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Retirement Pensions Are Our #1 Problem (and what you need to know about it)

retirement pensions & will rogers

“It’s not what we don’t know that hurts us, it’s what we know that ain’t so.”

—Will Rogers

retirement pensions deficit nationwide

America’s significant retirement pension funds are underfunded by an unfathomable $4.2 Trillion, according to an August 6 Wall Street Journal article. Ventura mirrors this phenomenon. Ventura workers participate in the state pension fund, CalPERS—the largest in the country. CalPERS is only 71% funded as of June 30, 2018, despite a 10-year bull market and a growing economy.

Because of the chronic funding shortfall, CalPERs demands rapidly increasing contributions from all participating local governments. Ventura will have permanent increases of at least $2 million per year for five to six consecutive years.

We respect the work city employees do. There is no denying that fire and police preform a vital job that is both dangerous and requires a high level of training and responsibility. Our concern is not about their work. It’s about the structure by which their retirement is accumulated and paid after retirement.

It is undeniable that city employees’ retirement pensions are crowding out the city’s ability to provide the service itself. Moreover, chronic underfunding of pensions will eventually hit a breaking point jeopardizing benefits too. Something in this equation has to change.

 

CalPERS retirement pensions obligation

Retirement Pensions Today

Most state, county and local pension benefits are considered to carry a virtually iron-clad guarantee to the workers to whom they have been promised. Even the smallest attempts to alter future benefits—much less current ones—have been met with furious opposition. Workers’ representatives and also the plan managers themselves—like CalPERS—oppose changes. That opposition has been mostly successful. Governments at all levels are hamstrung between their duties to provide on-going services to their citizens and their ever-increasing financial obligations to pension funds. In the State of California, once one hires an employee, their retirement cannot be changed.

A typical city employee would receive a pension almost the same as his or her working salary if they participated for their whole career. In the case of many public safety employees, their retirement will last longer than their employment as they are fully vested in their retirement pensions by age 50 or 55. For so-called “miscellaneous” employees (all others) the retirement age is higher, usually 62. Nevertheless, the years in retirement can still equal or exceed those worked.

Discussions about pensions get emotional because we’re talking about people’s future and security. What gets lost in the arguments is this. The law and politics guarantee retirement pension benefits, but not the actual returns on investments. There is no separate investment market for pension funds. All investment pools, large and small, invest in the same markets. The myth is that pensions are safe. They are not. The difference is that taxpayers pick up the difference between reality and what politicians promised.

Unprecedented Bull Market

For the past ten years, since mid-2009, there has been an incredible bull market in stocks. CalPERS has posted many good returns during those years. However, Ventura’s pensions are underfunded by $215.1 million. For far too long, pension promises have been at levels far beyond what the real markets can provide.

 

Ventura's specific retirement pensions problem

 

What Can We Do To Fix Retirement Pensions?

Politicians have made many attempts to improve the current system, but none have addressed the problem in a meaningful way. CalPERS does offer one solution: Cities can buy out of the system—technically—but the costs are so enormous that no municipality can realistically consider that an option. It’s no accident, of course. CalPERS’ onerous payment demand to end participation is designed to be a straight-jacket. As of June 30, 2017, for the City of Ventura, the amount required to get out of CalPERS is $1.254 Billion.

League of California Cities and Government Finance Officers Association recommended actions to confront unsustainable pensions.

  1. Reduce the unfunded liability by making annual catch-up payment even more than CalPERS instructs you to pay—if you can afford to pay more.
  2. Raise taxes
  3. Reduce services
  4. Require voter approval of any pension obligation bond, or POB.

Pension Obligation Bonds Explained

A city issues a pension obligation bond to pay down the unfunded pension liability. The POB converts the pension liability into a fixed rate of return. There are considerable underwriting costs when issuing a POB. The city invests the money received from the bond into higher returning investments, usually in the stock market. The central idea is that the stock market investments will produce a higher return than the fixed interest rate on the bond, thereby earning money for the pension fund.

A POB creates debt to pay off debt. Such a bond is essentially a gamble with public money. Simi Valley is considering issuing a POB, and Ventura might follow suit if Simi Valley is successful.

The League of California Cities and Financial experts, including Government Finance Officers Association, strongly discourage local agencies from issuing Pension Obligation Bonds (POBs). This approach (going into debt to pay off debt) “only delays and compounds the inevitable financial impacts.”

These are terrible choices for the public.

What The City Council Might Do To Reform Retirement Pensions

retirement pensions superheroThere are two other choices for our City Council to consider if they have the political will to do anything about this crisis that will cripple the City of Ventura.

  1. Make beneficiaries pay more. With the city covering 100 percent of the unfunded liability, the problem will continue to grow. There will be minimal reforms because the actuarial losses fall on the taxpayer. Capping the employer contribution at a fixed percentage of salary would cut pension costs for the city. As pension costs increase over the years, the employees will pay all the costs associated with the growth.
  2. Change when retired city employees may begin collecting pensions. This alternative solution applies to new employees only. What if police and fire could fully vest their generous pensions by age 50 or 55, as they do now, but the payments did not start until age 65? Why would that help? The reason is that even if the city makes no further contributions, the fund will have ten more years to grow. At current official pension growth rates, that would more than double the value of that fund over those ten years. Also, the retirement payment period would be ten years shorter, given the same life expectancy. Such a system would still offer retirement security, but it would start at what most of us consider average retirement age.

social security retirement pensionsPublic sector employees may resist the changes but think about it. Private sector employees don’t get their full social security until 65 or even 67, depending the year they were born. Moreover, Social Security is only going to be one quarter to one-half of your working earnings.

Editor’s Comments

Even with an unprecedented bull market, Ventura’s unfunded pension liability grew over the past ten years. During such a period, one would expect the excess liability to at least shrink some.

Instead, the pension liability is growing faster than market returns can ever expect to make up. CalPERS annual demand will now permanently increase by about $2 million per year for the five to six years and then stay there. There is no assurance it will not increase even further in the future. Something has to change. Otherwise, the city will either cut back needed services, raise taxes, or both.

Past retirement pension negotiations were based on union bargaining and raw political power, creating a gap between what politicians promised and what cities realistically can pay. We offer some solutions, but it will take political will to bring the retirement benefits back to reality. Changing the system is the only way these promised benefits can be truly sustainable and dependable for retirees. It’s also the only way that taxpayers can afford to pay for them.

Demand Retirement Pension Reform

Below you’ll find the photos of our current City Council. Click on any Councilmember’s photo and you’ll open your email program ready to write directly to that Councilmember.

Councilmembers
Councilmembers
Councilmembers Councilmembers

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council candidates

Latest Exclusive Insider Advice For Council Candidates

 

council candidates“If you don’t know where you are going, any road will get you there.”

—Lewis Carroll

Details filling in for Council Candidates

Ask anyone what the pressing issues are facing Ventura; you’ll get a variety of answers. With the unprecedented departure of three serving City Councilmembers, this is an excellent time to get the perspectives of those who have served. Having interviewed the retiring Councilmembers and some former Council candidates, all point to several significant issues facing Ventura’s next City Council in the next few years.

For the first time in Ventura’s history, voting districts divide the city. The districting forced Mayor Neal Andrews and Councilmember Mike Tracy to retire. Councilmember Jim Monahan decided to retire after forty years of service. New Councilmembers will bring fresh perspective and energy to the Council. They also will face a steep learning curve to be effective.

