Tag Archives: Chris Constantin City of Chico Ca

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. 

 

Chico now follows Yuba City into the abyss

25 Mar

Here’s a story from the Appeal Democrat in Yuba City/Marysville. The title states the problem – read further – city expenses have increased to pre-recession levels while revenues have continued to fall, retirement costs have increased by almost 10  percent a year while 32 positions have remained vacant. 

Sound familiar? Well, not if you’ve been listening to Chico Assistant City Mangler Chris Constantin lately – he just made a Pollyanna speech about how everything will be getting better and we need to pump more money into police salaries for cops who only pay 12 percent of their pensions, 90 percent available at age 50. Constantin assumes higher property tax and sales tax revenues – I’d like to see the crystal ball he’s been using, cause my crystal ball says we’re headed straight for the second dip in the ‘W’. Housing prices are going up too fast, builders are building in a glutted market.  In my neighborhood, the same contractor is flipping three houses – putting lipstick on pigs, and jacking the price up to $400,000 plus.  

Below, Constantin admits we can’t really afford these raises for the cops, but insinuates they won’t stay if we don’t pay them more. Meanwhile, interim chief Dunbaugh told Stephanie Taber we had more than 100 recruits for those three positions they just filled the other day. The lies just keep on flowing – Chris Constantin is full of double talk.

“While this agreement includes base pay adjustments, the CPOA has agreed to pay more of their pensions costs (the highest of any employee group) and to convert to a new employee 14-step schedule that reduces the annual step increases from 5% down to 2.5% (a new salary schedule also agreed to by our non-public safety management group). This is a unique solution to the unique issue faced by this high priority area. Unfortunately, it is not something we can afford to give to others without compromising our financial future; however, I believe the return on the investment will positively impact all of us and will bring relief to a workforce that is struggling to maintain even a minimum safe staffing level.”

I predict Constantin will fly the coop before the city announces plans to pursue a sales tax increase. But, read below, you see we’re on the same road as Yuba City. 

 

 

Yuba City budget deficits remain as costs rise

There is a light at the end of the tunnel for Yuba City’s budget woes, but it’s obscured by a mountain of pension debt and rising health care costs.

Those rising costs mean budget deficits will remain until 2018, when the city pays off its pension obligation bonds. Consequently, it’s unlikely the city will be able to add or expand services, Finance Director Robin Bertagna told the City Council during a mid-year budget update at last Tuesday’s meeting.

 Basically, city expenses have increased to pre-recession levels, while revenues, despite an uptick from the improving economy, have not, Bertagna said.

Bertagna projected the city would have a $2 million budget deficit by the end of the fiscal year, although the actual number will likely be lower due to one-time savings realized by 32 vacant positions in the city, said City Manager Steve Kroeger.

Since 2004, retirement costs have increased by almost 10 percent each year. Health benefit payments have increased by 5 percent annually and overtime costs have risen by almost 8 percent each year. Comparatively, general fund revenues have increased by almost 3 percent a year over that same time period.

And required contributions to the Public Employee Retirement System (PERS) will increase by 33 percent by 2021, which will add just less than $2.2 million to the city’s budget.

The city has handled the budget deficit in several ways. Employee furloughs have resulted in significant savings — without the 10 percent furlough, the projected deficit this year would be $4.2 million, Bertagna said.

The city has also used a reserve fund, the Economic Stabilization Fund, to balance the budget.

Currently, the fund has a balance of $4.5 million, which Kroeger said should sustain the city’s deficit through 2018.

In 2018, the city will have paid off its pension obligation bond. The city sold the bond to make a one-time PERS payment of about $7 million.

The bond was sold in the interest of saving money, as the bond’s interest rate is two percentage points lower than the unfunded liability rate that PERS charges the city, Kroeger said.

Even with the one-time payment, the city’s total unfunded PERS liability, representing the difference between the assets the city has to pay pension costs and the amount of pension obligations it has, is $53 million.

Kroeger said the city has planned well for the extended economic slump.

“It’s a downturn that most expected to recover sooner than it has,” Kroeger said. “The city’s conservative fiscal planning has served us well.”

CONTACT reporter Andrew Creasey at 749-4780 and on Twitter @AD_Creasey.

Thanks for the link Chico Politics – City of Chico #8 on list of most fiscally distressed cities in California

10 Nov

Well, I want to take a vacation, but it’s hard to stop thinking about politics. I checked in with Michael Jones over at Chico Politics:

http://chicopolitics.com/2014/11/07/i-wish-i-wish-to-be-a-fiscal-conservative/

and found this frightening article from California Policy Center –  I hate it when I realize,  it’s worse than even I could imagine:

http://californiapolicycenter.org/californias-most-financially-stressed-cities-and-counties/

Why am I not surprised? Neither is “Publius”, who compares the scenarios from other cities on the list to exactly what Chris Constantin has been doing in Chico:

The supporting documentation for the article is entertaining as well. My favorite quote came from the LA TIMES article used to support the comments about Compton:

“A recent grand jury report found that the High Desert city of Victorville used a series of disparate, possibly illegal measures to stave off insolvency. Those included dipping into sanitation funds to help keep the city’s treasury afloat, loaning water agency funds to bail out the city’s electric utility and siphoning $2 million in airport bond funds to buy land for a city library.”

When they talked about borrowing from the sanitation fund, I felt like I was reading the Enterprise Record from a couple of weeks ago.

Some more entertaining lines:

“In Montebello, state auditors last year said they were troubled to learn that the city regularly used money designed for specific purposes to balance its budget — in apparent violation of the law.

‘It appears that the City moved money wherever it wanted, whenever it wanted, regardless of the law or the intended purpose of those taxpayer dollars,’ Controller John Chiang said in a statement.

