary increases, because that means the agency pays more into the pension fund.  It is obviously in their best interest to keep making the deficit or “side fund” payments, or CalPERS would have gone bankrupt by now and they would be out their nice pensions. In fact, Lando is one of the top five pensioneers in Butte County, having retired at about $134,000/year, with COLA, he’s now getting over $155,000 in annual pension payments.  I’m not sure about Nickell, but I sincerely believe Lando is pressing this tax measure not for CARD, but for CalPERS. He has put $6,000 of his own money into Measure A – you have to spend money to make money, folks.

I also think Lando has been on the CARD board long enough, and needs to step down when his term is up in November. That’s not likely.

Here’s my solution.  I am hoping some competent and honest candidates come forward for CARD board in November. I think a good candidate would  be a local business person who has experience with CARD. Somebody who doesn’t have financial gain to be made. Somebody who understands finance on a basic level. Somebody who has a long stake in the community, whether business or family. And, somebody who has the support of their family, because there are some minor inconveniences involved, like monthly meetings, “special” meetings, and excursions to various district facilities.

I don’t think that’s a complete list, and I didn’t mean to leave anybody out.  I would say, if you are interested in  filling a position like  this, the first thing you’d want to do is attend meetings. Familiarize yourself with the website, and be sure to contact staff with any questions. Read agendas and reports. Read the minutes of past meetings. Read the budgets, not just the most recent, but past budgets to compare. That’s all on the website. I can also give you information I’ve got from staff that’s not on the website, feel free to ask. 

CARD board is doable. It’s not an expensive election, the meetings are short. And, if you are interested in getting involved, CARD is a good start. THINK ABOUT IT!

 

 

 

 

 

Joshua Rauh: Public Pensions are an economic time bomb, and young people will be at the epicenter of the blast

24 Nov

Bob sent a link to a really interesting video that explains the “pension time bomb” in language the average person can understand.

https://www.prageru.com/video/public-pensions-an-economic-time-bomb/

Josuah Rauh is a professor of finance at Stanford School of Business, Director of Research for the Hoover Institute, and has written extensively on the nationwide pension problem. I love his no-nonsense style. This problem is really simple.

Rauh doesn’t mince words.  “I want to talk about three words that should scare the heck out of you, especially if you’re young. PUBLIC PENSION LIABILITIES”

He’s absolutely right, young people will be left holding the bag.  To quote Chico City Manager Mark Orme and Assistant Manager Chris Constantin, this city has “kicked the can down the road” on infrastructure maintenance  for many years. What neither man mentions is that the city has continued to pay increasing salaries and benefits for city management. They both lie through their teeth, claiming to have “stopped the bleeding…” performed “a miracle”. In truth they have both taken very generous pay raises and have already added a 401k plan to their already generous pension packages. More about that later.

So, our kids will get stuck with failing infrastructure and the billions in taxes it will take to fix it. Not to mention, paying for generations of public workers, like Orme and Constantin,  allowed to retire at age 50 – 55 with well over $100,000/year in pension.

Unfortunately, this is a message that mostly falls on deaf ears. Rauh continues, “that’s why all of this is so scary – no one is paying attention.” Well, in defense of the average citizen – myself – I’ll say, it’s been made complicated on purpose – go to a meeting, and listen to staff make it as convoluted as possible. 

Rauh puts it in simple language, as if he is explaining this to someone from another planet, who has never heard of such a ludicrous policy. “What is a public pension liability,” he asks rhetorically. “A guaranteed lifetime payment to somebody after they retire.” That seems simple enough, but the important word here is “guaranteed“.

Years ago,  private sector workers got pensions, but private businesses were not able to keep up with the costs associated, and either dropped their pensions plans for 401K’s or went under. Right now, once giant media conglomerate McClatchy (which formerly owned newspapers and tv stations all over the state), is going under due to unfunded pension liabilities. 

McClatchy’s financial distress has the company exploring options — including a sale

 

But public workers will not cooperate, they demand to keep their guaranteed pensions.  According to public employee unions,  no matter how the economy tanks, they get their money. While CalPERS promised to fund these outrageous pensions via investments in the stock market, they have failed miserable, and now they are laying the bag at our feet. 

