California Local Elected Officials

How Can Local Officials Prepare for the Upcoming Janus vs AFSCME Ruling?

“A public employer shall provide all public employees an orientation and shall permit the exclusive representative, if applicable, to participate.”
– Excerpt from California State Assembly Bill AB 52, December 2016

In plain English, AB 52 requires every local government agency in California to bring union representatives into contact with every new hire, to “allow workers the opportunity to hear from their union about their contractual rights and benefits.” What’s this all about?

As explained by Adam Ashton, writing for the Sacramento Bee, “New California government workers will hear from union representatives almost as soon as they start their jobs under a state budget provision bolstering labor groups as they prepare for court decisions that may cut into their membership and revenue.”

Ashton is referring to the case set to be heard by the U.S. Supreme Court early next year, Janus v. American Federation of State, County, and Municipal Employees. A ruling is expected by mid-year. It is possible, if not likely, that the ruling will change the rules governing public sector union membership. In pro-union states like California, public sector workers are required to pay “agency fees,” which constitute the vast majority of union revenue, even if they laboriously opt-out of paying that portion of union dues that are used explicitly for political campaigning and lobbying.

Needless to say, this law is designed to allow union representatives to get to newly hired public employees as soon as they walk in the door, in order to convince them to join the union and pay those dues. But can anyone argue against union membership?

The short answer is no. To deter such shenanigans, SB 285, thoughtfully introduced by Senator Atkins (D-San Diego), adds the following section to the Government Code: “A public employer shall not deter or discourage public employees from becoming or remaining members of an employee organization.” Governor Brown signed this legislation on October 9th. So much for equal time.

So what can local elected officials do, those among them who actually want to do their part to attenuate the torrent of taxpayer funded dues pouring into the coffers of public employee unions in California? Can they provide the contact information for public employees to outside groups who may be able to provide equal time?

Once again, the answer is no. To deter access even to the agency emails of public employees, a new law bans public agencies from releasing the personal email addresses of government workers, creating a new exemption in the California Public Records Act. Those email addresses could be used by union reformers to provide the facts to public employees. How this all became law provides another example of just how powerful public sector unions are in Sacramento.

In order to quickly get the primary provision of AB 52 enacted, which allows union representatives into new public employee orientations, along with a provision to deny public access to public employee emails, both were added at the last minute to the California Legislature’s 2017-2018 budget trailer bill, AB 119. The union access to new employee orientations is Article 1. The denial of email access is Article 2.

So how are the unions preparing for the Janus ruling? By (1) making sure the union operatives get to new employees as soon as they begin working, (2) by preventing agency employers from saying anything to deter new employees from joining the unions, and (3) by preventing anyone else from getting the official agency emails for new employees in order to inform them of their rights to not join a union. That’s a lot.

So what can you do, if union reformers control a majority on your agency board or city council, and you in a position to try to oppose these unions?

First, examine the legal opinions surrounding the wording of SB 285, “A public employer shall not deter or discourage public employees from becoming or remaining members of an employee organization.” The words “deter” and “discourage” do not in any way preclude providing facts. Consider this preliminary opinion posted on the website of the union-controlled Public Employee Relations Board:

“One major concern I have is that the terms “deter” and “discourage” are not defined. What if an employee comes to an employer with questions about what it means to be a member of the union, and the employer provides truthful responses. For example, assume that the employer confirms that being a member will mean paying dues. What if that has the effect of deterring or discouraging the employee from joining the union?”

It is possible for employers to present facts regarding union membership without violating the new law. Find out what disclosures remain permissible, and make sure new employees get the information.

Another step that can be taken, although probably not by local elected officials, is to challenge the new law that exempts public agency emails from public information act requests. And apart from accessing their work emails, there are other ways that outside groups can communicate with public employees to make sure they are aware of their rights.

California’s public employee unions collect and spend over $1.0 billion per year. If the Janus vs AFSCME ruling takes away the ability of government unions to compel payment of agency fees, and imposes annual opt-in requirements for both agency fees and political dues, these unions will collect less money. How much less will depend on courage and innovative thinking on the part of reformers who want to rescue California from unionized government.

REFERENCES

Get a state job and meet your labor rep: How state budget protects California unions, Sacramento Bee, June 21, 2017
http://www.sacbee.com/news/politics-government/the-state-worker/article156146364.html

AB 52, Public employees: orientation and informational programs: exclusive representatives, California Legislature
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB52

Janus v. American Federation of State, County, and Municipal Employees, Supreme Court of the United States Blog
http://www.scotusblog.com/case-files/cases/janus-v-american-federation-state-county-municipal-employees-council-31/

SB 285, Atkins. Public employers: union organizing, California Legislature
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB285

2017-2018 budget trailer bill, AB 119, California Legislature
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB119

California Public Records Act, Office of the Attorney General
http://ag.ca.gov/publications/summary_public_records_act.pdf

Fact Sheet – AB 52 (Cooper) & SB 285 (Atkins), California Labor Federation
http://calaborfed.org/wp-content/uploads/2017/04/2-AB-52-Cooper-and-SB-285-Atkinsweb.pdf

Legislative Bulletin – California School Employees Association
http://www.csea.com/web/portals/0/csea_pdf/leg_rpt.pdf

SB 285: Public Employers Cannot Discourage Union Membership, Public Employee Relations Board
http://www.caperb.com/2017/04/04/sb-285-public-employers-cannot-discourage-union-membership/

Public employee unions wield hefty Atkins stick [SB 285], San Diego Reader
https://www.sandiegoreader.com/news/2017/aug/28/ticker-public-employee-unions-wield-atkins-stick/#

Coping With the Pension Albatross

Instead of the cross, the albatross
About my neck was hung.
–  Samuel Taylor Coleridge, The Rime of the Ancient Mariner, 1798

In Coleridge’s famous poem, a sailor who killed an albatross has it hung around his neck as punishment. Since then, the albatross, which sailors used to consider good luck, has come to symbolize an oppressive burden. When it comes to ensuring the financial sustainability of California’s cities and counties, few burdens have become more oppressive than funding employee pensions.

A study issued earlier this month entitled “Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030,” by the Stanford Institute for Economic Policy Research, offers comprehensive and visceral proof of just how big the pension albatross has become around the fiscal necks of California’s cities and counties, and how much bigger it’s likely to grow. Recent articles by pension expert Ed Mendel and political watchdog Steve Greenhut provide excellent summaries. To distill the “Pension Math” study to a few ominous and definitive quotations, here are two that describe how dramatically pension costs have eaten into California’s civic budgets:

“Employer pension contributions from 2002-03 to 2017-18 have increased at a much faster rate than operating expenditures. As noted, pension contributions increased an average of 400%; operating expenditures grew 46%. As a result, pension contributions now consume on average 11.4% of all operating expenditures, more than three times their 3.9% share in 2002-03.”

And the fun is just beginning:

“The pension share of operating expenditures is projected to increase further by 2029-30: to 14.0% under the baseline projection—that is, even if all system assumptions, including assumed investment rates of return, are met—or to 17.5% under the alternative projection.”

Back in 2016, the California Policy Center produced a study entitled “The Coming Public Pension Apocalypse, and What to Do About It.” In that study (ref. Table 2-C), the implications of adopting responsible paydowns of the unfunded liability (20 year straight-line amortization which CalPERS is now recommending), are explored, along with various rate-of-return assumptions. Quote:

“A city that pays 10% of their total revenues into the pension funds, and there are plenty of them, at an ROI of 7.5% and an honest repayment plan for the unfunded liability, should be paying 17% of their revenues into the pension systems. At a ROI of 6.5%, these cities would pay 24% of their revenue to pensions. At 5.5%, 32%.”

These are staggering conclusions. Only a few years ago, opponents of pension reform disparaged reformers by repeatedly asserting that pension costs only consumed 3% of total operating expenses. Now those costs have tripled and quadrupled, and there is no end in sight. What can local elected officials do?

The short answer is not much. At least not yet. The city of Irvine provides a cautionary example of how a city did everything right, and still lost ground. In 2013, Irvine’s city council resolved to eliminate their unfunded pension liability in 10 years by making massive extra annual payments out of their reserve fund. As reported in detail last week in the article “How Fraudulently Low “Normal Contributions” Wreak Havoc on Civic Finances,” here is the upshot of what happened in Irvine between 2013 and 2017:

“While the stock market roared, and while Irvine massively overpaid on their unfunded liability, that unfunded liability still managed to increase by 51%.”