Governing By Districts

City Council Candidates will serve by district

As citizens expect their elected officials to represent their district’s interests, concern for the city as a whole may take a backseat to districtwide issues. That can be a problem when the demands regarding traffic, housing, crime and services of the districts don’t mesh with the other districts’ views.

Nowhere was this more evident than in the first forum for District 1 candidates. Citizens expressed concern for a Westside pool, learning how governing by districts will work, affordable housing and labor force opportunities. Very few of these issues aligned with what the outgoing politicians thought was most important: 1) growth 2) water 3)homelessness and 4) staff accountability.

Governing by districts means inexperienced new Councilmembers will lead the city. Inexperience means two things. First, existing Councilmembers and city staff may marginalize them until they gain experience and knowledge. Second, the new City Manager and the city staff may take more control without voter accountability. Neither of these is good.

More distressing may be the loss of a citywide perspective on the Council. Wrangling for projects will probably intensify. It is likely that Westside swimming pool proponents will battle the Kimball Park proponents over who gets funding, for instance.

Re: Growth

council candidates

Growth meant different things to each interviewee. All agreed Ventura needed to grow. They also concurred that growth and water availability are inseparable. Each acknowledged the need for affordable housing but recognized the opposition to more houses (the NIMBYs). Forward progress on growth means accommodating, integrating and compromise.

The Solution is Sensible Growth

Growth and water are inseparable—you can’t have one without the other. The next City Council must forge a reasonable growth plan. The new Council will also have to convince the “no-growth” citizens that the city needs to grow to be vital. The Council should also call for the city staff to streamline current fees and permits practices.

Re: Water

Everyone acknowledged water was a concern. The specifics on how to address the issue varied widely, however. The solutions offered by those interviewed included the Heal the Bay Consent Decree, state water, direct and indirect potable reuse and drilling new wells. There was no clear direction.

Solutions for Better Water Management

water, council candidatesThe new City Council can take three steps to address water. First, they must request a modification to the Heal the Bay Consent Decree to extend the deadline for extracting wastewater from the estuary. Extending the deadline requires the Council to direct the City Attorney to act if Ventura is to avoid penalties for not complying.

Second, The Council must force Ventura Water to table Direct Potable Reuse (DPR). It is an expensive gamble. No State approved testing exists for DPR today and may not for 4-8 years. California anticipates establishing safe drinking water standards for DPR in 2024, but there are no guarantees they will meet that deadline. There’s no reason to proceed with an untested and unproven method that risks the public’s health.

Third, the Council must make Ventura Water more transparent. The goal is two-fold. Increase accountability within the department and increase communication to the public. As an example of poor communications, most of Ventura did not know of September’s safe drinking water breach. Ventura Water exceeded the Federal Total Trihalomethanes (TTHM) levels. Bear in mind that elevated TTHM levels were the cause of the water issues in Flint, MI. Ventura Water met the minimum requirements for reporting the violation. They contacted the residents in the affected area but did not explain it to the rest of the city. They fulfilled the letter of the law but not the spirit of it. To date, they have not notified the public whether the TTHM levels have returned to acceptable levels.

Re: Homelessness

council candidatesHousing Ventura’s homeless was a high priority. Some thought affordable housing was the solution. Others mentioned the homeless shelter. Some interviewees distinguished between the mentally ill living on the streets and the vagrants. Each saw it as a countywide problem with Ventura as its nexus. The county jail and the psychiatric hospital are in Ventura, making the city a natural final destination for the homeless to stay. One interviewee described it as a “catch and release” program by the other cities into Ventura.

Consideration Toward Addressing Homelessness

The new Council should distinguish between criminal vagrants and those willing to accept help. We should be willing to help those who help themselves.

Re: City Staff Accountability

All the interviewees wanted more accountability from the city employees. Often the City Council gives the staff too much power to drive the dialog about, and the outcomes of, important issues. Several pointed to the lack of a City Manager contributing to the problem. Incoming City Manager, Alex MacIntyre, will need to address this issue.

Improving City Staff Accountability

council candidatesThe new Council needs to apply critical thinking and be willing to question all city staff reports and recommendations. To do so requires financial literacy. Each Councilmember must study the city budget and Comprehensive Annual Financial Report (CAFR).

Second, the Council should stop accepting mediocre performance from the staff. Stop praising the employees even when they don’t perform. In private, two of the three outgoing Councilmembers say low staff morale is the reason for the gratuitous praise. False praise is not an antidote for low morale, in any case. It may be detrimental to the top performers by cheapening the value of the kudos. The new City Manager should confront the staff morale issue.

Third, the new Council should scrutinize the expenditures on outside contractors. Last year, Ventura spent $30 million. They should be fiscally responsible and look for ways to cut these costs.

What Was Not On the List of Issues?

Pensions were surprisingly not on the list by any of those interviewed. Either they don’t understand the issue, or they feel it is a problem they cannot change, or the fallout from ignoring it is too far into the future.

How to Address Pensions

Pensions are the ticking time bomb nobody wants to discuss. They’re the political third rail issue that candidates ignore. Two years into this new administration, the CalPERS payments are going to balloon. It’s time for the city to acknowledge and admit that pensions will consume the Measure O tax increase by 2023. Forecast the anticipated CalPERS increases objectively. Provide the Council with the necessary information to make financial decisions.

Editors’ Comments

Pensions, council candidatesMany complex issues face Ventura. All City Council candidates need to be aware of the problems and have a plan to address them. We can’t rely on the candidates alone to be knowledgeable. It’s each person’s responsibility to be aware of the challenges before us. It’s equally important that each voter be confident that the candidates understand them. Only then do our elected officials represent us

Even though voting districts divide the city, our elected Councilmembers must represent the entire community. When deciding on issues, they must think about the city at large. The tendency will be to think about each Councilmember’s district first and the city second. Such a practice is unacceptable to a town of only 109,000 people. We must always remind our elected officials to think of the city before his or her district.

Keep these points in mind as you go to the polls in November

New Council Candidates Will Replace Departing Councilmembers

Below you’ll find the photos of our current City Council. Click on any Councilmember’s photo and you’ll open your email program so you can write directly to that Councilmember.

Let them know what you’re thinking. Tell them what they’re doing right and what they could improve upon. Share your opinion. Not participating in government weakens our democracy because our city government isn’t working for all of us.

Neal Andrews, Mayor

Matt LaVere, Ventura City Council

Matt LaVere, Deputy Mayor

Cheryl Heitmann

Jim Monahan

Erik Nasarenko

Mike Tracy

Christy Weir

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

You Have Reasons To Be Concerned About Ventura’s Pensions

“Courage Cannot Be Counterfeited. It Is One Virtue That Escapes Hypocrisy”

—Napoleon Bonaparte

Pensions

The City of Ventura has a spending problem, and it’s time for an intervention. The fiscal crisis is not widely understood. At its core are the promised unfunded pensions for public employees.

Ventura’s pension contributions for 2018 are $17,410,000. The annual contributions will balloon to $32,630,000 by 2025. That’s a compound annual growth of 9.4%. No other expense item in the US economy is growing that fast. As of 6-30-15, the entire unfunded liability for the City of Ventura is over $169.2 Million ($169,292,212). It is not possible to get out of the CalPERS retirement plan. As of 6-30-15, to terminate the CalPERS plan would costs $1.2 Billion ($1,197,537,902).

Ventura is not alone. Cities up and down the state must face up to the problem. However, Ventura’s pensions are a debt time bomb.

