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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.

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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WAV Condos in Ventura

A WAV Of Financial Trouble Traps Ventura

 

“When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition. That is why buildings in the Soviet Union — like public housing in the United States — look decrepit within a year or two of their construction…”
—Milton Friedman, Nobel Peace Prize economist

 

THE WAV CONDOS – A FAILED PIPE DREAM

[The Proof is in the Pudding]

Our former City Manager, Rick Cole and former Mayor, Bill Fulton, sought to implement their visions for Ventura. They have moved on but they left the citizens of Ventura with financial problems.

Each arrived from the LA area with populist visions, advocating for a community with less cars, more public transportation, more public housing all driven by the concepts outlined by the New Urban Congress. Their visions were embraced by a vocal minority – the art community, architects and low income housing advocates and special interest builders and planners that could live off the Redevelopment Agency dole. Their visions were a financial disaster. Mr. Cole’s contract was not renewed. Mr. Fulton packed his suit case and moved to Washington. Most citizens “waved” goodbye. A few are still awaiting Mr. Fulton’s new book on how the New Urban experiment worked in the City of Ventura, particularly the 69 residents of this subsidized housing units in this project that has cost taxpayers $985,072 per living unit.

The WAV Condos. Ventura’s attempt to build an “arts” city.

In January 2012, we treated one aspect of this project – the 13 market rate condominiums and 6,100 sq.ft. of commercial space along Ventura Avenue at the corner of Thompson Boulevard. The sale of these units and the lease of the commercial spaces were supposed to provide a source for repayment of construction loans to CHASE and the City of Ventura.

Chase holds the note on Ventura’s WAV Condos. The city stands to lose $2.5 million if the WAV condos do not sell by 2016

To make the market rate condos and commercial space development work, the City loaned $2,000,000 to the developer ($2.5 million now due with interest), and subordinated that loan to a first trust deed in favor of CHASE in the sum of $4,000,000.  Those loans were scheduled to be paid on the sale of the 13 condos, or by March 1, 2012. They did not sell and the commercial space did not lease. Facing foreclosure, and loss of our money, the City entered into a contract with CHASE to extend the due date to December 1, 2016.

This was not the result the City planned when this project was started. The City selected a person named Chris Velasco to “develop” the project, using our taxpayer dollars of course. Mr. Velasco signed the contracts, operating as a Minnesota non-profit company called PLACE. He gushed about the project. Here is one example:

“WAV’s market rate condominiums (priced from $625,000 to $875,000) are now for sale…WAV’s forward thinking configuration comes with an up market price tag. The average price per square foot for condominiums in the same zip code is $274; WAV’s pricing is $368 per square foot; however, buyers will be living green and helping underwrite WAV’s community. Besides the artists, and the public who flock to Ventura’s Art Walks and galleries, it includes those at 15 section 8 apartments”

So how reliable was the original plan? Not, by all accounts. The realtor involved with trying to sell the WAV units and lease the space recently shared his thoughts with us:

“These condos could only be sold for cash, or with a portfolio lender, due to Fannie Mae guidelines restricting the lending side. Its what I was up against for the three years. I had the listing together but was faced with the fact that the City refused to recognize that the condos were priced almost 1/3 higher than the market would bear. They would not entertain lowering them to market value.

“The condos were never worth $850K, at the most somewhere in the mid-$600s But even then the economy was turning down with buyers running for the hills. Add to THAT the fact they let my listing run out because I didn’t sell any. They said they wanted to take ‘another direction’.

“Now, perhaps they’re worth $479 tops – but you can’t use a traditional bank. Portfolio lender rates are usually at least 2 points higher, but a cash is the only way. Once one sale exists, there is a comp. Until then, its a big guessing game…”

            —Jerry Breiner, Realtor

 

Editors Comment:

Dump the WAV Condos as fast as possible.

Our City stands to lose $2.5 million if the WAV condos do not sell by 2016. It is likely they will not sell. An objective person cannot avoid the obvious problem in marketing these condos — bad views (freeway), bad location, no parking, low income neighbors and bad design. Our goal should now be to sell them for what we can to avoid a potential total loss through the foreclosure process. In other words, forget the cheese and just get out of the trap.

 

BANKRUPTCY LOOMS FOR CITIES

[The Good, The Bad and The Ugly]

The election is over but the business prospects for California cities remains dismal. Moody’s, a business rating service has placed the debt of 30 California cities, under review for downgrade. With the rating downgrade each of these cities will have great difficulty in raising money to operate essential government functions by borrowing municipal bonds.

THE BAD

On the list for downgrade are Oakland, Fresno, Sacramento, Azusa, Berkeley, Colma, Danville, Downey, Fresno, Glendale, Huntington Beach, Inglewood, Long Beach, Los Gatos, Martinez ,Monterey, Oakland, Oceanside, Palmdale, Petaluma, Rancho Mirage, Redondo Beach, Sacramento, San Leandro, Santa Ana, Santa Barbara, Santa Clara, Santa Maria, Santa Monica, Santa Rosa, Sunnyvale, Torrance and Woodland.

