[Moving Deck Chairs to Avoid a Disaster over Pensions]
The story of the sinking of the HMS Titanic and the causes are known to all. Had the ship not been traveling too fast, or had the officer on the bridge ordered a change of course earlier the collision with the iceberg would not have occurred The courses of action to avoid disaster were clear, but ordering the crew to move deck chairs to avoid a cataclysmic event was not one of them.
So it was on Tuesday January 16, 2011, when the Ventura City Council approved new labor contracts with the Ventura Police Officers, Police Management and the employees represented by the SEIU. The City Council vote was 5-2 in favor of the agreements. Councilman Andrews and Councilwoman Weir voted against approval. The decision of the other five — Brennan, Fulton, Monahan, Morehouse and Tracy was in favor.
The agreement with the Fire Department union is not due for another 6 months, but results are likely to be similar. Recall that Mayor Fulton and Council members Brennan, Monahan and Summers were responsible for increasing the firefighter pension in the fall of 2008 so that these folks could retire with 3% at age 55, thus increasing our unfunded pension debt by $1.2 million or more annually. Mr. Summers is gone but Councilman Tracy (retired police chief) will predictably follow in his footsteps on this pension issue. (See Res Publica, August, 2008 for a complete summary)
The City Manager’s “Victory Lap” Over Pensions
Below is an email from City Manager, Rick Cole, recently proclaimed by Mayor Fulton, conveying the news of this purported accomplishment. The email is upbeat and congratulatory for their success of having the employees start to pay towards their own retirement and the establishment of a two-tier system, where new employees will have to be older before they may receive full retirement.
This week the Ventura City Council approved new labor contracts with employee bargaining units that will move the City toward a more sustainable pension program. The agreements are expected to save a net of $250,000 during the remainder of this fiscal year, $1.0 million in fiscal year 2011/12 and $1.3 million in fiscal year 2012/13, for an estimated savings of $2.6 million over the three fiscal years.
The new employee contracts require employees to pay 4.5% of CalPERS pension costs, resulting in a higher percentage saving for Ventura taxpayers than any other city or county labor agreement in Ventura or Santa Barbara County since the beginning of the economic crisis.
The agreements will also implement a second tier CalPERS retirement formula, based on a later retirement age for newly hired employees. Ventura is the first to do so in the two County regions for either safety or miscellaneous employees. The agreements approved by the City Council cover both.
Concessions were made on both sides to reach agreements that safeguard the delivery of quality services to our community. For the first time in several years, employees will receive additional employer contribution to optional benefits to cover a portion of the rapid rise in health care costs. A key part of the package was an increase of three days in paid leave time for employees who have been forced to take unpaid leave time during the City’s winter shutdown. Executives and managers are not eligible for the additional leave time.
Pension reform has been the subject of public debate across the State and beyond. Last year, the City Council set the goal of raising the retirement age for new employees and returning to employees paying their share of pension costs. Both goals were achieved in the agreements ratified by the Council this week.
—Rick Cole, City Manager
Our City Manger and Mayor Fulton hail their accomplishment as a milestone and enormous accomplishment. Or was it? Councilwoman Christy Weir did not think so. She rejected the proposal and stated “Fiscally, the city needs more than this right now.” Council Member Neil Andrews said the agreements “simply don’t go far enough.”
“Fiscally, the city needs more than this right now.”—Christy Weir, Councilmember
Here are some extracts from the reports of CALPERS, the folks who manage our pension money (or losses) dated October 10, 2010, based on data as of June 30, 2009. The Council members had these reports when they voted on these pension contracts.
First, the “employer contribution rate”, which is the percentage of total payroll that must be paid yearly to fund the pension plans. The rate for police and fire for example must be paid for policemen and firemen yearly in addition to their pay and medical costs:
FISCAL YEAR EMPLOYER CONTRIBUTION RATE (Police & Fire only)
“The estimated rate for 2012/2014 uses the valuation assumption of 7.75% as the investment return. Member contributions are in addition to the above rates”.
CALPERS, report of 10-10-10
We next turned to page 5 of the CALPERS report which provides the following data about the police and fire retirement:
|Funded Status||June 30, 2008||June 30, 2009|
|Present Value of Projected Benefits||$ 270,877,057||$303,536,023|
|Entry Age Normal Accrued Liability||$ 223,938,241||$248,929,746|
|Actuarial Value of Assets||$177,314,177||$184,660,390|
|Unfunded Liability||$ 46,624,064||$ 64,269,356|
An identical report was provided for all other employees with the following results:
|Funded Status||June 30, 2008||June 30, 2009|
|Present Value of Projected Benefits||$ 205,128,033||$217,940,958|
|Entry Age Normal Accrued Liability||$ 167,837,616||$184,806,501|
|Actuarial Value of Assets||$157,529,148||$165,040,339|
|Unfunded Liability||$ 10,308,468||$ 19,766,162|
A 47.6% increase in unfunded liabilities in one year.
What is to be gleaned from these statistics is that as of June 30, 2008, we as a City owed $ 56,932,532, and that as of June 30, 2009, we owed $84,035,518. This represents an increase of $27,102,986 or 47.6%. The data however gets worse when you look at the projected employer contribution rate between 2011 and 2013. Apply those percentages against the current police and fire payroll of $48,000,000 and the losses are staggering. In 2014 for example we will have to pay CALPERS another $19,488,000 on top of a payroll cost of $48,000,000, for a total of $67,488,000.