PensionsVentura is already paying 34 cents to CalPERS for every dollar it pays its active employees. In six years, that amount will go up to an unsustainable 51 cents for every dollar of payroll—more than any city in Ventura County. Pensions are already crowding out other essential city services like filling potholes, fixing infrastructure and even hiring more police officers and firefighters.

How Pensions Affect You Directly

Pensions

Pensions Will Crowd Out Needed City Services

Expect senior programs and after-school activities to disappear first. Next, the city will defer maintenance and capital

expenditures. The city will extend service contracts for police cruisers, city vehicles, and equipment. These things represent only a fraction of Ventura’s budget. Reductions in services will never be enough to stop the detonation of the pension debt bomb.

Ventura can only fix the problem by raising taxes, cutting needed services, or both. There is a direct correlation between the money Ventura spends on pensions and the city’s ability to pave streets and repair sewers.

Reckless Spending Continues

Despite knowing this, Ventura’s City Councilmembers increase spending without regard to the long-term consequences.

Pensions

The Roving Fire Truck Crew Adds To Ventura’s Pensions

Last month, the Council voted 4-2 to give the fire department $600,000 for a roving paramedic fire engine. City staff, the fire department and the fire union proudly pointed out grants and budget manipulation will pay the first year expense. No one on the Council asked what happens in year two and beyond. Fire Chief David Endaya asserted Ventura needs the engine because of an increase in calls. Yet he lacked specifics about whether there are more cost-effective ways to deliver the services.

To their credit, Councilmembers Mike Tracy and Christy Weir voted “No.” They wanted more details. Nonetheless, the Ventura Fire Department got its new engine, even though no one gave adequate data to support the decision.

Interim City Manager Dan Paranick did not recommend funding the roving engine for this year. Paranick worked with Fire Chief Endaya, but in the end, he said, “I haven’t gotten myself to a place where I’ve been comfortable yet, where I could sit here and justify the need based on the demand. That’s why I did not recommend it.”

Days later, he announced his resignation to accept a position closer to his home in Simi Valley.

The Fire Department isn’t the only group benefiting from the spendthrift City Council. Earlier this year, the police received pay increases of 5% adding to the city’s future pension liability.

In 2017, 90 of the top 100 salaries on the city payroll are police officers and firefighters. Every one of the Top 100 earns more than $198,800 in pay and benefits. For perspective, the average family in Ventura earns $66,000 per year with two wage earners.

Pensions

In reality, Ventura pays pensions for 3.3 retired police and fire employees for every two public safety employees on the job. That’s untenable.

So how is the Ventura City Council managing spending, and considering the long-term financial effect of their decisions? In short, they’re not.

Elected officials first believed the extra $10.8 million collected from Measure O would afford them the ability to meet new programs. But, Measure O is now a supplement to existing projects. Councilmembers frequently discuss the need for tax increases.

Moreover, it is not only about pensions.

  • According to the Capital Improvement Plan (CPI), Ventura Water Department insists on spending $538 million to convert wastewater into drinkable tap water. There remains the probability that water rates will increase by 200%.
  • Ventura’s golf courses lose $1.7 million annually on the debt they incurred.

When the money runs out, it has forced other cities to find solutions. They turn to the only tools they have at their disposal: raising taxes, cutting needed services, or both. Some even filed bankruptcy.

Economist Herbert Stein once said, “If something can’t go on forever, it won’t.” Ventura is on a trajectory that cannot go on forever.

Your Chance To Make Ventura Better

PensionsThis November, Ventura has an unprecedented opportunity to tell the City Council, “No more new spending.” There are three open seats on the Council in this November’s election.

Past financial overspending must stop. New Council Members with an economic understanding of operating a city must prevail. Voters need to look past the individual candidates’ popularity to carefully consider their ability to understand and manage city finances.

Desirable candidates will:

  • Treat city money as if it was coming out of their pocket, which it is
  • Understand the Comprehensive Annual Financial Report (CAFR) before taking office
  • Understand the city budget and capital expenditure projects
  • Hold city staff accountable to present successful projects to the Council
  • Hold the City Manager accountable for results
  • Make difficult decisions knowing their decisions will anger some constituents
  • Do the right thing, not the same old, easier thing
  • Represent of the citizens of Ventura, not be a cheerleader for city staff recommendations

Editors Comments

You have the opportunity to make Ventura better this November. Voter turnout needs to be high for this crucial City Council election if Ventura is to improve. Decisions these new Councilmembers make will immediately impact the city’s economic vitality. We mustn’t leave this election to chance.

Encourage people to vote. Educate everyone on the grave crises facing the city today. Ask candidates how they plan to address these crises. Listen to their answers. Hold them accountable after they’re elected. If we do all these things, we’ll improve the chances Ventura will remain fiscally sound now and in the future.

Hold These Councilmembers Accountable For Their Past Spending

Below you’ll find the photos of our current City Council. Click on any Councilmember’s photo and you’ll open your email program so you can write directly to that Councilmember.

Let them know what you’re thinking. Tell them what they’re doing right and what they could improve upon. Share your opinion. Not participating in government weakens our democracy because our city government isn’t working for all of us.

Neal Andrews, Mayor

Matt LaVere, Ventura City Council

Matt LaVere, Deputy Mayor

Cheryl Heitmann

Jim Monahan

Erik Nasarenko

Mike Tracy

Christy Weir

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

How To Make The Most Powerful Job In Ventura Government More Accountable.

Local Ventura Politics

Those who do not remember the past are condemned to repeat it.
—George Santayana

Here we go again. Ventura is hiring its fourth City Manager since 2000.

You’ve undoubtedly told our children or grandchildren, “Haste makes waste.” It’s sound advice; especially when you want to prevent them from making a mistake. The same advice holds true for Ventura’s City Council when hiring our next City Manager. A hasty decision now leads to adverse consequences in the future.

The City Manager is the most powerful role in Ventura’s city government. He controls millions of dollars and impacts Ventura for years to come. He does this with little oversight by a part-time City Council. And history shows the Council lacks sound financial judgment when overseeing him. Voters know even less about how the City Manager does his job.

A Chance For The Council To Start Fresh

This City Council faces its most important decision—selecting the next City Manager. It’s no easy task. The new manager will be responsible for healing Ventura after the Thomas Fire. No prior City Manager has faced such a daunting task.

The Council should act slowly, boldly and thoughtfully when hiring. They should think creatively and progressively as they make their selection.

Balancing these goals will not be easy. The Council will feel internal and external pressure to act quickly. They’ll want to fill the vacant position right away to provide leadership at City Hall. And, citizens will demand someone to manage the Thomas Fire recovery. The search firm Ventura hired will add to the external pressure, too. Ventura pays the search firm when the new City Manager accepts the job. Typically, the fee is three months of the City Manager’s starting salary. In this case, it’s $60,500. The search firm will want the City Council to act quickly, so it gets paid.

The Council must resist the urge to succumb to the pressure.

We Know Poor Choices Lead To Financial Disaster

 

The tenure of the past three city managers keeps getting shorter.

The City Council does a poor job overseeing the City Manager. Former City Manager Rick Cole moved $7.5 million from the Public Liability Fund, Workers’ Compensation Fund and Information Technology Fund to other areas in the budget to make it appear as if the city’s budget was balanced. Either the Council didn’t catch the manipulation or was unwilling to investigate further.

A city manager could confuse the city council in the past.

Former City Manager Donna Landeros reallocated $9 million earmarked for the proposed Convention Center for various city programs, and nobody knows what happened to the money.