The rating examinations will potentially affect $14.3 billion in lease-backed and general obligation debt on the books of these cities. Why? Because these cities did not address their internal cost structures, did not reduce personnel costs in the face of looming debt and used accounting gimmicks in the hopes that the economy would change. It has not changed. Add their unfunded pension and debt obligations to their itemized costs and they are in trouble.

THE UGLY

The cities of Vallejo, Stockton, San Bernardino and Mammoth Lakes filed for bankruptcy. Their revenues from real property taxes and sales taxes dropped precipitously while fixed costs, such as public safety pensions remained high.   Public safety personnel refused to modify their benefits to help with the budget issues of their city. The fight between public safety unions, who refuse to modify their pension contracts, and the bond holders who loaned the cities money, looms large.

THE GOOD

 At the beginning of the recession the City of Ventura lost $5 million when Washington Mutual (WAMU) collapsed and $5 million when Lehman tanked. Tax revenues plummeted from $100 million to $82 million currently (estimated).   The City has tried to adjust for this 18% revenue reduction but the unfunded pension benefits for police and fire departments increased from $43,496,873 in 2008 to $68,385,380 in 2011. That is an increase of 57% for public safety. Add to that the $21,327,225 in unfunded benefits for all other City employees and we owe $89,712,605.

The positive news is that in the last four years is that the City has recovered $1.5 million of the WAMU investment. The City Council has also been trying hard to adjust their expenses and live within their means. Standard and Poor provided our City with a rating of AA.

One of the key individuals in achieving the S&P rating and urging fiscal restraint is our Chief Financial Officer, Jay Panzica. He has been instrumental in guiding the City through this difficult economic period. He was the driving force behind the Budgeting for Outcomes.

Chief Financial Officer, Jay Panzica, wasinstrumental in guiding the Ventura through this difficult economic period.

Mr. Panzica was also instrumental in setting the stage to help refinance the bonds owed for past water and waste water building projects. The first step was to seek an increase of water rates. This step, reviewed by a citizens committee in the fall of 2011, resulted in increased rates for all water users. The counsel prudently adopted those rates, on the recommendation of the citizens committee, thus setting the stage for a major refinance effort in 2012. Increased rate (revenue) by users provides the security for payment of the bond premiums in the future.

To take advantage of today’s lower interest rates, to refinance existing debt for Water and Wastewater projects and to obtain new money for new projects he asked our interim City Manager, Johnny Johnston, to seek approval from the City Council authorizing the issuance of $52 million in Water Revenue Bonds and $23 million in taxable Series A and tax-exempt Series B Waste Water bonds.

On October 8, 2012, the Council approved the request to:

  1. Refinance the existing water bonds ($27,410,000 issued in 2004)) and issue new bonds for additional $25,000,000 for future projects.
  2. Refinance the existing waste water bonds ($25,075,000 issued in 2004) for $23,000,000.

The bonds sold. As a result of a substantially reduced interest rate our City will save $1.8 million on the old water bonds and $2.3 million on the waste water bonds that we otherwise would have had to pay under the terms of the 2004 bond issue. A savings of $4.1 million plus financing costs, and another $25 million in new money for future water improvements is a very positive step forward.

Editors’ Comments:

Good is a relative concept. Creating a basis from which we can build infrastructure and thus create a solid foundation for future economic growth is the right course for government.

“If you put the Federal government in charge of the Sahara Desert in 5 years there’d be a shortage of Sand”

As for government trying to engage in business and compete with private enterprise the words of Milton Friedman says it all “If you put the Federal government in charge of the Sahara Desert in 5 years there’d be a shortage of Sand”

 

Editors:

B. Alviani           K. Corse             T. Cook

J. Tingstrom      R. Mccord         S. Doll

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CalPERS costs Ventura piles of cash

CALPERS Increases on City Out of Control

Winston Churchill

“Americans always get it right, after they have tried everything else”
—Winston Churchill

HMS TITANIC

[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.

Police salary negotiation victory jacks CalPERS

Ventura Police unions extracted concessions to pay for CalPERS contributions.

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[1], 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.

Active citizens,

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.

Respectfully,

—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

CalPERS extracts piles of money

New police salaries will cost Ventura taxpayers piles of money.

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)

2011/2012                   35.190%

2012/2013                   36.4%

2013/2014                   40.6%

“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:

  1. 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.
  2. 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.
  3. 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.

EDITORS COMMENT:

Bad negotiating increases CalPERS contributions

Bad salary negotiating increases Ventura’s CalPERS contributions

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.    

Editors:

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

[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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