Discrepancy Between What CalPERS Reports And What The City Manager Reports On Pensions
Compare those numbers to the City Manager’s email about how much we will save in the same period. The opportunity to achieve true reform and to attain a sustainable pension plan was now. The City Council was negotiating from a position of “impasse”. This means that if no agreement were reached, the Council would have been able to insist upon more reasonable terms to correct the lavish and excessive benefits conferred upon the public employees in the last ten years and achieve sustainability. The advantage was in the City Council’s favor of getting a “three year average salary” as the basis for calculating the amount of retirement, or lowering the percentage of retirement and/or increasing the age of retirement, or moving from a defined benefit to a defined contribution plan. Instead, the management team and the City Council settled for far less than what was fair to the taxpayers of this City. The SEIU contract was a good step forward.
The management team and the City Council settled for far less than what was fair to the taxpayers of this City.
A spreadsheet is attached to allow you to evaluate the decision. These are real numbers. Please note that the pension entitlements and amounts are fixed, but that the General Fund Revenue is not. The income projection is based solely upon educated “guesses” by City officials. The other assumption is that CALPERS is correct in projecting that the investment of City of Ventura pension dollars will yield 7.75%. If our investment does not yield that return on our investment the losses get far worse. If you want to determine how certain entries were calculated, such as percentage calculations, place your cursor over the number and left click once. The formula for the calculation will appear at the top of the form. For those who want the bottom line here you go:
- In 2008 income was $94,100,000 and the City sent CALPERS a check for $11,948,759. This was 12% of our total income on top of the payroll cost of $48,087,281. Total spent on people and pension benefits totaled $60,036,040 or 63% of our actual income.
- In 2011 income is budgeted at $80,400,000 and the City will send CALPERS a check for $13,142,936. This is 16% of our total income on top of a payroll of $47,056,848. Total that will be spent on payroll and pension benefits will total $70,199,784, or 87% of our budgeted income.
- In 2013 income is budgeted at $82,000,000 and the City will send CALPERS a check for $13,929,524. This is 16.9% of our total income (*) on top of a payroll of $47,056,848. Total that will be spent on payroll and pension benefits will total $70,199,784, or 85.6%% of our budgeted income.
*The budgeted income (projected) for the City in 2012 is $80,800,000 and in 2013 $82,000,000. If their guess at income is wrong then the percentage of payroll and benefits gets larger.
Had all of the agreements mirrored the SEIU contract this might have been a positive step toward solvency. Instead Councilmen Fulton, Brennan, Morehouse, Monahan and Tracy decided to move the deck chairs on our ship of state in a token effort to avoid a looming financial disaster. Such votes cause one to reflect and ask how this simple majority can continue to float above economic reality. Are these five elected officials reading the financial reports? Do they truly believe and hope our local economy will rise out of the ashes like a phoenix in a nation with $15 trillion in Federal debt and a State that is broke?
Do not mistake, the SEIU contract was a positive step, however the police unions and this council majority used lavish benefits and entitlements as their starting point in negotiations rather than economic reality.
B. Alviani K. Corse T. Cook
J. Tingstrom R. McCord S. Doll
|CALPERS||2008||2009||2010||2011||2012||2013||3 year net gain from employee contribution to CalPers increase|
|*Total Employee Payroll||48,087,281||51,240,487||48,940,168||47,056,848||46,685,947||47,287,512|
|* Percentage of Contribution by Employer||17.08%||17.88%||18.65%||21.31%||22.61%||25.78%|
|* Dollars of Contribution by Employer||8,211,264||9,162,430||9,128,522||10,026,168||10,555,745||12,190,178|
|* Percentage of Contribution for Employee Portion paid by City||7.77%||7.74%||7.89%||6.62%||4.57%||3.68%|
|* Dollars of Contribution for Employee Portion paid by City||3,737,495||3,967,333||3,863,616||3,116,768||2,131,282||1,739,346|
|* Percentage of Contribution by Employee||1.04%||3.16%||3.97%|
|*Dollars of Contribution by Employee||488,063||1,477,236||1,877,308|
|*Total General Fund Revenue||94,100,000||94,100,000||85,100,000||80,400,000||80,800,000||82,000,000|
|*Source is City of Ventura Finance Staff|
|Percentage of CalPers to Total General Fund||12.70%||13.95%||15.27%||16.95%||17.53%||19.28%|
|Total of CalPers Payment||11,948,759||13,129,763||12,992,138||13,630,999||14,164,263||15,806,832|
|Percentage of City’s payment to CalPers||100||100||100||96.42%||89.57%||88.12%|
|Dollar Increase, year over year, to CalPers||1,181,003||(137,625)||638,861||533,264||1,642,569|
|$ of Contribution by Employee||488,063||1,477,236||1,877,308|
|Employee Portion over City’s increase||(150,798)||943,972||234,739||1,027,913|
 3% at age 55 means 3% of a policeman’s or firefighter’s highest annual salary times the number years of employment. For example, a 20year old works 35 years and in his last year his salary is raised to $80,000. He will be paid $84,000 a year for the rest of his life.
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