There are plenty of ways for California’s cities and counties to get the pension albatross off their fiscal necks, except for one thing. The people who receive these generous pensions (the average pension for a full-career retired public employee in California, not including benefits, was $68,673 in 2015) are the same people who, through their unions, exercise almost absolute control over California’s cities and counties.

Spokespersons for public sector unions scoff at this assertion. “Politicians are mismanaging our cities and counties,” they allege, “blame the politicians.” And of course they’re right. Politicians do run our cities and counties. But these politicians have their campaigns funded by the public sector unions. Even when a majority of city council or county supervisor seats are won by politicians willing to refuse campaign contributions from public sector unions, any reforms they enact are reversed as soon as the unions can reestablish a majority. And if reformers can stay in control of a city or county through multiple election cycles, any reforms they enact are relentlessly fought in court by the unions. Meanwhile, California’s union controlled state legislature enacts law after law designed to prohibit meaningful reform.

This is the reality we live in. Californians pay taxes in order to pay state and local government employees a wage and benefit package that averages twice what private sector workers earn.

Here’s what can be done:

(1) Convince citizens to always vote against any candidate supported by a public sector union.

(2) Convince public sector union officials that the pension crisis is real so at least they will agree to minor reforms. The recent Stanford study, along with the recently introduced CalPERS agency summaries, should provide convincing leverage.

(3) Continue to implement incremental reform either through council action, local ballot measures, or in contract negotiations. They may include:
– lower pension formulas for new employees
– lower base pay in order to lower final pension calculations
– eliminating binding arbitration
For more ideas, refer to Pension Reform – The San Jose Model, Pension Reform – The San Diego Model, and Reforming Binding Arbitration.

(4) Support policies designed to lower the cost-of-living. California’s union controlled legislature has created artificial scarcity in almost all sectors of the economy, driving prices up and providing the justification for public employees to demand wages and benefits that allow them to exempt themselves (but not the rest of us) from the consequences of those policies.

(5) Wait for resolution of two critical court cases. The first is the case Janus vs. AFSCME, challenging the right of government unions to charge “agency fees” to members who opt out of membership. That case is set to be heard by the U.S. Supreme Court in 2018. The second is the ongoing court challenges to the “California Rule.” Attorneys representing California’s government unions claim the California Rule prohibits changing the formulas governing pension benefit accruals even for work not yet performed. California’s Supreme Court is set to hear this case after an appeals court rules on three cases – from Alameda, Contra Costa, and Merced counties. Both of these cases should be resolved sometime in 2018.

The Janus case could decisively lower the amount of money public sector unions currently manage to extract from dues paying public employees, which in California alone is estimated to exceed $1.0 billion per year. A successful challenge to the California Rule would pave the way for real pension reform. Current legal interpretations of the California Constitution bar reductions to pension formulas, even for work that has not yet been performed. This is the so-called “California Rule.” If that interpretation were overturned, pension benefit accruals for future work done by existing employees could be lowered to financially sustainable levels.

All in all, today the pension albatross weighs heavy on the fiscal necks of California’s public agencies, and it’s getting worse, not better. If there were easy answers, the problem would have been solved long ago.

REFERENCES

Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030
https://siepr.stanford.edu/sites/default/files/publications/17-023.pdf

How pension costs reduce government services, Ed Mendel, CalPensions, 10/09/2017
https://calpensions.com/2017/10/09/how-pension-costs-reduce-government-services/

Forget the scary pension future; study confirms the crisis is hitting now, Steve Greenhut, California Policy Center, 10/10/2017
http://californiapolicycenter.org/forget-scary-pension-future-study-confirms-crisis-hitting-now/

The Coming Public Pension Apocalypse, and What to Do About It
http://californiapolicycenter.org/the-coming-public-pension-apocalypse/

How Fraudulently Low “Normal Contributions” Wreak Havoc on Civic Finances
https://calocalelectedofficials.org/fraudulently-low-normal-contributions-wreak-havoc-civic-finances/

What is the Average Pension for a Retired Government Worker in California?
http://californiapolicycenter.org/what-is-the-average-pension-for-a-retired-government-worker-in-california/

California’s Public Sector Compensation Trends
http://californiapolicycenter.org/californias-public-sector-compensation-trends/

Average Full Career Pension by City (all CalPERS employers), Transparent California
http://transparentcalifornia.com/pensions/2016/calpers/employers/?s=-average

Public Agency Actuarial Valuation Reports by CalPERS Agency
https://www.calpers.ca.gov/page/employers/actuarial-services/employer-contributions/public-agency-actuarial-valuation-reports

Pension Reform – The San Jose Model
https://calocalelectedofficials.org/pension-reform-san-jose-model/

Pension Reform – The San Diego Model
https://calocalelectedofficials.org/pension-reform-the-san-diego-model/

Reforming Binding Arbitration
https://calocalelectedofficials.org/reforming-binding-arbitration/

Marin County Discloses Debt Balances on Property Tax Bills

How would you like it if every time you received a property tax bill from your county assessor, you also received a notice that disclosed the amount of the county’s total debt, annual operating expenses, total unfunded liability for pensions, and total unfunded liability for retirement healthcare?

You might not like it, but you’d have a better understanding of what all those property taxes are paying for. And in Marin County, back in 2013, after years of effort by a local group of activists – Citizens for Sustainable Pension Plans – that’s exactly what happened.

Take a look at the copy of this “2016-2017 Property Tax Information” courtesy of Marin County, sent to one of their property owning taxpayers. Towards the bottom of the page, in the section entitled “MARIN COUNTY DEBT AND FINANCIAL DATA,” even the casual observer can quickly see that (as of 6/30/2015, the numbers are over a year behind) Marin County recognizes $549 million of debt on their balance sheet. The not so casual observer might have additional questions…

 *   *   *

QUESTIONS RAISED BY “MARIN COUNTY DEBT AND FINANCIAL DATA”

For example, why does the total “Retiree Related Debt” of $746 million exceed the “Total Liabilities per Balance Sheet” of $549 million? While the 6/30/2015 Consolidated Annual Financial Report (CAFR) for Marin County does report total liabilities of $549 million on page 9, “Condensed Statement of Net Position,” there is no schedule anywhere in the remaining document that provides the details behind that number, making reconciliation impossible. A simple keyword search on the number “549” proves this.

Elsewhere in Marin County’s 6/30/2015 CAFR, on page 61 “Note 8: Long Term Obligations,” the balance payable on pension obligation bonds is disclosed at $103 million, which matches the amount disclosed on the property tax information. Since on this same chart in Marin County’s 6/30/2015 CAFR the “Total Long Term Obligations” are reported to be $286 million, it is reasonable to assume that Marin County’s non-retirement related debt is the difference, i.e., $176 million.

So what does this all mean to the non-casual observer?

It means that Marin County’s total long-term debt as of 6/30/2015 was $922 million, and $746 million of that was for earned but currently unfunded retirement obligations to county workers. That is, 81 percent – eighty-one percent – of Marin County’s long-term debt is to fulfill promises the supervisors made to provide pensions and healthcare to their retirees, but have not paid for. At 7%, just the annual interest on this $746 million is $52 million per year. Imagine what Marin County could do with an extra $52 million per year.

There’s more. The non-casual observer will note that just the interest on Marin County’s unfunded retirement obligations, $52 million per year, equates to 11.2% of their entire reporting operating expenses in the 2014-2015 fiscal year, $464 million. But Marin County doesn’t just have to pay interest on their unfunded retirement obligations, they have to pay them off.

In the private sector, compliant with reforms for which, inexplicably, public sector agencies are exempt, pension systems have to amortize (pay off) their unfunded liabilities within seven years. At that rate, at 7%, the payment on Marin County’s unfunded retirement liabilities would be $138 million per year. That would be the financially responsible thing to do.

Wait! There’s much more. After all, Marin County doesn’t have to just pay off their unfunded retirement obligations, they have to make ongoing payments, as a percent of payroll, for the future pension benefits their active employees earn every year they’re working. How much is that?

Learning how much Marin County spends on payroll is tough, even though it should not be. Their CAFR discloses costs per department, in some cases, but finding a simple “Total Costs for Employees” appears to be impossible.