Rauh continues, “They are eating state and city budgets alive… more than 62,000 retired public employees are receiving pensions of over $100,000/year…  Currently many cities are paying for multiple public departments at the same time, the department that’s working now, and (due to people living longer) a generation of two of public employees.” Estimates of the state’s total unfunded pension liability go over $200 trillion. 

The problem, he says, is “a corrupt merry go round  – public employee unions give donations to candidates who are then responsible for negotiating how much of your money  goes  to public sector workers“. In Chico the biggest donors in every local election are the employee unions, usually led by Chico Police Officers Association. 

The other problem is, “they hide the payments that are  due down the road.” Here in Chico, you have to know the right question to ask, in the proper vernacular, or they just ignore you. You have to watch agendas and read onerous reports printed in the smallest typeset available, sideways on the page. 

You have to be forward with these people.  Even when Dave Howell corrected CARD General Manager about their pension deficit, Willmann overstated employee contribution figures at the informational meetings. She corrected herself in an email when I questioned her about it later, after she’d already been misinforming people for weeks. She made no attempt to correct herself publicly, even after I wrote a letter to the paper about it. 

Rauh points out same. “How do they get away with this? They use a time tested political strategy – they lie.

The first, big lie was that they could pay for these increasingly generous pensions, “not by collecting taxes but by making investments.” Then they went about raising the roof on salaries. For example, former city manager Dave Burkland left in 2012 at $130,000 base salary. His replacement, Brian Nakamura, came in at $219,000. About a year later, Nakamura left for another job, and his assistant manager Mark Orme, also his former assistant in the city of Hemet, replaced him at a salary of $205,000. Now Orme enjoys a base salary of $223,000/year, with a benefits package of over $42,000. 

CalPERS keeps claiming a return of 7% on their investments. But, as Rauh says, ” it’s less and less likely that they will make their investment assessment, because they do risky investements.” So, why, oh why, does our council keep agreeing to annual pay raises for Orme and other management? Why did they give these people, in addition to their costly and generous benefits packages, 401k plans complete with an employer share? 

The problem is the salaries are too generous for the taxpayer to ever be able to guarantee 70 – 90% in retirement. Rauh says, “We need to turn things around using public pressure, discipline and common sense.”

Public pressure – read agendas and reports, do some simple research, and contact your elected officials to tell  them what you know about this problem. Some of our city council members seem genuinely clueless, willing to be led by  staff instead of the people. It’s time for the people to lead.

Discipline – I mean, really, read the damned agendas, read the reports, look up stuff you don’t understand, ask questions. Don’t let yourself believe you can’t make a difference, but yeah, it’s a lot of hard work. 

Common Sense – this issue really is simple, don’t let public employees try to make it sound too complicated. Here’s one common sense question to ask yourself – was I included in the conversation? Did I make these promises? Why should I be on the hook for these outrageous salaries and pensions? 

Now, using public pressure, discipline, and common sense, here’s what Rauh says we need to do:

“We need state and local governments to report their  unfunded liabilities honestly, the real numbers, using the 2 – 3 % yields that sound financial reporting would require. No more pie in the sky stuff…”  We have Stephanie Taber to thank, back in 2011, for demanding the finance reports be given properly. Then Finance Director Jennifer Hennessy was not doing reports at all, her boss Dave Burkland didn’t require her to do it. Can you believe that? What private sector company would get away with that? Taber had to use public pressure, discipline, and common sense. Now the finance reports are given every month and available online. 

And now, using letters to the editor and posts on this blog, Dave Howell is trying to question the city about their true pension costs, demanding they make their Annual Finance Report (CAFR) available to the public. The city is hiding their true liability figures, saying they are only $130 million in deficit when the true figure is over $200 million. 

“the truth should shock  voters into demanding action.”  Yes, it should, but people use the most ridiculous excuses for not paying attention. This is where discipline comes in – I’m not an accountant, but I’ve made myself read and understand those finance reports. You can too. And then open your mouth and squeal like Ned Beatty, cause you are being screwed.