And, most recently, retiring City Manager Mark Watkins acted as the chief cheerleader on Measure O. He touted the money was for city services when the truth is it will eventually go towards employees’ pensions.

Even the City Council’s most recent hiring decision costs taxpayers money. The Council erred in the transition to Mark Watkins from Rick Cole. Cole received total salary and benefits of $189,341 along with a housing allowance to move to the city. When Watkins came in, he didn’t need a housing allowance because he already lived in Ventura. Rather than save that money, the Council chose to increase his salary and bonus to $242,059. The $52,718 increase impacts the city’s future financial condition negatively. At the time, Councilmember Christy Weir claimed hiring Mr. Watkins would save the city more money than the rise in his salary. The figures don’t bear that out over the four years he served in the role.

What’s more, Mr. Watkins is to receive his retirement pension based on his highest salary. At 56 years old, Watkins will receive retirement pension based on his $242,059 salary.

Greater Transparency Is The Key

Past City Managers had a bureaucratic background. Some argue requiring bureaucratic experience makes sense. Bureaucrats are the antithesis of transparent, though. They operate out of sight of the voters. This lack of transparency was disastrous for Ventura. Here’s why.

The city manager would be more accountable with published standards of performance.

A bureaucrat measures success by how large a team he manages. He’s driven to increase budgets to protect that organization. A more massive government usually equates to increased regulation. Rarely is that beneficial to citizens.

Also, a bureaucrat that is friendly towards and advocates for the city staff is not impartial. He will be reluctant to reduce expenses, eliminate unnecessary work, redirect work to private entities or minimize long-term staff costs. Bloated staff costs taxpayers money.

Finally, a bureaucrat negotiates his retirement when negotiating for the staff because he participates in the same plan. Human nature being what it is, the City Manager will likely bargain less vigorously, creating a conflict of interest.

Transparency begins with knowing how the City Manager is performing. The city should use Standards of Performance (SOPs) to measure achievement. Currently, the City Manager doesn’t have SOPs listed on its website. The Council should prepare SOPs, and the city should post them for the public to review. What’s more, the City Manager’s accomplishments should be in the public record. Citizens deserve a yardstick to measure if the city is meeting the City Council’s directives.

How to be more transparent when selecting the next City Manager:

  • Publish the screening criteria the City Council gave to the search firm to select candidates
  • Reevaluate the job qualifications and look outside of municipal government.
  • Post the Standards of Performance. Establish measurable performance levels on a regular review schedule.
  • Establish a Blue-ribbon committee to provide the Council strict salary and bonus guidelines.
  • Verify a candidate’s financial management expertise. The candidate must provide clear and incontrovertible evidence.
  • Insist on community outreach success from the candidates. The job description doesn’t list this as one of the primary duties.

Editors’ Comments

Hiring the next City Manager is paramount, and citizen input is a must.

 

Tell The City Council Not To Act Hastily

Below you’ll find the photos of our current City Council. Click on any Councilmember’s photo and you’ll open your email program ready to write directly to that Councilmember.

Let them know what you’re thinking. Tell them what they’re doing right and what they could improve upon. Share your opinion. Not participating in government makes us worse because our city government isn’t working for all of us.

Neal Andrews, Mayor

Matt LaVere, Ventura City Council

Matt LaVere, Deputy Mayor

Cheryl Heitmann

Jim Monahan

Erik Nasarenko

Mike Tracy

Christy Weir

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

Politicians Expect You To Pay A Little Bit More

The Ventura County Star reports on Ventura’s Pension situation and mentions VREG.

The Ventura County Star Mentions VREG

We’re proud the Ventura County Star mentioned us in an article on pensions. The Star article lists VREG as a watchdog group.

Click here to go to the article.

We believe pensions and unfunded liabilities are ticking time bombs for the city. The Star joins us in pointing this out to Ventura citizens.

In Ventura’s budget starting July 1, the city will pay CalPERS almost $11 million. That’s the amount Ventura owes in unfunded liability. CalPERS projects that to at least double five years later, to over $22 million. That doesn’t include normal, ongoing costs.

That increase almost equals the revenue the half-cent sales tax will generate. The City Council supported the tax to pay for needs other than pensions. Taxpayers believed it was for infrastructure, public safety, homeless services, water quality and other priorities.

Taxpayer and watchdog groups accuse city leaders of misleading the voters. They knew Ventura needed the revenue to offset growing retirement costs.

The Star writes, “Venturans for Responsible and Efficient Government has made similar claims.”

How Bad The Situation Is Depends On Who You Talk To

City Finance Director, Gilbert Garcia, disagrees. He says the city will separate new sales tax revenue from the General Fund. It will be overseen by a soon-to-be-created citizen oversight board.

The state will pay money from Measure O to Ventura beginning in April. The oversight committee is not formed yet. That means no citizens won’t know if the money is separate until months after the fact. The city has had since November 9, 2016 to organize the citizens’ oversight committee. Yet, four months later citizens don’t have any safeguards in place.

The article notes. “How dire the situation is—or isn’t—depends on who you talk to.”

The article notes. “How dire the situation is—or isn’t—depends on who you talk to.” How true.

The Ventura County Star reports on the burden city employee pensions are placing on City Hall.

If you ask a public employee they think the whole thing is way overblown and there is no problem. The public employee does not care that they impose a real burden on their neighbors. They have theirs. They worked for those benefits.  The taxpayers owe them.

The Council members give the public employees what they want. They give little regard to the economic consequences on the rest of the citizens. It’s the hard working men and women who they will always expect to  “pay a little bit more.”

IF THIS UPSETS YOU, WRITE YOUR COUNCILMEMBER

Click on the photo of a Councilmember to send him or her a direct email.

Erik Nasarenko,
Mayor

Neal Andrews,
Deputy Mayor

Cheryl Heitmann

Matt LaVere, Ventura City Council

Matt LaVere

Jim Monahan

Mike Tracy

Christy Weir

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

CalPERS sticks Ventura with extra unfunded pension liabilities

The Looming Catastrophe of Unfunded Pension Liabilities in Ventura

“IT ISN’T WHAT WE DON’T KNOW THAT GIVES US TROUBLE, IT’S WHAT WE KNOW THAT AIN’T SO”
—Will Rodgers

NEGLECTING THE UNFUNDED PENSION CRISIS DOESN’T MAKE IT DISAPPEAR

For eight years Ventura has done little to remedy the unfunded pension liability. During that time, there have been three different City Councils. Yet they made only a modest effort to solve the problem. They got employees to agree to contribute toward their own retirement. Meanwhile, those same City Councils have exacerbated the problem. They granted large raises to public safety and SEIU employees. This is a case of ‘too little, too late’.

Eight years ago, we pointed out the amount of pension benefits Ventura owed. We owe these benefits to retired city employees and those about to retire. We owed $150,000,000 of unfunded liability. Two major pension plans account for the entire liability—Public Safety and Miscellaneous.  The Public Safety pension plan covers police and fire retirees.  The Miscellaneous pension plan covers all other employees.

The Ventura County Star reported the deplorable condition of Ventura’s pension plans. And, the Grand Jury labeled the plans as “out of control.”

The office of the City Manager tells us that they have everything under control. And, in 5 years things will level out. There are no records or calculations offered to support that statement.

STILL LIVING FAR BEYOND OUR MEANS

CalPERS increases unfunded pension liability costs to Ventura

CalPERS sticks Ventura with rising unfunded pension liability costs.