Rather than wade through Marin County’s entire 224 page CAFR for FYE 6/30/2015, payroll information can be found on Transparent California. Going to their Marin County page and downloading the Excel spreadsheet readily reveals that in 2016 they spent $275 million on pay and benefits, roughly 60% of their total expenditures. Payments for benefits – mostly retirement but also for current healthcare – totaled $71 million of that. Needless to say, that $71 million is not nearly enough to pay for (1)  current healthcare insurance plus (2) currently earned pension and (3) retirement healthcare benefits, along with (4) any sort of aggressive paydown of the debt for retirement benefits earned in prior years, but not funded at the time. Even if you add in the amount employees themselves contribute via withholding (Information on that? Somewhere. Good luck finding it).

If you’ve made it this far, braving this mind numbing arcana that obfuscates one of the greatest betrayals of the people by their government in American history, let’s break this down just a bit further.

Even on a 30 year repayment schedule, at 7%, Marin County’s unfunded retirement debt of $746 million would require an annual payment of $60 million. Coming out of $71 million, that leaves $11 million to work with (plus whatever employees contribute via withholding), to pay (1) current healthcare insurance AND (2) whatever new retirement healthcare benefits were earned in that year, AND (3) whatever new pension benefits were earned in that year. This amount paid to fund pension benefits earned in the current year, called the “normal contribution,” is usually expressed as a percent of payroll. According to Transparent California, Marin County’s base payroll in 2016 was $186 million. That means that if they were making just the bare minimum payments on their unfunded retirement liabilities, their total payments for currently earned benefits – normal pension contribution plus normal OPEB contribution, plus current year healthcare, plus whatever other benefits they offer – only amounted to 6% of payroll. Only six percent! There is no way that difference was made up via employee contributions.

Based on these numbers, it appears impossible that Marin County is adequately funding retirement benefits for their employees. Not even close. And it should be easy to coax these numbers from the reports available, and it should be easy for anyone with a reasonable amount of financial literacy to find these numbers and come to the same conclusion. It is not.

RECOMMENDATIONS

(1)  Make a “Debt and Financial Data” disclosure mandatory on all property tax bills, in all California counties.

(2)  Have this data include the following twelve numbers, with the expense subtotals showing the percentage of total expenses, and the debt balance subtotals showing the percentage of total debt:

  • Total county expenditures,
  • Total county expenses for payroll and benefits,
  • Amount paid towards retirement healthcare (OPEB) earned in current year,
  • Amount paid towards unfunded retirement healthcare (earned in previous years),
  • Amount paid towards retirement pensions earned in current year,
  • Amount paid towards unfunded retirement pensions (earned in previous years),
  • Amount paid on pension obligation bonds,
  • Amount paid for all other debt,
  • Total debt,
  • Total debt for healthcare,
  • Total debt for pensions (unfunded pension liability),
  • Total debt for pension obligation bonds.

(3)  Include on county CAFRs for the same year a section that contains all of the above information, with a through reconciliation to the official financial statements and schedules, so even the casual observer can verify the accuracy (or at least the consistency) of all numbers reported on the property tax schedule.

REFERENCES

Marin County Board of Supervisors, 7/30/2013 Minutes (ref. item 3, page 1)
http://marin.granicus.com/MinutesViewer.php?view_id=33&clip_id=6714&doc_id=c40ad825-4c42-1031-bc96-29b50f2ba9d1

Marin County Board of Supervisors, Meeting Archives
https://www.marincounty.org/depts/bs/meeting-archive

Marin County Citizens for Sustainable Pension Plans
http://marincountypensions.com/index.html

Marin County 2015-2016 Consolidated Annual Financial Report
https://www.calpers.ca.gov/docs/forms-publications/cafr-2016.pdf

Marin County Archive of Consolidated Annual Financial Reports
https://www.marincounty.org/depts/df/financial-reports

Transparent California, 2016 salary and benefit payments for Marin County
http://transparentcalifornia.com/salaries/2016/marin-county/

How Fraudulently Low “Normal Contributions” Wreak Havoc on Civic Finances

Back in 2013 the City of Irvine had an unfunded pension liability of $91 million and cash reserves of $61 million. The unfunded pension liability was being paid off over 30 years with interest charged on the unpaid balance at a rate of 7.5% per year. Irvine’s cash reserves were conservatively invested and earned interest at an annual rate of around 1%. With that much money in reserve, earning almost no interest, the city council decided use some of that money to pay off their unfunded pension liability.

As reported in Governing magazine, starting in 2013, Irvine increased the amount they would pay CalPERS each year by $5M over the required payment, which at the time was about $7.7M. With 100% of that $5M reducing the principal amount owed on their unfunded liability, they expected to have the unfunded liability reduced to nearly zero within ten years, instead of taking thirty years. Here’s a simplified schedule showing how that would have played out:

CITY OF IRVINE, 2013  –  PAY $5.0 MILLION EXTRA PER YEAR
ELIMINATING UNFUNDED PENSION LIABILITY IN TEN YEARS

This plan wasn’t without risk. Taking $5 million out of their reserve fund for ten years would have depleted those reserves by $50 million, leaving only $11 million. But Irvine’s city managers bet on the assumption that incoming revenues over the coming years would include enough surpluses to replenish the fund. In the meantime, after ten years they would no longer have to make any payments on their unfunded pension liability, since it would be virtually eliminated. Referring to the above chart, the total payments over ten years are $127 million, meaning that over ten years, in addition to paying off the $91 million principal, they would pay $36 million in interest. If the City of Irvine had made only their required $7.7 million annual payments for the next thirty years, they would have ended paying up an astonishing $140 million in interest! By doing this, Irvine was going to save over $100 million.

Four years have passed since Irvine took this step. How has it turned out so far?

Not so good.

Referring to CalPERS Actuarial Valuation Report for Irvine’s Miscellaneous and Safety employees, at the end of 2016 the city’s unfunded pension liability was $156 million.

Irvine was doing everything right. But despite pumping $5M extra per year into CalPERS to pay down the unfunded liability which back in 2013 was $91M (and would have been down to around $64M by the end of 2016 if nothing else had changed), the unfunded liability as of 12/31/2016 is – that’s right – $156 million.

Welcome to pension finance.

The first thing to recognize is that an unfunded pension liability is a fluid balance. Each year the actuarial projections are renewed, taking into account actual mortality and retirement statistics for the participants as well as updated projections regarding future retirements and mortality. Each year as well the financial status of the pension fund is updated, taking into account how well the invested assets in the fund performed, and taking into account any changes to the future earnings expectations.

For example, CalPERS since 2013 has begun phasing in a new, lower rate of return. They are lowering the long-term annual rate of return they project for their invested assets from 7.5% to 7.0%, and may lower it further in the coming years. Whenever a pension system’s rate of return projection is lowered, at least three things happen:

(1) The unfunded liability goes up, because the amount of money in the fund is no longer expected to earn as much as it had previously been expected to earn,

(2) The payments on the unfunded liability – if the amount of that liability were to stay the same – actually go down, since the opportunity cost of not having that money in the fund is not as great if the amount it can earn is assumed to be lower than previously, and,

(3) the so-called “normal contribution,” which is the payment that is still necessary each year even when a fund is 100% funded and has no unfunded liability, goes up, because that money is being invested at lower assumed rates of return than previously.

That third major variable, the “normal contribution,” is the problem.

Because as actuarial projections are renewed – revealing that people are living longer, and as investment returns fail to meet expectations – the “normal contribution” is supposed to increase. For a pension system to remain 100% funded, or just to allow an underfunded system not to get more underfunded, you have to put in enough money each year to eventually pay for the additional pension benefits that active workers earned in that year. That is what’s called the “normal contribution.”

By now, nearly everyone’s eyes glaze over, which is really too bad, because here’s where it gets interesting.

The reason the normal contribution has been kept artificially low is because the normal contribution is the only payment to CalPERS that public employees have to help fund themselves via payroll withholding. The taxpayers are responsible for 100% of the “unfunded contribution.” CalPERS has a conflict of interest here, because their board of directors is heavily influenced, if not completely controlled, by public employee unions. They want to make sure their members pay as little as possible for these pensions, so they have scant incentive to increase these normal contributions.