The action Rauh suggests we demand is “to phase out the guaranteed pension programs as quickly as possible and introduce 401k plans…

I agree with Rauh. Public employees who do their jobs should be amply compensated. He calls 401k’s a “win-win’ which,  “if designed properly, can provide excellent retirement benefits…” Here’s the win for taxpayers – employees are responsible for their own investments, and if they choose poorly, the taxpayer is not on the hook to bail them out. 

Furthermore, “401k’s are portable, employees can take them along, don’t have to be locked into government jobs to get retirement benefits.

Now, unfortunately, here’s where the corrupt merry-go-round comes in – our council, fed on employee union donations, has already given management employees a type of 401k called a “457 plan”, in addition to their guaranteed pensions. Here’s Orme’s contract, read it for yourself:

http://www.chico.ca.us/human_resources_and_risk_management/documents/OrmeEmploymentAgreement10-2017.pdf

“The City has established a Deferred Compensation Plan in accordance
with Internal Revenue Code (IRC) 457 (“IRC 457 plan”). Effective from the first pay period in
January 2017 considered in calculating the maximum IRC 457 plan limit and annually, City agrees
to contribute nine thousand dollars ($9,000), to Employee’s IRC 457 plan. Additionally, effective
October 15,2017, the City agrees to contribute four and fifty- two hundredths percent (4.52%) of
base salary to Employee’s IRC 457 plan.”

In Chico, public employee unions SEIU, CPOA, AND IFFA are among the biggest donors in every council election. I think the only donor that gives more money is Franklin Construction.  So, I would add to Rauh’s list – change the laws to restrict donations from public employee unions. Our city council can do this, but as you can guess, that would take a lot of public pressure.

Rauh suggests “lets end the current structure of public sector pensions and move to a sustainable way of compensating our public employees.” He’s not advocating cutting anybody off, but frankly, I am. I would suggest we press council to refuse to approve new contracts for management employees who refuse to take pay and benefits cuts. As stated in Orme’s contract, council has the right to refuse salary increases, and even to ask employees to take a cut. Again, this would take a lot of public pressure. 

So, it’s really up to us. 

 

CARD propaganda blitz amounts to a lot of false claims

15 Aug

Chico Area Recreation District is hosting a series of informational meetings about their tax proposal over the next month. The first meeting was held this past Tuesday evening. It was short and very informative, I hope more people will take 45 minutes or an hour to attend one or more of these meetings.  It’s a perfect opportunity to ask questions. All meetings are scheduled at the CARD Center on Vallombrosa.

  • August 21, noon
  • August 28, 7pm
  • September 5, noon
  • September 10, 8am

Tuesday’s meeting started at 6 pm and was over shortly before 7pm.   CARD manager Ann Willmann gave a power point presentation. It was a good look at the coming propaganda blitz CARD is about to unleash.

Willmann shared some interesting general information.

• Created in 1948 (71 years ago)
• Encompasses over 250 square miles, beyond City of Chico city limits
• Population served is 121,000
• Operated separately from the City of Chico
• Oversight by an elected 5-member board of directors

I didn’t know those first three things, so here already I learned something by going to a public meeting. But it didn’t take long for Willmann to get into the full-on pitch.

What CARD Does  –  Provide parks & recreation facilities. Enrich our residents’ quality of life. Promote health, wellness, learning and fun. CARD is one of the most utilized agencies in our area,with our parks, facilities, and programs serving thousands of people annually.”

Beyond, “provide parks & recreation facilities,” none of that can be proven. Frankly, I’d liked to have seen a number besides “thousands” of people served annually. “one of the most utililized agencies in our area…” Well, prove it. There are no attendance numbers in the budget reports either. Are they including agencies like law enforcement and public safety, the road department?

I think a common misconception about CARD is that they are responsible for all the parks in town, not true. The city owns all of Bidwell Park. CARD leases the Nature Center from the city, and is responsible for maintenance on that specific property. I don’t know whether they own or lease the ball fields under the same type of agreement. But, I found the following claims to be a stretch.

Our parks:
Reflect the quality of our community.  Oh, that’s not good. Many of our parks are in pretty disgusting condition.

Improve property values.  I think this is highly disputable. When you look at real estate listings, parks and other public attractions like schools and churches are considered problematic. Especially when security and lighting are lacking, as has been one of the main complaints about CARD  facilities. Another complaint has been lack of upkeep, which damages curb appeal for any home.

