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unfunded pension liabilities should force pension reform in Ventura

Latest Facts About Unfunded Pension Liabilities You Need to Know

December 28, 2020/in Newsletters/by VREG Editors

“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

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 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

For 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.

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.
Raise taxes
Reduce services
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.

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 growing costs.
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

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How The Right Steps In The 2019 Budget Make Your Tomorrow Better

June 18, 2019/in Newsletters/by VREG Editors

“Giving money and power to government is like giving whiskey and car keys to teenage boys.”

—P.J. O’Rourke

Ventura faces severe revenue shortfalls in six of the next seven years, the size of those during The Great Recession. Ventura is on pace to lose over $9.07 million over the next six years. You should be concerned about the financial conditions in the City of Ventura, and you should also know this budgetary crisis is avoidable if the City Council acts this year.

Ventura’s General Fund Financial Outlook For The Next 10 Years

Ventura city staff calculate the city’s revenue and expenses for the next ten years [see graphic]. Costs will exceed income for six consecutive years beginning in the fiscal year 2020-2021—that’s next year.

Pensions are the main reason for the rise in expenditures. Annual pension costs will climb to $31.48 million from $19.71 million by the fiscal year 2025-2026. That’s an $11.63 million increase. The city projects property and sales taxes to increase by only $10.6 million over the same period. Not a rosy outlook.

Next year (the fiscal year 2020-2021), Ventura faces a $2.52 million deficit because of the $2.17 million in rising pension costs.

The city staff estimations are optimistic. They do not factor in a recession, which some believe is imminent. If a recession comes, people will lose jobs. Also, if a recession hits, property and sales tax revenues will suffer and projected losses may be even worse. What’s more, the city plans to add no money to reserves in the fiscal year 2019-2020. Current reserve levels for the City of Ventura will keep the city government running for only 45 days.

Wasn’t Measure O supposed To Save The Budget?

Measure O passed three years ago and will continue for the next 22 years. It brings in $10.8 million in additional sales tax revenue each year. Still, it isn’t enough to cover the projected shortfalls. Why is that?

There are several reasons why Measure O can’t save the city’s budget. First, there is no consensus among the City Councilmembers about how to use Measure O money. Alex McIntyre, Ventura’s new City Manager, asked all seven Councilmembers individually how they would spend it. All seven Councilmembers gave differing opinions on how to use the Measure O taxes. Without clear direction, it’s difficult for the City Manager to focus the city staff on what’s most important for our city. Confusion over Measure O is one example of how the City Council is dysfunctional on the budget’s priorities.

A second problem is how special interest groups lined up to get their share of Measure O. At the May 20^th City Council meeting, Councilmembers Lorrie Brown, Jim Friedman and Mayor Matt LaVere tried to move funds from Measure O to the General Fund for Fire Station No. 4. The Star report said the Fire Department union members felt insecure (sic) about Station No. 4 funding coming out of a temporary tax fund. (The tax lasts for 25 years)

In 2016, The City Council sold Measure O to voters with the promise that Fire Station No. 4 would remain open with its funds. Voters agreed to the idea of a temporary 25-year tax. VFD is now trying to persuade the City Council that when Measure O expires, there may not be funding for Fire Station No. 4. They fearmonger that response times to calls will increase, and lives could be lost. A 4-3 vote defeated the motion.

While this City Council takes precious time debating moving funds from one column to another, the growing unfunded pension obligations put pressure on the entire city budget, even with Measure O.

The Canaries In The Coal Mine

Economic disasters are all around us. There is no reason to think that Ventura is immune to them. The City of Oxnard is preparing to lay off hundreds of employees. They also plan to close a fire station and reduce the number of fire personnel available to respond to emergencies. The Oxnard City Manager says, “We are down to bare bones.” What’s happening in Oxnard is a preview of what could happen in Ventura unless the City Council acts quickly.

Ventura County Medical Center is losing over $40 million per year. That adds more unemployment to our community. With the City of Ventura own forecast of financial shortfalls, the City Council would do well not to ignore the economic disaster warning like ‘a canary in a coal mine.’

How Do We Fix The Budget?

The budgetary crisis is entirely avoidable if the City Council acts now. The solutions are simple, but they are not easy. It requires significant political will and resolve.

Improve The Budgeting Process

Currently, the City Council approves the city’s annual budget one year at a time. It doesn’t consider subsequent years’ financial demands. Given that the 10- year forecast shows losses for the next six years’ budgets, to ignore the next six years will be pushing the problem “down the road.”