When the normal contribution is too low – and it has remained ridiculously low, in Irvine and everywhere else – the unfunded liability goes up. Way up. And the taxpayer pays for all of it.

Returning to Irvine, where the city council has recently decided to increase their extra payment on their unfunded pension liability from $5 million to $7 million per year, depicted on the chart below is their new ten year outlook. As can be seen (col. 4), just the 2017 interest charge on this new $156 million unfunded pension liability is nearly $12 million. And by paying $7 million extra, that is, by paying $20.2 million per year, ten years from now they will still be carrying over $35 million in unfunded pension debt.

CITY OF IRVINE, 2017  –  PAY $7.0 MILLION EXTRA PER YEAR
REDUCTION OF UNFUNDED PENSION LIABILITY IN TEN YEARS

This debacle isn’t restricted to Irvine. It’s everywhere. It’s happening in every agency that participates in CalPERS, and it’s happening in nearly every other public employee pension system in California. The normal cost of funding pensions, which employees have to help pay for, is understated so these employees do not actually have to pay a fair portion of the true cost of these pensions. If this isn’t fraud, I don’t know what is.

It gets worse. Think about what happened between 2013 and 2017 in the stock market. The Wall Street recovery was in full swing by 2013 and by 2016 was entering so-called bubble territory. As the chart below shows, on 1/01/2013 the value of the Dow Jones stock index was 13,190. Four years later, on 12/31/2017, the value of the Dow Jones stock index was up 51%, to 19,963.

Yet over those same four years, while the Dow climbed by 51%, the City of Irvine’s unfunded pension liability grew by 71%. And this happened even though the City of Irvine paid $12.7 million each year against that unfunded liability instead of the CalPERS’s specified $7.7 million per year. Does that scare you? It should. Sooner or later the market will correct.

DOW JONES INDUSTRIAL AVERAGE
PERFORMANCE FOR THE PAST FIVE YEARS, 2013-2017

While the stock market roared, and while Irvine massively overpaid on their unfunded liability, that unfunded liability still managed to increase by 51%. Perhaps that normal contribution was a bit lower than it should have been?

Irvine did the right thing back in 2013. CalPERS let them down. Because CalPERS was, and is, understating the normal contribution in order to shield public sector workers from the true cost of their pensions. The taxpayer is the victim, as always when we let labor unions control our governments and the agencies that serve them.

REFERENCES

CalPensions Article discussing CalPERS recent polices regarding pension debt repayments:
https://calpensions.com/2017/09/25/calpers-considers-paying-down-new-debt-faster/

Irvine 2017-18 Budget – discussion of faster paydown plan on UAAL
http://legacy.cityofirvine.org/civica/filebank/blobdload.asp?BlobID=29623

Irvine Consolidated Annual Financial Report FYE 6/30/2016
http://legacy.cityofirvine.org/civica/filebank/blobdload.asp?BlobID=28697

Irvine – links to all Consolidated Annual Financial Reports
http://www.cityofirvine.org/administrative-services-department/financial-reports

CalPERS search page to find all participating agency Actuarial Valuation Reports
https://www.calpers.ca.gov/page/employers/actuarial-services/employer-contributions/public-agency-actuarial-valuation-reports

CalPERS Actuarial Valuation Report – Irvine, Miscellaneous
https://www.calpers.ca.gov/docs/actuarial-reports/2016/irvine-city-miscellaneous-2016.pdf

CalPERS Actuarial Valuation Report – Irvine, Safety
https://www.calpers.ca.gov/docs/actuarial-reports/2016/irvine-city-safety-2016.pdf

Governing Magazine report on Irvine
http://www.governing.com/columns/public-finance/col-irvine-california-plans-prepay-pension-bill.html

Steps to Improve Police Training and Accountability

“We’re not anti-cop. We’re anti bad cop. Bad cops have to be fired, just like bad politicians”
– Leader of Black Lives Matter counter-protest, who was spontaneously invited to speak at a pro-Trump rally (watch video).

There aren’t too many things that are easier to agree on than this sentiment. Even those of us who offer nearly unequivocal support for law enforcement can agree that bad cops have to be fired. But progress in the form of better training and more accountability will be incremental, despite the fact that social media now makes every tragic incident – no matter how statistically insignificant – visceral and immediate.

Last year the City of Sacramento enacted incremental improvements to their local ordinances governing police department officer training and police accountability. The impetus for this came after a homeless, mentally ill man was shot 14 times by police for walking around with a knife in North Sacramento. As the Sacramento Bee editorialized, the incident “cried out for a new approach to police abuse, one that would set a statewide or even a national standard. Instead, hamstrung by local and state laws that over the years have made police accountability much too hard in California, the City Council had to settle for doing what it could around the margins, revamping civilian review, pushing for better training and slightly improving transparency in officer-involved killings.”

What the City of Sacramento did was not necessarily enough, but it is a good place to start. It represents a savvy mix of steps that accomplish as much as can be hoped for in the face of existing laws, most of them enacted by California’s legislature.

Here are key features of the City of Sacramento’s reform:

1 – De-escalation: Greater police training to emphasize de-escalation and other nonlethal tactics when confronting suspects.

2 – Body Cameras: Police also will have to wear body cams, which tend to make interactions between officers and the public more transparent and civil.

3 – Transparency: Dashcam video of police shootings will be made public after 30 days unless the department can prove it will compromise an investigation, and victims’ families will get a first look, which will shine a light on cases that too often get complicated by emotion and hearsay.

4 – Accountable to City Council: The Office of Public Safety Accountability will at last get some money and staffing, and will report to the City Council, not the city manager, who also oversees the Police Department.

5 – Civilian Oversight: A new oversight commission, made up entirely of civilians, will get broader powers to review complaints filed with the accountability office. This will include the ability to subpoena information when needed.

SAMPLE LANGUAGE – “OFFICER NEXT DOOR” FRAMEWORK

RESOLUTION NO. 2016-Adopted by the Sacramento City Council

ADOPTING THE OFFICER NEXT DOOR FRAMEWORK

BACKGROUND:

A. During the State of the City address on January 30, 2015, Mayor Kevin Johnson announced the Officer Next Door Program (OND).

B. The vision of the OND is that Sacramento will become the safest big city in California and a model of community policing practices.

C. The goals of implementing the OND program are a measurable decrease in crime and a measurable increase in community trust and engagement.

D. The OND framework consists of four pillars: Training, Diversity, Engagement, and Accountability. Implementation of these four pillars is in the best interest of the City of Sacramento to achieve the OND vision and goals:

1. Training: The police officers of the City of Sacramento will receive training that is nationally recognized as the best practices in community policing.
2. Diversity: The City’s police department (at all levels) will reflect the diversity of our City’s residents.
3. Engagement: The OND police force is actively engaged in the community that he or she is sworn to protect.
4. Accountability: Our police department is held accountable to the highest professional standards and embraces transparency.

BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE CITY COUNCIL RESOLVES AS FOLLOWS:

Section 1. The Officer Next Door Framework attached as Exhibit A is hereby approved.

Section 2. The City Manager or the City Manager’s designee is hereby authorized to take administrative actions and develop procedures to implement the OND Framework.

Exhibit A – Officer Next Door Framework

VISION & GOALS
To make Sacramento the safest big city in California and a model of community policing demonstrated by a measurable decrease in crime and a measurable increase in community trust and engagement

FRAMEWORK
– Training: The police officers of the City of Sacramento receive training that is nationally recognized as the best practices in community policing strategies.
– Diversity: The City’s police department (at all levels) will reflect the diversity of our city’s residents.
– Engagement: The Officer Next Door police force is actively engaged in the community he or she is sworn to protect.
– Accountability: Our police department is held accountable to the highest professional standards and embraces transparency.

TRAINING
Our Officers Receive Training That Is Nationally Recognized As The Best Practices In Community Policing Strategies

SUMMARY
We want our police officers to receive consistent, high-quality training to ensure that they are well equipped to address challenging situations that may arise as they are doing their important work in the community. Over the last decade, a myriad of training programs have been developed for public safety officials which can make them more effective when faced with difficult issues. Our police department must have the necessary resources to provide access to this type of training.