Contribute to education.   I do notice,  since they took over the Nature Center, “day camps” have been their biggest source of income.

Reduce crime.   That’s funny – Terry Cleland said transients were stealing out of the dugout at ball games. CARD will have to keep working on this one.

Attract businesses and create jobs  Attracts businesses? CARD uses tax dollars to subsidize programs that drive local businesses out of the market. For example, Off the Wall Soccer, a longtime popular indoor sports facility, went out of business last year after CARD renegged on a promise not to compete with OTW’s special 7 man teams. CARD already had an outdoor program, why move in on a local business? Because they can undercut anybody with the guarantee of tax dollars. CARD is a very big competitor for private daycare facilities, and even the local wedding industry.

Creates jobs? CARD provides poverty positions, in fact, most of their workers earn less than $30,000/year, get no benefits, and rely on AFDC and Medi-Cal to fill in the gaps. A few years ago, they cut their part-time workers to 28 hours or less to get out of paying Obamacare.

Willmann shared the results of CARD’s recent survey, here are the “priorities” listed by respondents:

• Reducing crime and homelessness in parks by
providing security guards to patrol parks
• Providing clean, safe parks and recreational
programs for all Chico area residents
• Upgrading parks with lighting, security,
parking, and other safety features
• Improving and maintaining park bathrooms

• Repairing/updating aging recreation centers,
playgrounds, sports fields, swimming pools,
and facilities that promote active and healthy
living and maintain recreational programs for
seniors and youth
• Ensuring accessibility of parks and recreation
for persons with disabilities
• Renovating/expanding parks, trails, and
recreation areas, and completing parks under
construction

Here Willmann went on the defensive, listing “challenges”

• Aging Facilities + Reduced Funding =
Deferred Maintenance
• Continue to address safety needs
• Upgrades needed to aging parks and
facilities
• Create and maintain health-related
programs for all-youth to our seniors
• Discussions and studies have been
conducted
• Financial impacts out of our control
• Fees collected are not enough

Aging facilities? Willmann said most of our  facilities are over 35 years old, that’s not true.  DeGarmo Park, Humboldt Skateboard Park, the Disc Golf Course at 5 Mile, Oak Way Park – these are just some of the facilities that have been built recently. Wildwood Park is only about 25 years old. Reduced funding? Look at the budgets, available here, and tell me they haven’t been getting more money every year:

https://www.chicorec.com/district-budget

What’s true there is “deferred maintenance.” They’ve allowed facilities that should have been easy to keep in good working condition while they’ve paid more and more into their pension deficit, raised management salaries, and  taken on costly new liabilities like the rotten and aging Lakeside Pavillion and Nature Center. One of the top complaints listed in the survey was dirty bathrooms. But look at the budget, do some serious reading – they pay more for pensions every year, with employees only now being asked to contribute anything, and it’s still less than 10%. 

I was really shocked when she listed the Camp Fire as a challenge. 

“Reduced property tax base for the County means a reduction in property taxes for all public agencies. In 2019, CARD lost over $200,000 in revenue”

This was reported immediately after the Camp Fire, by city of Chico mismanager Mark Orme. But, as Orme reported, the state immediately announced they would “backfill” these lost revenues up to three years after the anniversary of the fire. So, CARD didn’t really lose $200,000 as Willmann tried to claim Tuesday night. Private homes within the Camp Fire burn area are already being rebuilt, some of them beyond their original footprint, which means they will be assessed for more within three years than they were assessed before the fire. 

Willman also claims that “Future tax reductions are expected, and plans are being made to adjust expenses.” What future tax reductions?  I’m calling bullshit on this one. There is currently a building boom going on in Chico, with more houses approved for the immediate future. That means more, more, more property taxes to maintain and upgrade current facilities,, not to mention, developer impact fees that pay for new parks. 

And finally she claims “We have seen an increase in participation in already impacted programs due to the increase in our local population.”

Oh, not this one again. Look around you  folks – the college students are back in town, families are getting  ready for school to start, but have you been held up  in any of the hellish traffic  jams that occurred in the weeks following the fire? Have you waited more than 5 minutes at a grocery store check-out? No.