The problem is simple. Ventura has not set aside enough money to pay for future benefits to city employees when they retire. What’s more, the California Pension System (CalPERS) let Ventura down. It did not earn enough return on investment on the money Ventura paid into the fund.

Since 2008, the situation has gotten far worse. In the last CalPERS report published in 2016, the city’s unfunded liability totaled $169,292,212. In other words, the liability we owe grew 12.9% in eight years.

ONE CITIZEN’S ANALYSIS

The City Manager and City Council knew of this UAL increase before they campaigned for Measure O.

Proceeds from Measure O will be more than $11 million a year for the next 25 years. It may not be enough to cover the debt, though.

CalPERS recently published the projected pension costs for the City of Ventura. Taxpayers are 100 percent responsible for paying these foreseeable costs.

The CalPERS Circular Letter Dated January 19, 2017 contained these facts:

CalPERS lowers its rate of return on investments to 7% impacting Ventura’s unfunded pension liabilities.

The CalPERS Board of Administration approved lowering the CalPERS discount rate on December 21, 2016.

The long-term rate of return will now be 7.00 percent over the next three years. This will increase public agency employer contribution costs beginning in Fiscal Year 2018-19.

For the years 2017 to 2023, CalPERS actuary reports show increases to the annual Unamortized Actuarial Liability (UAL). These costs will increase 91 percent or $8.8 million.

In the CalPERS Circular Letter dated 1/19/17,  the assumed return rate decreased to 7 percent from 7.5 percent. Ventura will pay an extra $3.7 million from FY 2016-17 to FY 2022-23.

Combined, the city’s annual UAL cost will increase $12.5 million to $22.2 million over the next six years.

No other expense or revenue (tax) item will increase that fast. Left unaddressed, these increased costs may force the city to curtail basic services.

EDITORS’ COMMENTS: 

Increasing revenue or reducing expenses solves most budget problems. For Ventura, increasing revenue means more sales taxes and property taxes. And reducing expenses means service cut backs or layoffs.

Increasing revenues and cutting expenses seems like the obvious fix. Yet, a less popular third option is available. The employees must contribute more toward their own retirement. After all, they will benefit the most from these pensions.

Ventura’s long-term solution will be a combination of all three choices. Increasing revenues and reducing expenses with higher employee contributions is the right prescription.

FEEL STRONGLY ABOUT THIS? WRITE YOUR COUNCILMEMBER.

Click on the photo of a Councilmember to send him or her a direct email.

Erik Nasarenko,
Mayor

Neal Andrews,
Deputy Mayor

Cheryl Heitmann

Matt LaVere, Ventura City Council

Matt LaVere

Jim Monahan

Mike Tracy

Christy Weir

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Pension Liabilities Threaten Ventura's Financial Health

Pension Liabilities Threaten Ventura’s Financial Health

John F. Kennedy on Fiscal Responsibility

“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger, the other represents opportunity.” —John F. Kennedy

VENTURA’S FINANCES – HEALTHY, OR NOT ?

At the Ventura City Council meeting on February 23, 2015, our Mayor will discuss The State of the City.  It is to be expected that she will praise the accomplishments of the City, such as creation of a Water Commission to address water shortage issues and the City efforts to improve roads and basic infrastructure.  The condition of City finances will also be a major subject, building on the Ventura County Star article, published on President’s Day, with the headline “City’s Financial Outlook Healthy”.

A candid discussion of the condition of City finances is to be welcomed, but it is not the rosy picture portrayed in the Star article. The Economic reality of the current  public pension liabilities of the City of Ventura unfortunately is not receiving the attention it demands when determining our financial outlook, nor is the impact of escalating payments to CALPERS and the drain it will have on the General Fund and City services in the next 5 years getting noticed.

A.  VENTURA UNFUNDED PENSION OBLIGATIONS TRIPLE

In the fall of each year CALPERS provides financial and actuarial reports for the SAFETY PLAN OF THE CITY OF SAN BUENAVENTURA (police and fire) and MISCELLANEOUS PLAN (all other employees).  The latest report, dated October, 2014, provides a valuation of assets and liability as of June 30, 2014.

The combined City pension assets have a present value of $191,329,875. and we owe $353,756,578.  There is no money to pay the $157,993, 381 shortfall. The official calculations are based upon an assumption, projected over the actuarial life of the union participants, that CALPERS, as our pension fund administrator, will achieve an investment return of 7.5%.

What this report does not discuss in direct terms is the 50% loss our City incurred during the 2008 depression, together with the other 1600 local government agencies funds that they manage.  That money has not been replaced.  What CALPERS wants to emphasize in their report is the 18% (not net of costs) return that they received ending June 30, 2013. This is a short term gain only.

For the investment forecast CALPERS uses a rate of 7.5%. However, when CALPERS illustrates their Hypothetical Termination Liability calculations on page 28 of the report, it uses a far different and lower discount/investment rate of 3.72% instead of the 7.5% rate of return. In that event we owe $488,961,724.

In reality, in early in 2014, CALPERS admitted that it is still underfunded by 50%.  They report earnings of 18.5% last year, but a study has reported their actual earned average of 3.41% for five years, 5.36% for ten years, 6.97% for 15 years, and 8.38% for 20 years.

B.  HISTORICAL PERSPECTIVE

In August 2008, the editors of this newsletter published an analysis of the unfunded pension obligations of Ventura titled IN THE SHADOW OF VALLEJO.  We warned against the increase of the firefighters’ pension benefits by 33% (from 2% at age 55 to 3% at age  and urged the Council not to make the increase, and to require all other employees to contribute at least 5% to 10% toward their pensions.

We provided extracts from a CALPERS report of the time.

 

Funded Status–June 30, 2008 Police/Fire Misc. Plan
Present value of projected benefits $270,877,057 205,128,033
Entry Age Normal Accrued Liability $233,938,241 $167,837,616
Actuarial Value of Assets $177,314,177 $157,529,148
Unfunded Liability $46,624,064 $10,308,468

“I do not know where we are going to get the money.”

The vote was 4 to 3 in favor. Voting against the increase were then Mayor Weir and Councilmen Andrews and Morehouse.  Councilman Morehouse’s comments at the time were prophetic.  “I do not know where we are going to get the money”.

In January 2011, VREG newsletter again visited the pension issues because the City Council was considering the renewal of the labor contracts with the employees in the City.  The proposal was to require the employees to contribute 4.5% of the CALPERS pension costs. This VREG urged the Council to require greater contributions from the employees.  The article was titled HMS TITANIC  [Moving Deck Chairs to Avoid a Disaster].

The City Council vote was 5-2 in favor of the agreements (which included a requirement that employees contribute 4.5%). Councilman Andrews and Councilwoman Weir voted against approval. The decision of the other five—Brennan, Fulton, Monahan, Morehouse and Tracy—was in favor.

Councilwoman Christy Weir rejected the proposal and stating “Fiscally, the city needs more than this right now.”   Council Member Neil Andrews concurred stating, “The agreements simply don’t go far enough.”

“The agreements simply don’t go far enough.”

C. AN ESCALATING  PAYROLL CONTRIBUTION RATE THREATENS FINANCIAL HEALTH

Today the City of Ventura owes in excess of $157,993,381.  It will only increase and the drain on the General Fund will likewise increase because the required employer contribution rate for police and fire for example must be paid yearly in addition to their pay and medical costs. Here are the mandated and projected rates from CALPERS.