ACTION STEPS
We will continue to ensure that our officers are trained in the following:
– Cultural sensitivity
– Implicit bias and discrimination recognition
– Peaceful conflict resolution and de-escalation techniques to include less lethal options.
– Chronic and mental illness recognition training including peaceful conflict resolution and deescalation techniques.
– Problem-oriented policing

DIVERSITY
Our Police Department (At All Levels) Reflects The Diversity Of Our City’s Residents

SUMMARY
Sacramento is one of the most diverse cities in America. As such, it is critical that we put proactive and deliberate strategies in place to ensure that our police force becomes more diverse. We strongly believe that this diversity will result in stronger community relations and robust engagement with our residents.

ACTION STEPS
We will work to implement the following:
– Targeted recruitment strategies focused on increasing diversity (of race, gender, sexual orientation, etc.).
– Mentoring and professional development geared toward increasing diversity in police leadership and command structure.
– Incentive programs to encourage police officers to live in the City and hiring more officers who currently live in the city.
– Exploring the development of a public safety charter school.

ENGAGEMENT
Our Officers Are Actively Engaged In The Communities They Are Sworn To Protect

SUMMARY
Our police force is most effective when they have meaningful and trusting relationships in the communities they serve. We must work toward creating true collaboration and understanding between officers and residents, so that our work can be proactive and preventative.

ACTION STEPS
We will implement the following to increase engagement levels:
– Community activities such as youth listening sessions and education events.
– Youth development and crime prevention strategies like Summer Night Lights and the Mayor’s Gang Prevention Taskforce.
– Restoring police staffing levels to support community policing.
– Addressing underlying, systemic issues such as education and unemployment.

ACCOUNTABILITY
Our Police Department Is Held Accountable To The Highest Professional Standards And Embraces Transparency

SUMMARY
As a community, we need to have faith that our law enforcement officers are always operating in the best interests of our residents and community. We should consistently be sharing and discussing public safety data to ensure that we’re identifying where potential issues may exist and working to correct them. Equally important is the responsibility the public has to support our police department with the resources they need.

ACTION
We will implement the following to increase transparency and accountability

Increase transparency and availability of data to the public
– Release all video associated with an officer involved shooting, in-custody death, or complaint reported to OPSA within 30 days, where said video does not hamper, impede, or taint an ongoing investigation or endanger involved parties. The family of the decedent shall be offered the opportunity to review the video prior to public release. All faces will be blurred to protect the identity of those present and a warning will also be included to advise of the graphic content of the video. If the video cannot be made public by the 30th day, the Police Chief will provide the reasons and obtain a waiver from the Council.
– Work in coordination with the Coroner’s Office to notify the impacted family as soon as possible, an assign staff to the family to act as a liaison through the process.
– Adopt a use of force policy that encourages transparency and accountability.
– Respond to public records requests and other information requests in a reasonable and timely manner consistent with law.

Implement a body camera program
– Adopt a body camera video policy consistent with council policy and law.
– Ensure the program enhances transparency and availability of data to the public.

Changes to the Office of Public Safety Accountability (OPSA)
– Have OPSA Director report directly to the Council.
– Have OPSA be responsible for staffing the Sacramento Community Police Review Commission.

Changes to the Sacramento Community Police Review Commission (SCPRC)
– The Commission should be 100% civilian led.
– SCPRC to make policy recommendations to the City Council.
– SCPRC’s governance structure to be 11 members with one from each councilmember and three from the Mayor.
– The commission shall review quarterly reports prepared by the office of public safety accountability consistent with California Penal Code section 832.7(c), relating to the number, kind, and status of all citizen complaints filed against police department personnel, to determine whether there are patterns of misconduct that necessitate revisions to any police policy, practice, or procedure.

Monitor the national movement towards independent investigations

Monitoring and follow-up
– Bi-annual presentation and quarterly reports to the City Council and SCPRC on implementation of the OND Framework.
– Annual review of OND Framework implementation including activities of OPSA and SCPRC by the City Auditor.

SAMPLE LANGUAGE – ADOPTING A USE OF FORCE POLICY

RESOLUTION NO. 2016-Adopted by the Sacramento City Council

ADOPTING A USE OF FORCE POLICY

The sanctity of life is inviolable and every person is precious. Developing and maintaining a professional and highly trained police force is imperative. In an effort to guarantee that all lives are protected and valued in the City of Sacramento, Council is adopting the following policy that requires the City Manager to ensure the police:

A. Are authorized to use deadly force only when an officer reasonably believes that a suspect poses a threat of death or serious bodily injury to the officer or others.

B. Issue a clear and comprehensible verbal warning, when possible, before using deadly force.

C. Use the minimum amount of force necessary, under the circumstances presented to the officer, to apprehend a subject.

D. Develop and issue specific guidelines for the type of force and tools authorized for a given level of resistance.

E. Are issued and carry less-lethal weapons consistent with current best practice.

F. Do not move in front of moving vehicles.

G. Do not shoot at moving vehicles unless the person poses a threat with a weapon other than the vehicle OR has exhibited a specific intent to use the vehicle as a weapon.

H. Intervene when an officer observes another officer using force that is clearly beyond that which is objectively reasonable under the circumstances, and when in a position to do so, to prevent the use of unreasonable force and report the incident to their immediate supervisor as soon as reasonably possible.

Monitoring Method: Council Report

Frequency: Semi-Annual (March & September)

I. Receive training in de-escalating encounters with the public, to include mentally ill individuals.

J. Are trained in basic first aid and render such aid (as soon as it is safe to do so) after a deadly force incident.

K. Make death notifications to family members of a subject that has died as a result of an officer involved shooting or while in police custody.

L. Release all video associated with an officer involved shooting, in-custody death, or complaint reported to OPSA within 30 days, where said video does not hamper, impede, or taint an ongoing investigation or endanger involved parties. The family of the decedent shall be offered the opportunity to review the video prior to public release. All faces will be blurred to protect the identity of those present and a warning will also be included to advise of the graphic content of the video. If the video cannot be made public by the 30th day, the Police Chief will provide the reasons and obtain a waiver from the Council

REFERENCES

City of Sacramento City Council Report, November 29, 2016
http://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=3900&meta_id=485761

City of Sacramento City Council, Archived Meetings
http://sacramento.granicus.com/ViewPublisher.php?view_id=22

Sacramento’s new rules are just a first step toward police reform, Sacramento Bee, December 1, 2016
http://www.sacbee.com/opinion/editorials/article118330608.html

Heavyweight Los Angeles law firm to challenge Sacramento on police practices, Sacramento Bee, November 27, 2016
http://www.sacbee.com/news/local/article117615278.html

A lost opportunity on police reform, Sacramento Bee Editorial, June 6. 2015
http://www.sacbee.com/opinion/editorials/article23220456.html

How Placer County Privatized Inmate Food Services

Introducing competition to the public sector is an essential part of delivering cost-effective services to taxpayers. What happened earlier this year in Placer County is just one example of how millions of savings can be realized by privatizing a public service. By replacing county employees with a private firm to provide inmate food services to county inmates and juvenile offenders, starting in 2018 Placer County will save over $600,000 per year. Here is how these savings can be realized:

1 – Give Agency Authority to Outsource: Ensure that your agency has the authority to contract for government services. The Placer County Charter has a provision under “general powers” that states as follows: “The Board may contract with an independent contractor to provide any services required of, or performed by, the county if it is more economical to do so.”

2 – Conduct Cost Analysis: Placer County engaged in a comprehensive analysis of the cost and benefit of continuing to use county employees to provide inmate food services vs. using outside private contractors. This process was conducted concurrently with taking bids from qualified contractors.

3 – Enact Resolution and Award Contract: On March 7, 2017 the Placer County Board of Supervisors awarded a five-year, $13.2 million contract with Aramark Correctional Services.

Making changes like this impact existing county employees, but to mitigate this, Placer County obtained an assurance from Aramark that all county employees interested in working with the contractor will be interviewed. In addition, arrangements were made for staff who do not transition to Aramark to receive assistance from the county’s Human Resources department and Business Advantage Network, to provide job training and assist county employees in identifying other job opportunities.

What Placer County has done with inmate food service they can do elsewhere. In early 2016, the county issued a request for proposals to evaluate other service delivery options. By making judicious use of the option to outsource public services to private contractors, public agencies can realize significant direct savings. But merely the deterrence value of the outsourcing option can be valuable for a public agency. When public employee unions know that their employers have the option of turning to a private contractor, they will be more reasonable in their negotiations.