Now is the time to change this systemic shortsightedness. City Councilmembers have the opportunity to discuss budgeting on at least a 3-year basis, not one year at a time.

Not Filling All Open Positions In City Hall

To balance the budget over the next six years, the city staff has two potential solutions. They can increase revenue through taxes and fees or reduce expenses. Since it’s not easy or popular to raise taxes and fees, the alternative is to cut costs.

The single largest expense category is city employees. Cutting staff is the obvious choice to reduce expenses. To avoid the unpopular cutting of current employees, the City Council can take a less unpleasant path and cut positions in the budget that the city never filled.

There are currently sixty unfilled positions at City Hall. If each vacant position costs the city $100,000 per person (salary, overtime, retirement and benefits), the cost to budget for these open positions adds to the projected deficit (losses).

If the city reduces the unfilled positions to thirty instead of sixty, the savings to Ventura would be $3 million per year. A $3 million reduction in expenses will balance the budgets for the next six years.

This decision puts the City Council on the horns of a dilemma. Should they hire all sixty positions now and later fire employees during the budget shortfalls? Alternatively, should they hire only thirty people knowing they can add personnel if the city’s economic situation improves? Eliminating unfilled staff positions is less disruptive to city government than laying people off.

Economic Development

An alternative toward improving the budget is to attract new or expanding businesses to Ventura. Several Councilmembers understand this and agree. More business and local jobs are the best solution for filling the budgetary shortfalls. More jobs generate more sales tax, encourage community spending and increase property values. Higher property values increase property taxes and reduce blight.

Imagine the stimulus to the community of filling the old Star Free-Press building or the Toys-R-Us location would have.

The city has already taken the first step in this direction. City Manager, Alex McIntyre, has moved the Economic Development division under the City Manager from under Community Development. Elevating the reporting of this department to the City Manager signals the increased importance economic development has for the city.

Empower The Economic Development Manager

Another simple step the city could take would be to empower the Economic Development Manager (EDM). The EDM must have readily available an inventory of all commercial locations, complete with square footage, zoning, parking, pricing, and a list of commercial real estate agents and contact information.

The City Council must be ready to provide incentives to new or expanding businesses. The incentives must include fee reductions and process simplification to entice the companies. One such motivator must be a single contact within the city who will guide the relocation process through the bureaucracy.

Finally, the EDM must identify and target new commercial business to locate in Ventura.

Each of these positive steps toward economic development has one drawback. They are long-term solutions. None of them will happen quickly enough to fix a budget by next year.

Streamline the City Hall Experience

The city has started reorganizing boards and commissions that oversee Planning, Design Review, Historic Preservation, and other committees filled by residents appointed by the City Council. While this is a good start, it must go further.

Reducing boards and commissions saves staff time in preparing and attending meetings. The staff attends about 20 meetings a month. Fewer meetings will allow more time for the employees to better supervise operations in planning, design review, code enforcement, etc.

The city must look at other ways to reduce staff time in other duties—especially if the city hires only thirty of the sixty unfilled positions. All staff operations should be scrutinized to end obsolete or redundant activities.

Revamp Ventura Fire Department

Now is a good time to modernize the fire department. Ventura Fire operates in much the same way it did 100 years ago except the needs are far different:

Building codes are stricter making fires less frequent
More buildings have sprinkler systems
Over 75% of calls are for paramedics

Each fire station has paramedics on duty to serve those calls. In addition to Ventura Fire, each medical emergency requires an ambulance from a private company in case a victim needs transporting to the hospital. Rolling a fire truck plus an ambulance seems like duplicated efforts.

Any change to the Fire Department would likely be unpopular with the public. That makes it a subject considered by Councilmembers, to be too controversial to discuss. The fire department union will become protective of their fellow firefighters and will want to preserve the status quo.

As they have in the past, the unions will apply pressure to the Council. Since four of the seven elected Councilmembers received campaign contributions from Ventura Fire in their last election, the politicians will likely concede as they have in the past. Ventura Fire Department needs reorganizing. Now is the ideal time to do it.