FISCAL YEAR           EMPLOYER CONTRIBUTION RATE (Police & Fire only)
2011/2012                   35.190%                      2012/2013                   36.4%
2013/2014                   40.6%                          2014/2015                   44.225%
2015/2016                   45.598%                      2016-2017                   50.6%
2018-2019                   52.5%                          2019/2020                   54.5%
2020/2021                   54.6%

BANKRUPTCY DEVELOPMENTS

Pension Liabiliteis Lead To Insolvency

Ventura’s Financial Health Threatened By Pension Liabiliteis

The cities of Stockton and Vallejo were forced to file chapter 9 bankruptcy proceedings.  The cities asked their creditors to take haircuts, but not CALPERS. The cities insisted that the public employee unions were exempt and entitled by law to100% on the dollar. The Federal Bankruptcy Court ruled otherwise in January, 2015.

CALPERS argued that the California Constitution guaranteed the union contracts and thereby pension benefits from cuts and/or that they enjoyed sovereign immunity and police powers as an arm of the state and/or that they have a lien on municipal assets.  In January 2015, the Federal Bankruptcy Court effectively threw them out of court saying: It is doubtful that CALPERS even has standing.   He writes “It does not bear financial risk from reductions by the City in its funding payments because state law requires CALPERS to pass along the reductions to pensioners in the form of reduced pensions”.

Judge Klein further stated:  “CALPERS has bullied its way about in this case with an iron fist” and “that their arguments are constitutionally infirm in the face of the exclusive power of Congress to enact uniform laws on the subject of bankruptcy…”.

The impact of this decision is that CALPERS cannot stop cities from modifying pensions.

EDITORS COMMENT:

The direction that Ventura is heading is insolvency and the idea that employee pensions are guaranteed and protected is wrong. Unless the City Council take steps to force public employees to pay a greater portion of their retirement and stop increasing the annual percentage of the general budget toward retirement and benefits, Ventura will collapse.

R. Alviani          K. Corse       T. Cook    B. Berry
J. Tingstrom     R. McCord   S. Doll

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Pension Redux

“Stupidity is also a gift of God but one mustn’t misuse it.”
—Pope John Paul II

PENSION OBLIGATIONS REVISITED

On March 11th the City Council was informed that the $12 million reserve that we have had since 1992 isn’t available as we had been led to believe. Although the General Fund has about $28 million, including this $12 million dollar reserve, by the end of the 2012-13 fiscal year had been “committed” or “promised” to someone or something. This includes such things as a $5.4 million dollar loan to the Ventura Redevelopment Agency or the $2.4 million set aside for the Jobs Investment Fund.

These promises are in fact liabilities, money we that we owe. If all of the promises are fulfilled and the RDA successor agency is unable to pay back their loan, the General Fund would only have $4.3 million. Not discussed or mentioned at this Council meeting were the other debts and liabilities, in particular the unfunded public pension debts. Those obligations have increased 97.4%. since our report to you 4 years ago.

The Comprehensive Annual Financial Report (CAFR) is an annual financial report detailing the financial condition of our City.

We start with the Comprehensive Annual Financial Report (CAFR). This is an annual financial report detailing the financial condition of our City. These numbers are accurate, but bear in mind that by the time we see the reports the data is 18 months after the fact. Further, you have to look in the footnotes to discover those debts which are “off the books” like the City pension program, which is administered by CALPERS.

What follows is an extract from the 2008 CAFR, as it related to the status of the City pension plan then. The third column reflected how much we owed to employees and retired employees as of the date of the report. The category of “safety” covers police and fire pensions and all other employees are carried in the “Miscellaneous Employees group”. Our unfunded liability totaled $48,673,594.

In the same year the revenue collected by the general fund totaled $88.7 million, of which $47.1 million (53.1%) was spent exclusively on police and fire departments. The percentage of our general budget paid to police and fire has increased dramatically whereas other employee costs have remained relatively stable. In 2009 59.9% of our total budget was allocated to public safety, 57.7% in 2010 and 53% in 2011. That did not include the “unfunded pension obligations”.

CalPERS increases unfunded pension liability costs to Ventura

In 4 years UNFUNDED PENSION OBLIGATIONS INCREASED 97.4% and now total $96,099,169.00.

These unfunded obligations accrued interest year after year, at the rate of 7.75%. CALPERS did not recover the substantial losses (reported by some news sources as 50% )as a result of the 2008 recession. They also did not earn the 7.75% annual projected investment returns until just recently. On the Legislative side efforts at the State and local level to move from a defined benefit plan to a 401(k) plan for new hires failed. Our City did try to address the problem by requiring current employees to contribute 4% of their compensation toward their own retirement plan, but it was piteously short. In 4 years UNFUNDED OBLIGATIONS INCREASED 97.4% and now total $96,099,169.00.

CALPERS is quick to point out that over a 20 year period the” return for each fiscal year ranged from -24% to +21.7%., and if we let them continue to manage our pension plan they “assume” we will get a return of 7.50%. But, if we want out and want to run our own program they use a 4.82% rate of return. We really owe $350,848,292. (See attached Hypothetical Termination liability for each plan).

 

PUBLIC PENSIONS OR BOND HOLDERS – AT RISK

[WHAT IS GOOD FOR THE GOOSE IS GOOD FOR THE GANDER]

Last year the Governor’s office and legislature announced that they had achieved “pension reform”. The reality is that they did not change any of the current pension benefits. They did this mainly for political reasons, but also because it is widely assumed that employees in the public pension system are protected by the constitutional ban on “impairing the obligations of contracts”.

Public employee unions have stridently asserted that they are different and thus bullet proof. This attitude was displayed clearly when the City of Stockton filed bankruptcy. That City told their bond holders and/or their insurers to take less, but refused to reduce the $29 million it pays each year to CALPERS for the employee benefits.

Assured Guaranty Ltd, which insured the Stockton bonds, stood to lose $100 million. They filed a complaint in the bankruptcy court claiming that Stockton had targeted the bondholders to take a loss, but continued to pay CALPERS without any reduction or did not seek any benefit reductions from the public labor unions.

Another insurer, National Public Finance, added their voice to the controversy, supported the Assured Guaranty position, but also alleged that the City of Stockton “rather than face the hard realities imposed by its unbearable liability to CALPERS (decided) to take a pass” – in short, that it was easier to sacrifice the bond holders than face the political wrath of the public employees or CALPERS.

So, the bond insurers asked the bankruptcy judge, Christopher Klein, to declare the City’s bankruptcy plan as inadequate because it ignores the pension debt, and they seek to compel the City to reduce its pension payments. The CALPERS reaction was to argue to Judge Klein that the pension payments have a higher priority over bonds. CALPERS lost.

In December, 2012, Judge Klein rejected the CALPERS constitutional inviolability of contract argument and ruled:

“While a state cannot make a law impairing the obligations of contract, Congress can…the goal of the bankruptcy code is adjusting the debtor-creditor relationship. Every discharge impairs contracts”.

So, what will happen to the benefits of the public pension contracts or the bond holders? CALPERS, those in the Stockton pension plan and the bond holders may both lose. This chapter is soon to be written.

EDITORS’ COMMENTS:

A 97.4% increase in unfunded liabilities over a 4 year period is setting Ventura up for failure. Most citizens don’t realize that Ventura will pay $13.3 million to CALPERS for 2012-2013. This is over and above salaries and other benefits. As more employees choose to retire early (50-60 years of age) this only gets worse.