REFERENCES

Charter of the County of Placer
Article III General Powers, Sec. 302 Duties, Part (h) Contracting for Services:
“The Board may contract with an independent contractor to provide any services required of, or performed by, the county if it is more economical to do so.”
http://qcode.us/codes/placercounty/view.php?topic=charter_of_the_county_of_placer-charter-iii-302&frames=on

Press Release – Placer County
“Placer opts to shift inmate food service to private contractor”
https://www.placer.ca.gov/news/2017/march/correctional_food

Meeting Agenda – Placer County Board of Supervisors
Agenda for March 7th, 2017 Board Meeting including resolution to privatize correctional food services
http://www.placer.ca.gov/upload/bos/cob/documents/sumarchv/2017/170307A/bosa170307.htm

Memorandum – Placer County Board of Supervisors
Cost analysis of privatizing correctional food services – March 7th
http://www.placer.ca.gov/upload/bos/cob/documents/sumarchv/2017/170307A/04A.pdf

Pension Reform – The San Jose Model

Pension reform in San Jose began in June 2012 when voters, by a margin of 69% to 31%, approved Measure B. Despite overwhelming support from voters, however, this vote triggered a cascade of union funded lawsuits which by 2015 had overturned several of the key provisions of the reform measure. Finally, in August 2015, the San Jose city council passed a compromise resolution that replaced Measure B with a scaled down reform; this was approved by voters in November 2016.

The provisions of this new pension reform measure should be of keen interest to local reformers everywhere in California, because they survived relentless attacks in court. While these reforms may not prove sufficient to completely solve the challenge to adequately fund pension benefits for city workers in San Jose, they are nonetheless significant. San Jose’s current unfunded pension liability now stands at just over $3.0 billion. These reforms are estimated to save $1.7 billion over the next ten years. Here are highlights:

HIGHLIGHTS OF SAN JOSE’S 2016 PENSION REFORM

1 –  Voter approval required from now on:
Any retirement benefit – including pensions and retirement healthcare – cannot be enhanced as the result of negotiations between the city council and union leadership, unless those enhancements are first approved by voters.

2 – New employees will be subject to a reformed package of retirement benefits:
Employees hired after the following dates (Police, 8/04/2013; Fire, 1/02/2015; Misc., 9/30/2012) shall be deemed “Tier II” employees, with the following retirement benefits:

  • Cost sharing: The city shall not pay more than 50% of the normal and unfunded payments due the pension system; this will be phased in by increasing the employee share of the unfunded payment at a rate of 0.33% of additional withholding of their pay per year.
  • Age of eligibility: Police and firefighters shall be eligible for retirement benefits at age 57; miscellaneous employees at age 62.
  • Cost of living adjustments: annual COLA increases to pensions shall be limited to the lessor of the CPI index or between 2.0% and 1.25%.
  • Pension eligible compensation: Final compensation for purposes of calculating the pension shall be based on the average of the final three years of work, and (with some exceptions for police and firefighters) be limited to base pay only.
  • Cap on pension benefit: Police and fire retiree pensions are capped at 80% of pension eligible salary, for miscellaneous employees the cap is 70% of pension eligible salary.

3 – “Disability” retirements awarded by independent panel.

4 – “Supplemental Payments” discontinued:
Prior to this reform, whenever investment returns in any given year exceeded the target percentage, supplemental payments were made to retirees. This practice took place even when the pension system was carrying a significant unfunded liability. This new provision even bars supplemental payments if the fund eventually exceeds 100% funding, in order to take into account the possibility that subsequent annual returns may again fall short of projections.

5 – Defined benefit retirement healthcare discontinued:
The defined benefit retiree healthcare plan is ended and instead a Voluntary Employee Beneficiary Association (VEBA) is established for new and current Tier 2 employees. The contribution rate will be 4% into the VEBA. Tier One employees can opt-in to the new VEBA, or keep their defined benefit healthcare plan with a contribution rate of 8% of payroll.

6 – Retirement contributions fixed:
Similar in intent to item #4, even if the pension system becomes more than 100% funded, there will be no lowering of the required employee contributions to the fund via payroll withholding – again, to take into account the possibility that subsequent annual returns may again fall short of projections.

7 – No retroactive benefits enhancements:
If retirement benefits are approved by voters, they are only to apply to work performed subsequent to the date of approval. If an employee transfers into a new job with the city that offers better retirement benefits than the job they vacated, these enhancements only apply to their work subsequent to their transfer.

PENSION REFORM – SAMPLE LANGUAGE

Section 1503-A. Reservation of Voter Authority.
(a) There shall be no enhancements to defined retirement benefits in effect as of January 1, 2017, without voter approval. A defined retirement benefit is any defined post-employment benefit program, including defined benefit pension plans and defined benefit retiree healthcare benefits. An enhancement is any change to defined retirement benefits, including any change to pension or retiree healthcare benefits or retirement formula that increases the total aggregate cost of the benefit in terms of normal cost and unfunded liability as determined by the Retirement Board’s actuary. This does not include other changes which do not directly modify specific defined retirement benefits, including but not limited to any medical plan design changes, subsequent compensation increases which may increase an employee’s final compensation, or any assumption changes as determined by the Retirement Board.

(b) If the State Legislature or the voters of the State of California enact a requirement of voter approval for the continuation of defined pension benefits, the voters of the City of San Jose hereby approve the continuation of the pension benefits in existence at the time of passage of the State measure including those established by this measure.

Section 1504-A. Retirement Benefits – Tier 2.
The Tier 2 retirement plan shall include the following benefits listed below. This retirement program shall be referred to as “Tier 2” and shall be effective for employees hired on or after the following dates except as otherwise provided in this section: (1) Sworn Police Officers: August 4, 2013; (2) Sworn Firefighters: January 2, 2015 and (3) Federated: September 30, 2012. Employees initially hired before the effective date of Tier 2 shall be Tier 1 employees, even if subsequently rehired. Employees who qualify as “classic” lateral employees under the Public Employees’ Pension Reform Act and are initially hired by the City of San Jose on or after January 1, 2013, are considered Tier 1 employees.

(a) Cost Sharing. The City’s cost for the Tier 2 defined benefit plan shall not exceed 50% of the total cost of the Tier 2 defined benefit plan (both normal cost and unfunded liabilities), except as provided herein. Normal cost shall always be split 50/50.In the event an unfunded liability is determined to exist, employees will contribute toward the unfunded liability in increasing increments of 0.33% per year, with the City paying the balance of the unfunded liability, until such time that the unfunded liability is shared 50/50 between the employer and employee.

(b) Age. The age of eligibility for service retirement shall be 57 for employees in the Police and Fire Retirement Plans and 62 for employees in the Federated Retirement System. Earlier Retirement may be permitted with a reduction in pension benefit by a factor of 7% per year for employees in the Police and Fire Retirement Plan and a reduction in pension benefit by a factor of 5% per year for employees in the Federated Retirement System. An employee is not eligible for a service retirement earlier than the age of 50 for employees in the Police and Fire Retirement Plan or age 55 for employees in the Federated Retirement System. Tier 2 employees shall be eligible for a service retirement after earning five years of retirement service credit.

(c) COLA. Cost of living adjustments, or COLA, shall be equal to the increase in the Consumer Price Index (CPI), defined as San Jose – San Francisco – Oakland U.S. Bureau of Labor Statistics index, CPI-Urban Consumers, December to December, with the following limitations:

1. For Police and Fire Retirement Plan members, cost of living adjustments applicable to the retirement allowance shall be the lesser of the Consumer Price Index (CPI), or 2.0%.

2. For Federated Retirement System members, cost of living adjustments applicable to the retirement allowance shall be the lesser of CPI or:
a. 1-10 total years of City service and hired after the effective date of the implementing ordinances of the revised Tier 2: 1.25%
b. 1-10 years total years of City service and hired before the effective date of the implementing ordinances of the revised Tier 2: 1.5%
c. 11-20 total years of City service: 1.5%
d. 21-25 total years of City service: 1.75%
e. 26 or more total years of City service: 2.0%

3. The first COLA adjustment will be prorated based on the number of months retired in the first calendar year of retirement.

(d) Final Compensation. “Final compensation” shall mean the average annual earned pay of the highest three consecutive years of service. Final compensation shall be base pay only, excluding premium pays or other additional compensation, except members of the Police and Fire Plan whose pay shall include the same premium pays as Tier 1 members.

