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unfunded pension liabilities should force pension reform in Ventura

Latest Facts About Unfunded Pension Liabilities You Need to Know

Norman Vincent Peale on confronting Ventura's unfunded pension liabilities

Stand up to your obstacles and do something about them. You’ll find they haven’t half the strength you think they have.”

Dr. Norman Vincent Peale

Which leader will arise to address unfunded pension liabilities?

Ventura’s unfunded pension liabilities continued to grow in 2019 to $218.6 million. The City of Ventura continues to sink deeper into debt to pay for city employees’ present and future retirement benefits.

Unfortunately, the economic reality of the city’s current public pension liabilities is not receiving the attention it demands. We raised the warning flag about the growing unfunded pension liabilities debt in 2009, 2011, 2013, 2015, 2017, 2018 and 2019, yet the problem continues to grow unabated.

Revised Unfunded Pension Liabilities Figures

The new unfunded pension liabilities figures come from the 2018-2019 Comprehensive Annual Financial Report (CAFR). Ventura added $3.5 million to its unfunded liabilities. Simultaneously, the market value of Ventura’s assets held by CalPERS dropped to 66.7%, a multi-year low.

A chart of how bad Ventura's Unfunded Pension Liabilities have become

 

A Political Hot Topic

Discussions about pensions get emotional because we’re talking about people’s future and security. Let’s be clear. We respect the work city employees do. There is no denying that fire and police perform a vital job that is both dangerous and requires a high level of training and responsibility.

Our concern is not about their work. We’re uneasy about how the city structures, accumulates and pays retirement benefits.

Neglecting Pension Liabilities Doesn’t Make Them Disappear

Unfunded Pension Liabilities don't calculate well for VenturaFor ten years, Ventura has done little to remedy its unfunded pension liabilities. During that time, there have been four different City Councils. Yet, they made only a modest effort to solve the problem. Then-Mayor Bill Fulton and City Manager Rick Cole claimed in 2011 that the City of Ventura had tilled new ground by requiring the city employees to pay something toward their retirement – 4 ½%.

Yet, closer scrutiny showed employees pay their 4 ½% retirement contribution toward the employers’ portion (i.e., The taxpayers’ portion) of what Ventura sends to the CALPERS retirement plan. This accounting maneuver explicitly increases the employee’s total compensation, meaning the “contribution” counts as the employee’s income to calculate the employee’s retirement benefit when they retire.

What Ventura Can Do About Its Unfunded Pension Liabilities

The City Council made this one attempt to improve the current system but did not address the problem in a meaningful way. Since there are no proposals from the Council, the League of California Cities and Government Finance Officers Association recommended these actions to confront unsustainable pensions.

  1. Reduce the unfunded liability by making annual catch-up payments 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. (Click to learn more about POBs)

These are terrible choices for the public.

Suggestions For Addressing Unfunded Pension Liabilities

There are two other choices for our City Council to consider if they have the political will.

  1. City workers' pensions are creating large unfunded pension liabilitiesMake 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 growing costs.
  2. Change when retired city employees may begin collecting pensions. This alternative solution applies to new employees only. What if police and fire could vest their generous pensions in full 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 fund’s value 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.

Public sector employees may resist the changes but this solution makes sense. Private sector employees don’t get their full social security until 65 or even 67, depending their birth year.

Examining How Much City Employees Make

In 2019, 92 of the top 100 salaries on the city payroll are police officers and firefighters. Every one of the Top 100 earns more than $216,762 in pay and benefits. For perspective, the average family in Ventura earns $66,000 per year with two wage earners.

Raw Political Power Behind Unfunded Pension Liabilities

Ventura’s city employee unions negotiate higher and higher salary increases disregarding any concern that the money may not be available to pay their pensions once they retire. Union negotiators believe a virtually ironclad guarantee exists for the workers to whom the city promised the pension benefits. So, many Councilmembers accepted the same thing, although it’s no longer valid. A 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 if the court didn’t agree, they pleaded that they enjoyed sovereign immunity and police powers as an arm of the state. And if the court still disagreed, they argued that they have a lien on municipal assets.

The Federal Bankruptcy Court effectively threw them out of court, saying, “It is doubtful that CALPERS even has standing.   In his opinion, Judge Christopher Klein writes “It does not bear the 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. Yet, the Ventura City Council appears unaware of the findings.

Editors Comments

Past retirement pension negotiations were based on union bargaining and raw political power, creating a gap between what politicians promised and what cities can really 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 sustainable and dependable for retirees. It’s also the only way that taxpayers can afford to pay for them.

Write Directly To Your City Councilmember To Insist They Address Ventura’s Unfunded Pension Liabilities

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.

Sofia Rubalcava hasn't addressed unfunded pension liabilities Doug Halter Needs To Address Unfunded Pension Liabilities in Ventura
2021 Ventura City Councilmembers Erik Nasarenko hasn't addressed unfunded pension liabilities
Jim Friedman hasn't addressed unfunded pension liabilities Lorrie Brown hasn't addressed unfunded pension liabilities
Joe Schroeder Needs To Address Unfunded Pension Liabilities in Ventura

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Pension reform needed

Grand Jury Exposes City Pension Out of Control

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not” —Thomas Jefferson

THE FLEECING OF VENTURA

The Ventura County Star reports the Grand Jury finds Ventura’s Pension Out Of Control

On July 26th the Ventura County Star published an article about the deplorable conditions of the public pension plans in Ventura.   The Ventura Grand Jury labeled these city pension plans as headed for disaster — an out of control cost [They actually said “uncontrollable cost”].  To see how out of control the one in Ventura is see the October, 2008 issue of Res Publica, which  provided an in depth analysis of just how much unfunded debt exists because of the lavish pension plans given to public employees by the City Council.  We republish some of that article here as a reminder to our citizens when they go to the polls in November.