Call it what you will, but the City Council thus far has adopted a profligate fiscal plan of doing nothing to pay this unfunded obligation. Hoping that the economy will rev up, that inflation will chip away at the obligation, or that somehow our pension assets will produce magnificent returns is foolish.

When the Council considers its new budget in June we urge them to set aside a percentage of our annual revenue to add to our reserve and/or apply to the unfunded pension obligations, and to release some of the commitments it has made to the General fund cash balance.

 

Editors:

B. Alviani         K. Corse             T. Cook

J. Tingstrom    R. McCord        S. Doll

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Ventura Police pension mistake

Pension Spiking Approved in Police Retirement Contract

” We Must Hand Together Or Surely We Shall Hang Separately” —Thomas Paine

COUNCIL APPROVES PENSION SPIKING

[Fleecing Time – Again!]

At the Ventura City Council meeting on Monday, May 16, 2011, on a vote of 5 to 2 the Council approved to an employment contract amendment to the Ventura Police Officers Association (VPOA) and Ventura Police Management Association (VPMA) employment contracts.  Mayor Fulton and Councilmen Tracy, Brennan and Morehouse voted for the amendment.  Councilwoman Weir and Councilman Andrews voted against the measure.

Ventura Police negotiate with City Council to get pension “spiking”

New employment contracts for the VPOA and VPMA were approved on January 16, 2011. However, in May it was pointed out that a correction (amendment) was needed because  an important detail had not been treated. “They” forgot to include essential terms in the contract concerning who was going to pay the 4 ½% pension contributions.

Recall, good reader, that this contract was hailed as a masterful accomplishment, unique in California, and that it would save the community money in the long run (Mayor Fulton and City Manger Cole) because our policemen were now  going to have to pay something toward their own pension just like everybody else in the private sector.

A Pension Deal Too Good To Be True

At first blush this step was positive, albeit anemic, because in past years this Council had entered into employment contracts with the policeman whereby they entire 9% pension contribution would be paid by the taxpayer.   Our Mayor Fulton and City Manger Rick Cole extolled the virtues of this new employment contract because  the City of Ventura had tilled new ground by requiring the policemen to pay something toward their own retirement – 4 ½% we were told.  Councilman Andrews, Councilwoman Weir and fiscal conservatives in the community argued forcefully for a 9% contribution particularly in light of an unfunded pension liability of $250 million, but we digress.

Now we learn that with this amendment of the contract terms, unlike the SEIU employees contract, the VPOA and VPMA will be paying their 4 1/2% retirement contribution toward the employers’ portion (taxpayers portion) of that is sent to the CALPERS retirement plan. This accounting maneuver is specifically done to increase the total compensation of the employee, making the retirement payout amount higher for their lifetime.

The employee’s goal is to get one year of the highest possible salary so that his retirement for life is higher – called “spiking”.

Giving Context To The Problem The City Council Created With Police Pensions

To help put this into perspective, the employers’ portion of the total  annual retirement payment paid to CALPERS by the city (taxpayer) is counted as income to the employee for purpose of calculating the employees retirement benefit when they retire. The employee’s goal is to get one year of the highest possible salary so that his retirement for life is higher – called “spiking”.  Until now the city has been paying the taxpayers portion (100%) plus the employee’s portion (9%) toward the CALPERS retirement for a total of 109% yearly.  Now, with this contract amendment, we learn that while the 4 ½ % will be contributed by the police officer, from his salary each year, but it will be shown as a payment made by the employer (taxpayer)  to CALPERS.  The reality is that the employee’s annual salary will be shown as higher by 4 ½ % for purposes of calculating that police officer’s gross salary when they retire.  The policeman gives up 4 ½% as his contribution now but recovers it all at the time of retirement.  The taxpayer is in effect still paying 109% of what is required to be paid.

Ventura Police pension mistake

Ventura Police Officers put one over on the City Council in pension negotiations.

While some may define “spiking” as adding benefits to salaries in the last year of employment to boost up the retirement amount, this additional 9% accomplishes the same results, an inflated income for retirement formula purposes. It will even compound to a higher amount, should a three highest years plan ever be adopted.

So, why was this fact not made known publicly 4 months ago? Why was it not questioned or challenged at the May 18th meeting by any council member?  Why was the CALPERS representative not questioned about the effect of this decision at the time of the January meeting? There were no questions and there was no discussion about the long-term impact to the city.

Specious Defense Of The Pension Contract

City Manager, Rick Cole, defends the contract amendment by saying that the payment by the employee  into the employers’ portion of the retirement, which is then sent to CALPERS, was a non-negotiable item with the VPOA and VPMA. He also said it would make no difference because the current officers would receive retirement benefits based upon their “highest level” of compensation. That statement is true for the current workforce but what he failed to address, nor was he questioned, was how this would have affected officers hired in the future.

While the City Council remains concerned about the long-term effect of taking more general funds for street lighting, they continue to ignore the paying of 9% higher retirement benefits, which also comes from general funds in the form of payments to CALPERS, for years into the future. We can thank soon up for re-election Mayor Bill Fulton and Councilmember Carl Morehouse for this gracious contract approval.

EDITORS COMMENT

 If the City Manger concedes that this 4 ½% contribution, paid  through the employer’s contribution to CALPERS,  was not negotiable with the police officer unions (his words not ours), then what about the taxpayer’s non-negotiable rights not to overpay and provide lavish retirement benefits to these public servants?  Who then is protecting the interests of the taxpayer in this City when sitting at the negotiating table?  Better to reach impasse and let these folks scramble for a new job then render the community hostage to the potential of bankruptcy.  This unfunded obligation can and should be laid squarely at the feet of the council members who voted for this amendment; but, of course when it comes time to pay the bill they will be over the hill and the taxpayer will get the bill.

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Volunteer fire depertment may help Ventura's pension costs

Time To Consider A Volunteer Fire Department For Ventura

“Politicians in America exploit economic illiteracy” —Walter Williams, Professor Economics

PUBLIC EMPLOYEE PENSION TRANSPARENCY ACT

We previously reported that there is a bill is currently pending in Congress (HR567) and the Senate (S347) encouraging governments at all levels to switch from a “defined benefit” plan to a “defined contribution” plan by requiring public entities to reveal to the voters the true magnitude of the unfunded liabilities of the public pension plans.

In California CALPERS continues to portray a rosy investment return.  The staff at CALPERS recommended a change in the assumption of how much our City pensions investments will make in the future from 7.75% to 7.5%.  This went to committee on March 15, 2011.  This new direction, had it been adopted would have moved the pension fund on a path to solvency and economic reality. It didn’t happen. The CALPERS committee did not want to pass on the annual increased expenses to the cities that such a modification would cause given their current budget strains.  Ventura is of course content to ignore this. You know, “What is a poor mother to do”. In the City of Ventura we owe $67,488,000.  Twice that if a more realistic investment return of 3.50% is used.

These Federal bills, called the PUBLIC EMPLOYEE PENSION TRANSPARENCY ACT, would require States and municipalities to report their liabilities to the United States Treasury. The HR bill was sponsored by Representative Darin Nunes, Darrell Issa, and Paul Ryan with Congressman Elton Gallegly acting as a co-sponsor.

If adopted state and local governments will be “encouraged” to switch to defined contribution plans.  While they are being “encouraged” they will have to reveal the true magnitude of their unfunded liabilities to their citizens. No more off the balance sheet reporting.  This new legislation will require that they report liabilities to the U.S. Treasury using their own glowing investment forecasts as well as a more realistic Treasury bond rate.  If the City of Ventura is forced to use a Treasury bond rate of 3.5% our unfunded pension obligation would double to $134,976,000.