Editor’s Comments

The community will not support another tax rate increase. Pension costs already absorbed the entire $10.8 million raised by Measure. Still, citizens ask why the city doesn’t repair their streets and sidewalks. We can’t hope for an economic miracle to increase revenue, so the city must take steps to curb expenses. Ventura must:

Lower expenses by not filling all open positions at City Hall. Add those costs back into the budget
Design and target new commercial businesses to locate in Ventura
Offer incentives and fee reductions to bring more jobs to Ventura
Streamline the City Hall process and operations to reduce staff time. It will accelerate the processing time for building and licenses
Streamline medical response procedures within Ventura Fire. Find ways to reduce fire department costs for those calls. Dispatching a private ambulance and fire trucks with paramedics every time is expensive
Hold in-depth discussions at the City Council to expand budgeting to a 3-year basis, not one year at a time

INSIST THE CITY COUNCIL MODERNIZES THE BUDGET PROCESS

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The Looming Catastrophe of Unfunded Pension Liabilities in Ventura

January 31, 2017/in Newsletters/by VREG Editors

“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 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
Jim Monahan		Mike Tracy
Christy Weir

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Pension Redux

April 1, 2013/in Newsletters/by VREG Editors

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

PENSION OBLIGATIONS REVISITED

On March 11^th 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”.

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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A WAV Of Financial Trouble Traps Ventura

November 1, 2012/in Newsletters/by VREG Editors

“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:

Refinance the existing water bonds ($27,410,000 issued in 2004)) and issue new bonds for additional $25,000,000 for future projects.
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 Increases on City Out of Control

January 1, 2011/in Newsletters/by VREG Editors

“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

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:

In 2008 income was $94,100,000 and the City sent CALPERS a check for $11,948,759. This was 12% of our total income on top of the payroll cost of $48,087,281. Total spent on people and pension benefits totaled $60,036,040 or 63% of our actual income.
In 2011 income is budgeted at $80,400,000 and the City will send CALPERS a check for $13,142,936. This is 16% of our total income on top of a payroll of $47,056,848. Total that will be spent on payroll and pension benefits will total $70,199,784, or 87% of our budgeted income.
In 2013 income is budgeted at $82,000,000 and the City will send CALPERS a check for $13,929,524. This is 16.9% of our total income (*) on top of a payroll of $47,056,848. Total that will be spent on payroll and pension benefits will total $70,199,784, or 85.6%% of our budgeted income.

*The budgeted income (projected) for the City in 2012 is $80,800,000 and in 2013 $82,000,000. If their guess at income is wrong then the percentage of payroll and benefits gets larger.

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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living dead because Ventura has no money

The Ghost of No Money Haunts Pensions and Cemetery Park

April 1, 2009/in Newsletters/by VREG Editors

‘Take some more tea,” the March Hare said to Alice, very earnestly. I’ve had nothing yet, “Alice replied in an offended tone: “so I can’t take more.” “You mean you can’t take less, “ said the Hatter: “it’s very easy to take more than nothing” —Lewis Carroll, Alice’s Adventures in Wonderland.

THE SPECTRE OF BANKRUPTCY

[T.E.A. PARTY ANYONE?]

In the August 2008 edition of this newsletter, we suggested that Ventura “may” be following the missteps of the City of Vallejo right into bankruptcy court. After you read this you will realize that our unfunded pension debt and contractual obligations are staggering. We as a community owe $150,000,000 alone on the City’s pension debt, which is $1,500 per person in a community of 100,000. Incredulous? We’ll explain.

The 2008 CAFR shows Ventura has no money to pay unfunded liabilities.

Start with the Comprehensive Annual Financial Report (CAFR), ending June 30, 2008.

Remember, the pension statistics are based on numbers as they existed on June 30, 2007, These CAFR reports are published 18 months after the fact. At page 15 it reflects that our long term debt, labeled “total non current liabilities” totals $135 million dollars ($134,984,820).

You might recall that the City financial types reported to the Blue Ribbon Tax Committee that we have $10,000,000 in our general operating fund — that’s our reserve, which has not changed since 1992. All investment income from that reserve was spent. They also reported that we have $145,000,000 in other investments (after marking down the $10,000,000 lost to WAMU and Lehman Bros. investments), but we can’t touch this money because the funds are committed due to previous contractual commitments of the City Council. So we owe $135,000,000 and have $155,000,000 in investments, ignoring the contractual obligations for the moment. On the face of it we have $20 million more in assets than debts, so we are looking good right?

Wrong!