(e) Maximum Allowance and Accrual Rate. For Police and Fire Plan members, service retirement benefits shall be capped at a maximum of 80% of final compensation for an employee who has 30 or more years of service at the accrual rate contained in the Alternative Pension Reform Settlement Framework approved by City Council on August 25, 2015. For Federated Retirement System members, service retirement benefits shall be capped at a maximum of 70% of final compensation for an employee who has 35 or more years of service at the accrual rate contained in the Alternative Pension Reform Settlement Framework approved by City Council on December 15, 2015, and January 12, 2016.

(f) Year of Service. An employee will be eligible for a full year of service credit upon reaching 2080 hours of regular time worked (including paid leave, but not including overtime).

Section 1505-A. Disability Retirements.

(a) The definition of “disability” shall be that as contained in the San Jose Municipal Code in Sections 3.36.900 and 3.28.1210 as of the date of this measure.

(b) Each plan member seeking a disability retirement shall have their disability determined by a panel of medical experts appointed by the Retirement Boards.

(c) The independent panel of medical experts will make their determination based upon majority vote, which may be appealed to an administrative law judge.

Section 1506-A. Supplemental Payments to Retirees.

The Supplemental Retiree Benefit Reserve (“SRBR”) has been discontinued, and the assets returned to the appropriate retirement trust fund. In the event assets are required to be retained in the SRBR, no supplemental payments shall be permitted from that fund without voter approval. The SRBR will be replaced with a Guaranteed Purchasing Power (GPP) benefit for all Tier 1 retirees. The GPP is intended to maintain the monthly allowance for Tier 1 retirees at 75% of purchasing power of their original pension benefit effective with the date of the retiree’s retirement. The GPP will apply in limited circumstances (for example, when inflation exceeds the COLA for Tier 1 retirees for an extended period of time). Any calculated benefit will be paid annually in February.

Section 1507-A. Retiree Healthcare.

The defined benefit retiree healthcare plan will be closed to new employees as defined by the San Jose Municipal Code in Chapter 3.36, Part 1 and Chapter 3.28, Part 1. Section 1508-A. Actuarial Soundness (for both pension and retiree healthcare plans).

(a) In recognition of the interests of the taxpayers and the responsibilities to the plan beneficiaries, all pension and retiree healthcare plans shall be operated in conformance with Article XVI, Section 17 of the California Constitution. This includes but is not limited to:

1. All plans and their trustees shall assure prompt delivery of benefits and related services to participants and their beneficiaries;

2. All plans shall be subject to an annual actuarial analysis that is publicly disclosed in order to assure the plan has sufficient assets;

3. All plan trustees shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system;

4. All plan trustees shall diversify the investments of the system so as to minimize the risk of loss and maximize the rate of return, unless under the circumstances it is not prudent to do so;

5. Determine contribution rates on a stated contribution policy, developed by the retirement system boards and;

6. When investing the assets of the plans, the objective of all plan trustees shall be to maximize the rate of return without undue risk of loss while having proper regard to the funding objectives of the plans and the volatility of the plans’ contributions as a percentage of payroll.

Section 1509-A. Retirement Contributions.

There shall be no offset to normal cost contribution rates in the event plan funding exceeds 100%. Both the City and employees shall always make the full annual required plan contributions as calculated by the Retirement Board actuaries which will be in compliance with applicable laws and will ensure the qualified status under the Internal Revenue Code.

Section 1510-A. No Retroactive Defined Retirement Benefit Enhancements.

(a) Any enhancement to a member’s defined retirement benefit adopted on or after January 1, 2017, shall apply only to service performed on or after the operative date of the enhancement and shall not be applied to any service performed prior to the operative date of the enhancement.

(b) If a change to a member’s retirement membership classification or a change in employment results in an enhancement in the retirement formula or defined retirement benefits applicable to that member, except as otherwise provided under the plans as of [effective date of ordinance], that enhancement shall apply only to service performed on or after the effective date of the change and shall not be applied to any service performed prior to the effective date of the change.

(c) “Operative date” would be the date that any resolution or ordinance implementing the enhancement to a member’s defined retirement formula or defined retirement benefit adopted by the City Council becomes effective.

REFERENCES

City of San Jose, “Alternative Pension Reform Act,” 2016 (full text)
http://sanjoseca.gov/DocumentCenter/View/59737

City of San Jose, Alternative Pension Reform Act Ballot Measure – references for voters, 2016
http://www.sanjoseca.gov/index.aspx?nid=3208

City of San Jose, Framework Agreement summarizing Alternative Pension Reform Act, 2015
http://www.sanjoseca.gov/DocumentCenter/View/46068

City of San Jose, “Sustainable Retirement Benefits and Compensation Act,” 2012 (full text)
http://www.sanjoseca.gov/DocumentCenter/View/5166

City of San Jose, Measure B (Sustainable Benefits and Compensation Act) – references for voters, 2012
http://www.sanjoseca.gov/index.aspx?NID=5187

Ballotpedia – San Jose Pension Modification Agreement, Measure F (November 2016)
https://ballotpedia.org/San_Jose,_California,_Pension_Modification_Agreement,_Measure_F_(November_2016)

Ballotpedia – San Jose Pension Reform, Measure B (June 2012)
https://ballotpedia.org/San_Jose_Pension_Reform,_Measure_B_(June_2012)

San Jose Mercury News, August 25, 2015 – San Jose council approves Measure B settlement
http://www.mercurynews.com/2015/08/25/san-jose-council-approves-measure-b-settlement/

Pension Reform – The San Diego Model

Beginning around 2009 it became clear to civic leaders and councilmembers that the City of San Diego faced serious financial challenges. A San Diego County Grand Jury in that year released a report that recommended the city file for bankruptcy. The report cited the underfunded City’s pension system as the primary underlying cause of their budget deficits. By June 2009, the City of San Diego’s independent pension system was only 66.5% funded. By 2012, the systems unfunded liabilities were well over $200 million. Apart from bankruptcy, the only solution available to San Diego was pension benefit reform.

In June 2012, voters in the City of San Diego voted 66% to 34% to enact sweeping reforms to that city’s pension benefits. The coalition that promoted this reform included advocates for taxpayers, fiscal conservatives, and local business and trade associations that wanted to improve the financial health of the city. Since then, these reforms have been challenged repeatedly in court, but thus far the entirety of the pension reform package has been upheld. Here is a checklist of things to consider for local pension reformers in other cities and counties in California:

1 – The Reform Cannot Attack “Vested Rights”:

“Vested” benefits in California under current law require public employees to receive whatever benefits they were promised when they were hired. This means that even future benefits for existing employees cannot be changed. San Diego’s reform made certain to only affect future retirement benefits for new hires. San Diego’s reform also enacted a salary cap on existing employees, which did not violate vested rights. These two steps, putting new employees onto 401K plans that will not generate unfunded liabilities, and putting a cap on pension eligible salaries for existing employees, significantly reduced the amounts the City of San Diego has to contribute to their pension fund in order to keep it solvent.

2 – Rely on a Citizen’s Ballot Initiative:

Because most city councils and county boards of supervisors are populated by local elected officials whose campaigns are overwhelmingly funded by public employee unions, it is almost impossible to rely on them to enact pension reform. But a citizen’s initiative bypasses these beholden officials and relies on local activists and concerned citizens to research, write, qualify for the ballot, and campaign for meaningful reform.

3 – Prepare to Spend Between $5 and $10 per Signature to Qualify a Measure for the Ballot:

Or more! Signature gathering almost never can be 100% completed by volunteers, and professional firms are almost universally relied upon to make up the difference. In San Diego, supporters of the reform initiative spent about $1.1 million to gather 94,000 signatures – over $10 per signature.

4 – Expect Relentless Harassment From Public Unions:

One of the reasons it costs so much to obtain signatures is because the anti-initiative forces mount well organized opposition to signature gathering efforts. Tactics used in San Diego or elsewhere in California include (a) sending people to pace in front of the signature gatherer’s table, intimidating anyone who may want to sign the petition, (b) following signature gatherers home and photographing them in an attempt to intimidate them, (c) circulating flyers and sponsoring media campaigns that present misleading information – in San Diego the anti-initiative forces paid for a radio campaign that suggested people who signed petitions might have their identity stolen, (d) deliberately having people sign the petitions using fraudulent names in order to cause the entire body of petitions to be invalidated during the verification process.

