Thursday, May 22, 2014

City pensions: change contributions, and stay out of WWTP construction funds

Pacifica Tribune Letters to the Editor, 5/20/14.  "Shell game" by Robert Hutchinson

Pension debt bypass to City WWTP construction fund with love
"Editor: To paraphrase the old TV quote, City Council has some "splainin to do" about the new budget. Council wants to borrow funds from the sewer fund to cover pension costs. I have a better idea-have the employees cover their own pension costs. Or put them in a 401K like most of the rest of us.

Big elephant in the room
As an example, current city pension costs for safety employees cost the city (taxpayers) 28 percent of gross salary increasing to 36 percent by 2015. That's a couple million dollars a year for employees who already make a really nice salary. Get these pension costs under control and taxpayers save millions. No borrowing from the sewer fund is required.

In fact the borrowing of money to pay pensions is a shell game. The current pension setup is wildly out of control and we never will be able to pay what the current and past councils have given away.

City Council has to get its fiscal house in order and stop spending good money after bad." 

RelatedCapitol Report New Mexico/Mikolewski in news, 7/23/13.  "Moody’s Investors Service has released a list of 29 local government entities across the country that the company claims have net pension liabilities that are too large compared to their rating category. On the list? The city of Santa Fe, the county of Santa Fe, the city of Las Vegas, N.M., and the city of Alamogordo. Moody’s compiled the list after changing the way it analyzes pension obligations on the state and local levels."  Bloomberg/Arthur Levitt and Lynn E. Turner, 9/22/10, "Pension shell games threaten market." 

Note photo/graphics:  Piggy from Capitol Report New Mexico; time bomb from Empire Center/Government Reform 12/7/10.

Posted by Kathy Meeh


Anonymous said...

"City Council has to get its fiscal house in order..."

I couldn't agree more. The current council,as with past councils has continually failed to make those tough decisions necessary to keep this city solvent. Their most obvious goof to date has been sitting on the fence rather than push for the obvious which would have been the outsourcing of the police force to the S.M. Sheriff's Dept. In lieu of that, they are now proposing to raid the sewer fund which will just create a bigger financial problem down the road. Our current leaders' proposal is short sighted and regardless whether they mean well or not, it is just a very bad idea.

I'm no financial wizard, but I do possess the common sense to balance my checkbook and not spend more money than I have. Is it asking too much to expect our city officials to exercise the same common sense and not spend money that they simply don't have?

At some point, this Peter/Paul method of accounting is going to implode and put us in a worse fix than we are currently. I've read several times that "we can always file bankruptcy." While not having any direct experience with that, I do believe that wouldn't get us off the hook. The debts would just get passed onto the individual property owners property taxes and would still require repayment.

Anonymous said...

We're stuck with this obligation and the new ones this council has contractually committed us to. Stuck legally and every other way. The only way out is more revenue and you know that ain't happening any time soon. When the city's other bills can't be paid, the bonds have been juggled, and the sewer fund has been cleaned out, there won't be much left other than bankruptcy.

Anonymous said...

Huge pension costs flat line other critical city programs. Rummaging through the City's financials, I came across best and apparently most recent data from 2012-2013 budget. Total public safety salary expense was $12.452 million. Take the City's pension payment (taxpayer payment actually) of 28% of salary brings our pension payment to $3.48 million per year.
Does anyone from the city dare offer an opinion that this is correct? Close??
We lose library hours because the city can't pay what $75K?? And these pension payments are not on the table?

Anonymous said...

727 Not such a pretty picture, is it? As Lionel Emde asked in his LTE which appears elsewhere on this blog, "what is the purpose of government"? Take it a step further and seriously ask what can actually be done within the carefully constructed laws and regulations put in place to perpetuate the public employee pension system? Not much can be done to rein in pensions for past and current employees. Their pensions are guaranteed. What's Pacifica doing about the pensions of new hires, particularly big ticket fire and police? As little as possible. Pretty clear what this city feels government's purpose is and keeping the library open isn't on the list.

Anonymous said...

Does a mountain have to fall on this council before they realize this city needs to make money? The big expenses like employee pensions aren't going away. That obligation is etched in stone. Kinda hard to kick it down the road, but this bunch will try. And this new library madness! Add their names to the short list of those who sank Pacifica.

Anonymous said...

shell game it is the city budget (apologies to Yoda). The utility tax got walloped last year. And after that election council could have understood the voters have spoken and started controlling pension costs immediately. Fast forward 6 months and Council comes back at the voters with punishment program cuts, a shell game "loan" from the sewer fund and guess what? pension costs are still untouched and sky high. In fact it appears council is giving a loan to a first loan to bail out excessive pension costs.

Anonymous said...

The city is stuck with those vested pension costs. They've implemented two-tier rates for some of the new hires in the past couple years but the ink is very dry on the old stuff that's killing us. Welcome to California!

Anonymous said...

The court is still out as to whether cities can cut current pensions that are underfunded. It happens all the time in the private sector. It's only a matter of time until this goes before voters which it almost did this year.

Anonymous said...

Hey, tough love worked for Jerry Brown. Nasty cuts to educ and safety-net programs and threats to public safety softened up CA voters to the point they gave Jerry what he wanted...more money!

Anonymous said...