THE FIREFIGHTER BENEFITS CONTRACT

Volunteer fire fighters may help Ventura's pension problem

Considering a volunteer fire department hybrid may help Ventura’s rising pension costs.

In the fall of 2008 that Ventura fire fighter benefits and pension contract was modified by the City Council.  This was treated in our September, 2008 issue. 

  “In a vote of 4 to 3 the council  approved the Memorandum of Agreement and the new pension contract with the firefighters of this city giving them a pension equal to 3% of their highest salary  times the number of years in service plus all medical, dental.  The yeas were Councilmen Fulton, Brennan, Summers and Monahan.  The neighs were Mayor Weir, Councilmen Andrews and Morehouse.  It should be of grave concern to all when one councilman says, before he cast his “NO” vote — “I HAVE GRAVE CONCERNS TO COMMIT WHEN WE DON’T KNOW WHERE THE FUNDS WILL COME FROM”.

“I Have Grave Concerns To Commit When We Don’t Know Where The Funds Will Come From”.

Mayor Fulton and Councilmembers Brennan, Monahan and Summers were thus responsible for increasing the firefighter pension in the fall of 2008 so that these folks could retire with 3% at age 55[1]. Their actions increase our unfunded pension debt by $1.2 million or more annually.

Since then the pension contracts for all City employees have come up for renewal.  On Tuesday January 16, 2011, the Ventura City Council approved new labor contracts with the Ventura Police Officers, Police Management and the employees represented by the SEIU. The 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 still in closed negotiations, which, of course, are not made public.  Many criticized the past decision of the Council in approving the employment contracts for the Ventura Police Officers and Police Management, not the least of which was Council Member Weir, who rejected the proposal and stated “Fiscally, the city needs more than this right now.” and  Council Member Neil Andrews said the agreements “simply don’t go far enough.”  The SEIU, who agreed to a lower 2nd tier retirement plan (2% @ 60) also agreed to a salary average of the three highest years in calculating their pension entitlement for all new hires.  The Ventura Police Officers and Police Management stuck to 3% @ 55 and the single highest year for all new hires.

ANOTHER POINT OF VIEW

[The case for a volunteer Fire Department program]

Due to the present Firefighter negotiations, this next article is timely and worth greater consideration.

Municipal governments in other states are beginning to come to grips with bloated payroll and pension demands of public employee — fire unions and have handed these folks their walking papers in favor of a volunteer fire department.  There is a persuasive argument to be made in favor of such a step, or some hybrid of that concept so that the community becomes more involved and vested in community safety.  The following is summary of study performed by Bill Knox, former candidate for the Ventura City Council.  The complete 10-page report, complete with comparison charts and footnote links, is available upon request. (Simply email vregventura@gmail.com)

Solutions for Ventura’s Fire Department

[The Case For A Volunteer Fire Department]

Ventura is in the midst of an unprecedented reduction in public safety services.  Mounting overtime costs, enormous pension liabilities and shrinking revenue streams have resulted in the closing of a fire station and elimination of firefighter positions.  Using volunteer firefighters to assist professionals could save the city millions annually and dramatically improve public safety.

Response Times

Understaffing at Ventura’s fire stations has resulted in substandard emergency response times.  According to national standards, firefighters should respond to emergency calls within five minutes.  This time frame is critical in that resuscitation from cardiac arrest after five minutes typically results in brain injury, coma or death.  As a result of inadequate staffing, the department fails, on average, to meet the response standard over 62% of the time.  With the elimination of three firefighter positions and the fire’s department’s plan aimed at reducing sworn staff positions by nine, response times are anticipated to increase by an additional 30%.

As a result of inadequate staffing, the department fails, on average, to meet the response standard over 62% of the time.

Lack of Funds

The fire department’s budget for 2010-2011 is $14.5 million.  The city closed station No. 4 in hopes of reducing costly overtime pay. In 2009, the city paid $1,700,000, (nearly 12% of this year’s budget) in overtime payments.  Employees with one year of experience receive a compensation package well in excess of $98,000.  Senior-level employees cost exponentially more.  In addition, the city of Ventura has an unfunded pension obligation of more than $50,000,000.  Taken together, the fire department’s budget is stretched to the limit and the city simply cannot afford to maintain, much less expand, the professional force.

Volunteers

Volunteer fire department similar to Volunteers in Police

Ventura should consider a volunteer fire department program similar to Volunteer policing.

The Ventura Police Department uses 44 volunteers to supplement the professional force.  Volunteers have donated over 40,000 hours of their time to serve the city.  If 44 volunteers each donated 48 hours per month to the fire department the city could save more than $1.06 million in basic compensation costs.  If overtime was eliminated, the savings would amount to nearly $3 million annually!  If law enforcement supplements its professional force with volunteers to improve public safety, reduce costs and partially compensate for reductions in its budget, there is no reason that the fire department cannot achieve similar if not better results with a well crafted and executed plan.

If law enforcement supplements its professional force with volunteers why can’t the fire department achieve similar results?

Most US Fire Departments Use Volunteer Fire Fighters

According to the Federal Emergency Management Agency (FEMA), over 92% of fire departments in the United States use volunteer firefighters, either exclusively or on a supplemental basis.  California cities such as Chico, Fillmore, Santa Ana, Santa Clara, Santa Paula, Stockton, Compton, Rohnert Park, Turlock and many more successfully use volunteers to supplement their professional forces.  These communities receive outstanding results and substantial cost savings with their highly trained and dedicated volunteer forces.  If Ventura created a supplemental volunteer fire fighting force modeled after any one of these communities, it would save between $2.5 and $3 million annually. 

If Ventura created a supplemental volunteer fire fighting force, it would save between $2.5 and $3 million annually. 

Volunteer firefighters do come with a minor cost, but not a salary or massive pension obligation. The city would still need to cover costs of training and equipment; costs already incurred by the city for its professional firefighters.  To protect the city’s investment, the volunteer should be required to serve a minimum term or pay back the costs associated with certification and training.

Volunteers are a viable option to ensure a timely response to emergency calls, to reopen station No. 4 and possibly staff additional stations, like a much need station in Ventura’s harbor. Volunteers, like professionals, must complete mandatory training comparable to beginning professional firefighters.  Having more well trained first responders in our community will provide a broader measure of safety to the population in times of emergency. Furthermore, a well trained volunteer force will provide a quality pool of applicants from which to pick when the time comes to add additional professionals to our force.  By training and utilizing volunteers now, the professional department would have in-depth personal knowledge of a person’s character and fitness to serve as a member of our truly honorable and professional force.

The use of a volunteer force will help alleviate some of the burden on our professionals and allow them to reduce the amount of overtime currently required.  In addition, creating a volunteer force would provide adequate staffing and help reduce response times to emergency calls.  Not only will this help save lives but it may increase Ventura’s ISO rating (a figure used to determine the cost of homeowner’s insurance).  This could help lower the cost of homeowner’s insurance citywide.  A supplemental volunteer force is the right answer for Ventura.

 Editors’ Comments:

We all need to consider viable alternatives to what we have been doing in the past. Ventura’s police department has its Volunteers in Policing program.  It is time we gave a much needed hand to our fire department and help them to do what they do best: serve the public interest through ensuring public safety.

Editors:

B. Alviani           K. Corse        T. Cook

J. Tingstrom     R. McCord    S. Doll

[1] 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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