When a woman asked from the back of the room if Willmann had any statistics to back up this claim, Willmann quickly answered, “No.” Furthermore, “we just noticed this increase…” 

I’ll have to stop here, I’ll pick up the rest of the meeting tomorrow. Things got kinda hot when the guy next to me brought up the pension liability. 

 

Pension Tsunami, Part 1: How we got here…

7 Aug

In the late 1990’s, Governor Gray Davis and other union-friendly legislators set up the current pension system, agreeing to “defined benefits”.  Public employees had previously been given a “defined contribution” system. The difference being, with a “defined contribution” system, the employer agrees to pay a certain amount, with a “defined benefit” system, the employer agrees to provide specific benefits, no matter the cost.

About 2006 an “MOU” – memo of understanding – was approved by the sitting Chico City Council, with the recommendation of then-city manager Tom Lando, to “attach salaries to revenue increases but not decreases…”  Read that again – “but not decreases…”

Does that sound right to you?  Think about that – give them raises when we’re flush, but no “adjustments” when we’re bust, just lay people off and cut services. That’s been the pattern in Chico for 15 years now. After Lando floated that turd, his salary went from about $65,000 a year to over $150,000 within a couple of  years. His successor came in at $190,000/year.

Council handed out raises of 14%, 19%, 22%, until that memo was outed to the public and the taxpayers started to howl about it. But too late –  City of Chico salaries had progressed well over $100,000  for management and public safety, and other salaries were not far behind. Council approves automatic raises in the contracts so the salaries just keep going up. Even though former city manager Dave Burkland agreed to take a lesser salary than his predecessor, our current city manager now makes over $200,000/year. Add his benefits package and he is taking almost $300,000.

When the public found out about this scheme the city dumped that revenue-based raises mechanism, but came up with something better – “the employer paid member contribution.” That meant, the city not only paid a share of the employee’s benefits, but paid a portion – in some cases the entire portion – of the employee’s share as well.

This finally ended a couple of years ago, when, under intense criticism, those staffers – public safety and city management – agreed to pay their whole portion. And, hold onto your hats – about a year ago, these people even agreed to pay 3% of the “employer share.” 

Excuse me, my hat didn’t even jitter on that, because that makes the employee’s total share less than 10 percent. Anybody who has been a member of CalPERS for 15 years is a “classic member” and pays only 6%, plus that extra 3% – 9%, for a pension of 70 – 90 percent of their highest year’s salary is absolutely RIDICULOUS.

Meanwhile, the employer share has increased and increased, not to mention, the employer is making altogether separate payments toward the deficit, by way of the newly established “Pension Stabilization Trust.”

So, I imagine you saw this article in the paper recently.

Number of California public retirees in $100K Club skyrockets, but they’re just part of the burden on state pension system

This article gives a good historic overview of how the pension deficit has grown. I call it “rabbit math” – first they based the contributions on the employees’ salaries, and then they jacked up employee salaries.

I wonder how many other cities in California used Tom Lando’s ploy of attaching salaries to city revenue increases and then going on a development binge. When overdevelopment finally tanked the local market a few years later and revenues plunged, the salaries, benefits, and automatic raises, stayed in place. Salaries got higher no matter how revenues dipped for Chico. And the pensions and city contributions are based on the salaries. 

Getting dizzy yet? Maybe a little pissed off? Well this is where we’ll close and pick it up again tomorrow. 

 

Will the taxpayers be left holding the Pension Deficit Bag?

31 Jul

Have you been “left holding the bag“?  This expression is generally used to describe a situation wherein a person or persons create a problem and then leave others to deal with it.  According to Grammar Girl,  there are different shades of meaning – “this idiom grew out of an earlier expression from about 1600: to give one the bag. That expression referred to someone being left with an empty bag after everyone else removed the good stuff.”

We all know what it’s like to be left holding the bag – empty or full – but I wonder, how do you all feel about the bag being handed to your children? This is what City of Chico staff are trying to do – hand their pension deficit bag to our kids.