Montebello officials said they are not close to bankruptcy but acknowledged that accounting problems were serious. ‘We borrowed money from all over the place, from all sorts of restricted funds. Every type of restricted fund, we have borrowed from it at some point to balance the budget,’ said Councilwoman Christina Cortez.”

It’s good to see we are at least following the Industry Standard when it comes to balancing our budget.

Yes, Publius is correct. If you go to a meeting once in a while, you will hear Constantin report exactly the same stuff. He’s running a shell game out of City Hall, and we’re all standing around watching him like we just fell of the turnip truck yesterday. 

Finance Committee meeting: Monkeys in suits moving peas under walnut shells

27 Nov

 

Here sits the brain trust of Chico. Be afraid, be very, very afraid.

Here sits the brain trust of Chico. Be afraid, be very, very afraid.  

It was a chipper 38 degrees when I headed Downtown for the monthly Finance Committee meeting, a cold that penetrated two pairs of pants, two shirts and a heavy jacket. It is a trip that would hardly impress my hillbilly relations, but I feel pretty exhilarated when I arrive at  the city building, my face stinging, eyeballs watering, my hands frozen, fumbling with the bike lock.  It’s good to be awake before you wander into one of these meetings.

They have got a lot better since Chris Constantin arrived, I’ll say. It’s a lot to chew over, some of it hard to understand if you don’t have a degree in administration, but it’s all really important in explaining how our town got into the shape it’s in and why we’re not getting out in any big hurry.

Not long after  Constantin came to town, he introduced the nursery words “loosey goosey” into the official fiscal lexicon (I dare you to say that three times, fast!). He was talking about the way this city had grown accustomed to spending money, each department using their own imaginary credit card with no oversight from Jennifer Hennessy, Miss Finance Mis-director. They were just spending as they pleased and handing Hennessy the bill, and she was using her own personal accounting style to stay a hair’s breadth  ahead of the bill collector. Of course many of us had imagined something like that was going on, we screamed and yelled for her to present the monthly accounting, and she said it was too much work. Dave Burkland said she didn’t have to do it. This may never have changed if Toby Schindelbeck hadn’t made issue of it during the last election. Council finally leaned on Hennessy, but she still didn’t give the kind of reports Constantin has been giving.

Hennessy liked to give power point presentations with  bullet lists and cartoons. A little man standing under a raincloud with the caption, “how did we get here?”  Constantin’s reports are dryer and look boring, but contain more meat.  If you look at the agenda, available here:

http://www.chico.ca.us/document_library/minutes_agendas/finance_committee/11-26-13FinanceCommitteeAgendaPacket.pdf

you will see sheet after sheet of figures, monthly revenues and expenditures for each department.  When I think how many times Hennessy just flat refused to produce these reports, I get a headache. At first, I was a little intimidated by these stacks of figures, but I just started reading through. Starting with the reports,  I just peruse through them, writing down words I don’t understand, then google them.

In short, departments continue to spend money “loosey goosey” without oversight, and, Constantin says, “we’re still letting our costs drive our funding instead of letting our funding drive our costs…” 

The problem I have with his statement is the use of the word “costs”. They don’t ever really tell us the true “cost” of anything down there, instead they mean, “price” that they assign stuff, which includes their salaries and benefits. See, this is how 1500 feet of plastic pipe and a couple of hydrants ends up costing $432,000 – they figure in the “overhead” of salaries and benefits of every employee who dotted an ‘i’ on a form having to do with that particular job.

What they talked about for about an hour yesterday was the process by which they transfer money from one fund to another, making it legal to use the money for uses it could not originally be used for. Over at Truth Matters they are discussing the use of sewer funds to fix the streets. Well, you say, they ripped up the streets to fix the sewers, isn’t it appropriate to use the sewer funds to fix them back?  No, sorry. There’s a road improvements fund for that purpose, which is fed through stuff like the gas tax, and all kinds of federal and state grants, etc. Unfortunately,  Jennifer Hennessy told us at one meeting years ago, that money all went to salaries and benefits, including every dime of that gas tax, which was supposed to be restricted to fixing streets. 

I thought the fund raiding would end with Hennessy, but it’s still a matter of everyday business Downtown. Yesterday they discussed “overhead” – salaries and benefits. They discussed the process by which these salaries and benefits are supposed to be charged to the specific project on which an employee is working – like a subdivision. Then the charges would go to the developer who brought the plans in. Let them complain about the salaries. But no, that’s not how it’s happening,  because council decided a few years back to defer developer fees until a project is built out. In other words, these developers come and go from the city building, using city staff like their own private toadies, and PAY NOTHING. That’s why the development fund is like, what, $9 million in deficit? And capital projects is another $3.4 million in the hole – I’m sure on that figure, they bounced that around a few times yesterday. So, they spend a lot of time talking yesterday about where they were supposed to get the money to pay salaries and benefits of those staffers remaining employed. They need about $36 million dollars to cover that. Anybody got any ideas?

Staff is chomping at the bit to start the Hwy 32 widening project, not because CalTRANS will sue us if we don’t – that never even comes up. No, they are desperate for grant money to pay salaries. Does Hwy 32 really need widening? No. But the city needs the money like a hype needs a needle.  Ruben Martinez said it in exactly so many words – “We need to get $36 million in projects done to meet our budget.” 

And Scott Gruendl asked, “How many staffers would we be able to get out of that…”

There it is folks, just what Contantin said earlier, “we’re still letting our costs drive our funding instead of letting our funding drive our costs…”  And by “costs” they really mean, staff salaries and benefits.

There was more to this meeting, I’ll get back to it when I get a chance, but for now here’s how I’d describe our city government – a bunch of monkeys in suits moving peas around under walnuts shells, waiting for more peas to appear out of the clear blue sky.