(c) THE FIREFIGHTER PENSION

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 same plan received by policemen.  The yeas were Councilmen Fulton, Brennan, Summers and Monahan.  The neighs were Mayor Weir, Councilmen Andrews and Morehouse who stated just before 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.

In our August 2008 letter and postscript letter titled “IN THE SHADOW OF VALLEJO”. We posed a hypothetical retirement scenario — a fireman goes to work for the department at age 20, works 35 years and retires at the age of 55 earning a salary of $100,000 per year.  The adopted increase now provides that he/she will receive 3% of their salary in their last year of employment multiplied by the number of years of service.  So he/she will retire earning $105,000. [$100,000 x 3% = $3,000 x. 35 = $105,000].

ed summers pension blunder

Councilmember Ed Summers voted for pension increase because city employees only live 7 years past retirement.

Since that publication Councilman Summers, who is up for reelection in November, pointed out that we need to make some “minor corrections”.  We quote from his letter:

In the example it indicates that an employee has the ability to retire and receive 105% of their annual salary.  Regardless of the time of service and age at retirement, the program is capped at 90% of the eligible salary.  The example also includes add-back for accrued sick leave and vacation.  The City’s formula does not include any add backs, the formula uses only the base salary.  It is the County’s formula that includes add backs…(in addition)…unfortunately the assumption of a 30-year future obligation per employee is incorrect, the average life expectancy of a public safety employee is 7 years from retirement”. 

          We do not know what source Councilman Summers uses for this remarkable revelation that firefighters retiring at age 55 are projected to live only 7 years. His assertion is nonsense and not supported by any credible source.   Further, when he and the other profligate four argued that “the increase was only 1%, it in fact was an increase from 2% to 3%, which is a 33 1/3% increase in the retirement plan.   So what is the reality? We have less money now than we did in October, 2008.  This City Council has led us into a sea of red ink — $294,673,595 as of April, 2009, yet our Council and the public safety unions ask us to pretend that this not a problem.  Instead they want more money in the form of new taxes.  Here is an example of what we now have to pay just 15 retired folks yearly for the rest of their lives — $1,707,086.

Mike Tracy* $ 186,902
Gary McCaskill $140,602
Neil Gedney $129,856
Brian Gordon $132,548
Carl Handy $122,022
Douglas Aldridge $124,396
Bill Rigg $121,333
Robert Boehm $120,494
Donald Davis $112,735
Jim Walker $ 110,570
Everett Millais $105,245
Shelley Jones $105,013
Roger Nustad $101,836
Gail Bogner $100,515
* Retired Chief of Police. Running for City Council
Pat Miller pension out of control

Police Chief, Pat Miller

Mike Lavery pension out of control

Fire Chief Mike Lavery

More recently we learned that our present Chief of Police, Pat Miller and Fire Chief Mike Lavery would retire. Why did they push so hard for an increase in the retirement benefits in October, 2008 ?  Well  Duhh ! Thank you Councilmen  Fulton, Brennan, Summers and Monahan.

More recently Councilman Fulton announced that the City was going to appoint a committee to examine the public pension plan.  Let us hope against hope that they don’t pack it with FOCs like they did the Blue Ribbon Committee, and that they read the Res Publica analysis of April 2009, which concluded that the pension plan is headed on the same path as the City of Vallejo – Federal Bankruptcy.      

Councilman Neal Andrews has advocated for a change. in this area, and has published a lengthy memo on the subject:

“Immediately abandon the compensation formula that essentially forces us to mimic the weakest and most incompetent policymakers in other communities. Today we promise to compensate our employees at approximately the average level of other communities, though we sometimes count the highest paid three times as heavily as others. This is an artificial and arbitrary benchmark. We should instead adopt a clear policy of compensating at a level adequate to provide a sufficient workforce with the high level of competence we want in them.

Adopt a two-tier retirement system that provides a guaranteed contribution to the retirement plan for all new employees, instead of the current guaranteed benefit program. This would not change a thing for current employees, but over time it would significantly reduce the volatility of our budgets by stabilizing a major element of our financial liability. This is the same type of retirement program offered today by most of the private sector.”

—Neal Andrews

Editors’ Comments:   

Councilmembers FULTON and MONAHAN deflect any criticism and defend the retirement plan by saying the decision to raise pension benefits was deferred. When questioned,  they cannot recall when the motion or official action was made, do not recall who recommended delaying the firefighters retirement plan increase or just what happened.  They act as if this is a non-issue.  For your information councilmen, the pension increase which you approved in October 2008, has NOT been rescinded or modified.

Editors:

B. Alviani      S. Doll            J. Tingstrom

K. Corse        B. McCord     T. Cook

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