The other night I took in a Chico Parks and Playgrounds Commission meeting to hear a pitch for a sales-tax-to-secure-bonds scheme that Ass City Mangler Chris Constantin has been pitching for months. Constantin describes a trick by which he can use the additional sales tax revenue to secure bonded debt. What it amounts to is trying to convince us that it won’t be that painful to pay this tax, because it will be stretched out over years. But when I looked into this scheme I found, that means our kids and their kids will be paying this debt, and it’s very unlikely they will see any benefit.  The bag we will be leaving for our children will be full of debt, crapped out infrastructure, and public salaries and benefits still spiraling out of control.

From the Tax Policy Center –

“State and local governments issue bonds to pay for large, expensive, and long-lived capital projects, such as roads, bridges, airports, schools, hospitals, water treatment facilities, power plants, courthouses, and other public buildings. Although states and localities can and sometimes do pay for capital investments with current revenues, borrowing allows them to spread the costs across multiple generations. Future project users bear some of the cost through higher taxes or tolls, fares, and other charges that help service the debts.”

At a meeting I attended earlier this year, Mark Orme admitted that the city had “kicked the can down the road” on street maintenance for many years, instead paying millions toward their pensions. This included payments toward the actual deficit, instituting a “Pension Stabilization Trust” that siphons money from every fund, even funds “dedicated” to capital maintenance. Through the PST, staff has tricked us into believing we only pay a certain “employer share” of the pensions, in reality, we pay most of their pension cost. This has created what I’m going  to call “the Pension Deficit Bag“.

If we  don’t get a handle on the public employee compensation now, we are handing our kids a disaster. This is the dilemma – the public employees want crazy salaries of as much as 4 and 5 times the median income, AND they want 70 – 90% of those outrageously inflated salaries in retirement,  BUT they don’t want to pay for it.  Years ago CalPERS promised they would make up the difference with investments in the stock market – but their investment strategies, including a bribery scandal, have only deepened the divide.  Now they want the taxpayers to take the bag. In fact, Constantin is trying to convince us that it’s okay to let our kids pay for his ridiculous lifestyle demands.

With groups like Pension Tracker shining a light on this grab, CalPERS and the unions have agreed that “new hires” (our kids) be asked to pay 50%. But top heavy management employees, “classic employees“, are only paying 11%. That is not sustainable. Sounds like a classic Ponzi scheme to me!

“Future project users bear some of the cost through higher taxes or tolls, fares, and other charges that help service the debts.”  But will they receive any benefits? That’s uncertain, in fact, I’d say it’s not going to happen. According to Constantin, we need hundreds of millions to bring existing streets up to safe standards, but the sales tax increase will only bring in a couple million a year. He explains enthusiastically that’s why we will use those proceeds to borrow money (bonds). That sounds nuts to me.

At that Finance Committee meeting earlier this year, Constantin also warned us that the economy is about to tank. If you’ve been paying attention over the last 35 years, as I have, you’ve seen that pattern of boom and bust.  Chico just enjoyed a giant BOOM, despite the poormouth complaining about the Camp Fire refugees. Contrary to the city’s claims, those refugees not only caused a short term blip in the price of housing, meaning MORE PROPERTY TAXES, but those who have remained are still providing a boost to our local sales tax revenues. This will dry up as the retail sector in Paradise recovers, and people start moving back to the Camp Fire burn area. The resulting correction will be tough times for Chico.

Constantin admitted there is such a downturn on the horizon, telling the Finance Committee that his scheme will “shore us up“. What? Who would borrow money in the  face of economic downturn?  The bonds he’s proposing have to be paid no matter what happens in the economy – just like Constantin’s “defined benefits“.

Throwing a sales tax increase onto people who are already experiencing uncertainty is another nail in our coffin. Studies suggest that when people find out there’s a sales tax increase on the agenda, they start hoarding, buying the bigger ticket items ahead of the sales tax increase. This of course creates a bubble. The same studies show that people develop different shopping habits, such as buying online.

Here’s my anecdote – when Tom Lando first suggested a sales tax increase in 2012, I started shopping out of town and online. Of course these purchases are still taxed, but here’s the message – local businesses lost my money, and they won’t get it back. Local businesses need to realize what they stand to lose. It’s not the box stores that are stealing your business, it’s the sales tax rhetoric coming out of the city of Chico.