1113 Actually, the court is in on San Jose's Measure B from late 2013 and the news wasn't good. 70% of SJ voters approved the measure. The unions promptly sued. In what is considered a landmark decision a judge reaffirmed the "vested right" status of pensions offered to current employees, ie, if a city offered the pension plan at the time of hire the city is stuck with it. That means the city is stuck with any unfunded liability. That's why cities file bankruptcy--Stockton, Detroit, San Berdoo--they couldn't break the deal. Measure B was about current employees. A challenge to the pensions of former employees wasn't even attempted. Read the SJ decision and you'll also see the judge allowed cities to cut salaries in order to cut future pension costs. Sounds good and some people persist in claiming it's a victory but in reality the city of SJ continues to award pay raises in all new labor contracts.

Want further pain? Statewide, the separate unfunded liability for retired employee medical benefits is nearly double that for unfunded pension liability. Rarely mentioned and most folks don't even think of it as a separate item. These aging and retired plan participants drive up the health care costs for their former employer.

It just isn't enough to convince the voters because what they vote for may not be legal. It might be prudent, but the action has to withstand legal review. Basic contract law will prevail every time. Bottom line? It all starts at the bargaining table directed and approved by a city council. God help Pacifica.

Kathy Meeh said...

1249, I'm 99% sure the San Jose court ruling came way after the bankruptcies of Stockton, Detroit and San Bernardino.

There may be a challenge to the 12/23/14 court decision, said to be flawed. See Union Watch/John Moore, 5/2/14. "In making its ruling, the court over-looked that under the rules of Kern/Allen, all San Jose employees, except for those who were employed prior to the 1965 Charter containing the amend/or repeal provisions became effective, were “new employees” whose pension rights may always be eliminated or altered even without a reservation of the power to amend and repeal."

Further, San Jose Mercury News/Mike Rosenberg, 12/23/14."Santa Clara County Superior Court Judge Patricia Lucas' tentative decision released Monday prohibits the city from forcing current employees to contribute significantly more toward their pensions, as called for in last year's Measure B. But the ruling allows the city to cut employees' salaries to offset its increasing pension costs."

Anonymous said...

Contract law or not, in the private sector pensions are routinely reduced for vested retirees due to underfunding. If it's legal there it's legal for public employees.

It's just a matter of time 1249 until a court decides public pensions can be reduced.

Hutch said...

Wow that's really interesting Kathy thanks for that.

We all know things can't continue the way they have. Something must change. These underfunded pensions are causing library's to cut days, programs for the poor to turn people away, staff to be laid off , crime to increase and cities to deteriorate.

Cities must have the right to reduce current pensions or there will be no cities.

Anonymous said...

Kathy, to clarify my earlier post, of course the SJ ruling came after those bankruptcies in Stockton, etc. My point was that the court ruling merely underscored what the bankrupt cities had already discovered on their own in their deliberations leading up to their Chapter 9 filings. The legal opinions told them there was no way to break the deal for vested pension benefits. That's been the law of the land and still is. A court allowing pay cuts to current workers to offset an unfunded pension liability doesn't refute that. And the pay cuts aren't happening! All of those bankrupt cities have gone forward with the two-tier pension and benefit systems for most new employees--just like Pacifica, and probably with the same exceptions for the "most-favored" unions. If the line can be held on salaries the two-tier system might make a difference as the more expensive retirees die off.
Court challenges are plentiful and
the appellate courts will be handling the fall out for a decade or more. Some of the issues that will come up in a protracted battle would require amendment to the state constitution, ie, statewide ballot. Followed by, yes, more legal challenges. Decades. The unions will use their
considerable war chests and political clout to protect themselves.
As far as the rest of your post, I agree and said much the same.
IMHO we can't wait for legislative change that, for a variety of reasons, may never come. We can demand that local politicians act responsibly and boot 'em when they don't. This bunch and their predecessors are schizoid in that they spend as if we have a tax base but do nothing to develop that tax base. Cutting pension costs needs to be done but it's not enough. And it may be harder to do than developing an economy. We need an economy!!!

Anonymous said...

223 etc There are huge differences. Do some research. No one here is defending the situation, but there is no simple fix.

Anonymous said...

Private employer pensions? Gone the way of dinos. They've pretty much all become 401Ks which means no defined benefit and your "pension" rises or falls or disappears depending on the stock market. No similarity to the traditional pensions found in the public sector with their guaranteed defined benefit.

Anonymous said...

There's an excellent late 2013 article out there called The Pension Fund That Ate California. Reprinted all over and you can find it by the title. Biased for sure--the author would like to end all defined benefit plans--but it's accurate and is a real eye-opener for those new to the topic or who think there's a quick fix to the problem. Well worth a read.

Anonymous said...

1128, so what's the problem with you finding the link and posting it here?

Anonymous said...

You knuckleheads thought this council would be different. You thought this council would lead us to the promised land.

They fooled you!

Anonymous said...

Sorry 1139. I didn't read it on
line. It was quoted in a class and later handed out for comment. Well known article. Remembered the title and it can be found that way. Probably reprinted in the newsletter Kathy mentioned, UnionWatch.

Anonymous said...

1201 No more than they fooled themselves. No fast or easy fixes for Pacifica's problems. And first you need to actually understand the problems. We are the revenue source. Most people file that under "everything costs more" and life goes on.