Let us take a closer look at the City of Ventura’s Pension Plan. Turn to page 70 of the CAFR (page 102 of the PDF file) of the City’s 6-30-08 Comprehensive Annual Financial Report, which lists the “off the income statement” underfunded obligations — money we owe as of June 30, 2007, for which we have no money. The total Actuarial Asset value for the City pension plan investments is stated as being $313,847,955, the actuarial accrued liability is $362,521,549. The unfunded accrued liability for regular employees is $5,176,721 and for Safety Employees (Police and Fire) is $43,496,873, or a total of $48,673,594.

This liability ($48.7 million) accrues interest at the rate of 7.75% per year on the amount that is owed as an “unfunded liability”. Remember again this was 18 months ago. Then move to the end of 2008 and add to this the fact that CALPERS devalued our actuarial asset value by 35%. The result is that the actuarial asset value went down by $109,846,784 ( $110,000,000), thereby increasing our liability by the same amount thereby reducing the value of our pension assets to $204,001,171. —we lost the money in the market. The following is the real financial picture right now:

True Financial Picture
(1) June 20, 2007 unfunded debt	$48,673,594
(2) Interest 6-30-07 to 12-31-07 @7.5%	$ 1,825,259
(3) Interest 1-1-08 to 12-31-08 @7.5%	$ 3,650,519
(4) Loss of pension value 35%	$110,000,000
Total Unfunded Liability of City	$164,149,372*

Now go back and add in what IS shown on the Comprehensive Annual Financial Report(CAFR) for 2007 (page 15 of the document, page 33 of the PDF). This is what is owed by the Citizens of this community — right now, and getting worse each year!

(1) Long Term “noncurrent” Debt	$135,000,000
(2) Unfunded pension benefits	$ 164,149, 372
Total debt	$294,673,595

How would you view our current financial posture? We owe $294,673,595 and we have $10,000,000 in the bank. Any suggestions for our City Manger or City Council?

Consider that the City of Vallejo decided to file bankruptcy when their obligations amounted to $730 per person. To further add to your perspective, Orange County, California filed the largest municipal bankruptcy in the history of the U.S. at a cost of $600 per resident. Ventura’s obligation is approximately $1,500 per person.

If you were in charge, what would you do?

THE CEMETERY PARK PROPOSAL

Cemetery Park will remain a ghost town because Ventura has no money for a Memorial.

[FINDING THE MONEY IS A DEAD ISSUE]

The City has spent $40,000 for the architectural renditions of a plan to create a memorial place at Cemetery Park.. This $4,000,000 Plan includes a memorial to commemorate those buried at the cemetery, memorial gardens, refurbished landscaping, veterans’ memorial walk and flagpole, and repairs to the historic WPA rock wall, 3,000 bronze grave site markers, and the retrieval and display of existing headstones. The City acknowledges there is no money, but assures the proponents that over time, with a combination of city funds and outside grants, perhaps they can find the $4,000,000 million dollars.

Then there are the opponents. One group, the restoration folks, want the park restored as a cemetery, and claim the City plan does not go far enough. They want it like it was headstones and all. Another group contends that the decision to make this into a park was made forty years ago when the City was forced to do something because those responsible did not maintain the cemetery. The park has been serving the community as a passive park and a memorial since and is used daily by local residents. This is a 7-acre park serving the mid-town community.

As an interesting aside the City code enforcement folks have stepped up a campaign to issue expensive citations to owners of dogs that are not on a leash in Cemetery Park.

Editors’ observation:

Perhaps the question we all should be asking instead is why our City Council is so willing to spend $40,000 to placate a vocal minority by voting to pay for a study to formulate a plan to restore an old cemetery site when we have so many other pressing priorities. How about – No!

THIS FROM A READER

We receive many emails from our readers which have been very positive. This concerning our March issue:

“Thank you so much for this current issue. One of the many things I like about your report is that it stays on course and is not distracted by all the non-issues brought up by the City for dodging the bullet. The concept of public employee’s being exempt from the reality’s of this economy really, is the height of arrogance”.

—R.M.

EDITORS’ COMMENTS

Until the Citizens of this community solve the systemic problem, by electing city leaders who are “qualified” to manage a municipal corporation, with a operating budge approaching $500,000,000, and in electing leaders who will make the hard (not political) decisions to solve the pension and unfunded debt issue, the taxpayers and citizens of this community will always be at risk and a target for more taxes and more fees.

Editors:

B. Alviani S. Doll J. Tingstrom

K. Corse R. McCord T. Cook

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