5 – Be Prepared to Repeatedly Defend the Reform in Court:

San Diego’s reform was challenged before it went onto the ballot by opponents who argued it violated the “meet and confer” rule, wherein city officials have to talk with union representatives before changing conditions of their contract. This challenge first went to the Public Employee Relations Board, packed with gubernatorial appointees who are all former labor activists. PERB, predictably, upheld the opponents accusations, but in court the judge overruled PERB and permitted the initiative to stay on the ballot. The initiative survived other pre and post ballot legal challenges, but still faces one more round, sometime in either 2017 or early 2018, at the California Supreme Court.

What reformers did in San Diego succeeded because the language of the initiative minimized the potential for legal challenges, and it succeeded because there was a critical mass of committed reform minded activists, business associations, and politicians who were prepared to stay in the fight for years. Here is the language of San Diego’s Proposition B:

PENSION REFORM – SAMPLE LANGUAGE

BALLOT TITLE
Amendments to the San Diego City Charter Affecting Retirement Benefits

BALLOT SUMMARY
This measure would amend the San Diego City Charter to make changes to retirement benefits. The measure would:

From its effective date until June 30, 2018:

1. Limit a City worker’s base compensation used to calculate the employee’s pension benefits to Fiscal Year 2011 levels.

2. Require that any new job classification be created only after specific findings are made that the new classification “is necessary to achieve efficiencies and/or salary savings” by consolidating job duties or creating a more efficient service delivery method.

3. Define the terns the City must use when it begins negotiations with the City’s labor unions for their contracts, unless the City Council overrides those terms with a two-thirds vote.

Provide all new hires at the City, except for sworn police officers, with a defined contribution plan modeled after a 401 (k) plan in place of a defined benefit pension plan.

Provide contributions for employees participating in the new defined contribution plan, in order to compensate for the lack of Social Security provided to City workers. The City’s maximum contribution for general City employees would be 9.2 percent of ah employee’s salary; the maximum contribution for uniformed public safety officers would be 11 percent of their salaries.

Authorize the City Council to enroll police officers in either the defined benefit or the defined contribution plan. The maximum payment to a sworn police officer hired after the measure goes into effect, under the defined benefit pension plan, would be based on the officer’s highest three years of pay, and capped at 80 percent of the average of those years.

Eliminate the defined benefit pension plan prospectively for elected officials (Mayor, City Attorney and City Councilmembers).

Eliminate, to the extent allowed by law, pension benefits for City officers or employees convicted of a felony related to their employment, duties or obligations as a City officer or employee. This may be reversed if the conviction is overturned.

Eliminate, unless otherwise allowed by law or agreement, the requirement of a majority vote by employees or retirees in the retirement system for changes that affect their benefits.

Require the City to contribute annually to the defined benefit pension plan an amount substantially equal to that required of the employee for a normal retirement allowance, but not contribute in excess of that amount.

Provide disability benefits for defined contribution plan participants who have a work-related disability.

Require the Retirement System to submit an actuarial study to the Mayor and Council regarding the impact on the pension plan “of any increases in proposed compensation or benefits” in an initial Council proposal.

Require the City to annually publish the amounts paid to City retirees, but redact their names.

REFERENCES

Ballotpedia – San Diego Pension Reform Initiative, Proposition B (June 2012)
https://ballotpedia.org/San_Diego_Pension_Reform_Initiative,_Proposition_B_(June_2012)

Ballotpedia – Pension reform: San Jose and San Diego Voters Weigh in
https://ballotpedia.org/Pension_reform:_San_Jose_and_San_Diego_voters_weigh_in

City of San Diego – Text of 2012 Proposition B
https://www.sandiego.gov/sites/default/files/legacy/city-clerk/elections/city/pdf/retirementcharteramendment.pdf

San Diego Union-Tribune, April 11, 2017 – Appeals court vindicates San Diego’s 2012 pension cutbacks
http://www.sandiegouniontribune.com/news/politics/sd-me-pension-appeal-20170411-story.html

San Diego Union-Tribune, May 22, 2017 – [Union] Appeal says ruling that vindicated San Diego pension reform could create statewide problems
http://www.sandiegouniontribune.com/news/politics/sd-me-pension-appeal-20170522-story.html

KPBS San Diego, July 27, 2017 – San Diego Pension Reform Headed for California Supreme Court
http://www.kpbs.org/news/2017/jul/27/san-diego-pension-reform-prop-b-supreme-court/

Tips for Negotiating with Public Sector Unions

You’ve just been elected to the city council. You’re 34 years old and you’ve been attending your city council meetings for almost a decade. You’ve served on some civic improvement commissions. You’ve been a concerned activist for most of your life. But the firefighters union contract is being renegotiated this year, and you’re about to go behind closed doors and negotiate.

On the other side of the table are your respected friends who have protected your town for as long as you can remember. But their union is part of a national organization that wields tremendous financial and political power. And sitting across that table, alongside your friends who run the local fire department, are seasoned professionals who have been involved in labor negotiations for their entire careers. You are outgunned. What do you do?

This scenario has played out across California, especially in the smaller cities and counties and school districts. The elected officials charged with managing these smaller jurisdictions work part-time, for little or no pay. They negotiate with career professionals whose unions often are the largest single source for the campaign contributions that got them elected, or can get them defeated in the next election. The result of this situation is that government unions have a huge advantage in contract negotiations. For all practical purposes, they often run these smaller towns and school districts. What do you do?

Here are a few suggestions that can help make a difference:

1 – Use Outside Negotiators:

They will provide greater expertise in the subject matter, they will already know proven negotiation strategies, they will readily understand the contract language, and they offer a valuable independent, third-party perspective.

Of course it isn’t always necessary to hire an outside negotiator, it depends on the complexity of the negotiations and it depends on the financial impact of the contract. If it affects a large percentage of your budget, it makes more sense to hire an independent negotiator.

If you decide to hire an outside negotiator, you also have to be sure you are in compliance with existing codes and state law. Here is sample language to insert into a resolution to hire an outside negotiator:

OUTSIDE NEGOTIATOR – SAMPLE LANGUAGE

The use of an outside negotiator shall apply to all formal meet and confer processes undertaken pursuant to the Meyers-Milias-Brown Act, where either a recognized employee organization or the city, through their respective representatives propose 1) significant changes to contract terms, 2) extensions, or 3) when the employee association negotiates with third party negotiators or legal counsel.

In an effort to avoid inherent conflicts of interest, if an outside negotiator is deemed necessary, the principal representative negotiating on behalf of the city shall, 1) not be an employee of the city, 2) not be a member of any public pension plan under the city, and 3) have a demonstrated expertise in negotiating labor and employment agreements on behalf of municipalities. The city council shall designate one or more management level employees to be present during negotiations and to assist the principal negotiator as the city council and/or principal negotiator deem appropriate.

2 – Have an Independent Auditor Analyze the Fiscal Impact:

The first step is to get complete factual information in order to perform an economic analysis of the contract. Here are factors to consider:

Get an actuarial analysis: Preparing and providing an economic analysis of the short and long term costs of every term and condition of employment in the contract is the first way to ensure that 1) city council members have the best data available in front of them to negotiate and make a decision, and 2) the public has the appropriate data to vet the contract and the Council’s proceedings. If these negotiations affect pension benefits in any way, the economic analysis should include both the funded and unfunded actuarial liability that would or may ensue from adoption of the contract.

Use an independent auditor: This will allow city council members, staff, and the
public to benefit from the general level of confidence provided by a thorough and
reliable economic analysis by an external professional. Information from outside auditors should be used in conjunction with information from staff whenever practical.

Make sure the economic analysis includes tangible comparisons: The economic analysis of each term and condition of the contract can and should be viewed in the framework of how it will affect the citizens. Also, utilize tangible examples of comparisons with other programs. For instance, if a contract will cost the city X amount of dollars, contextualize it to show that X amount of dollars is equal to a specific city service or program.

Invest in staff training so they can also perform economic analysis: In addition to the use of an independent auditor, city human resources professionals need the proper resources and training to provide and analyze an economic analysis.

Provide for public review of the proposed new contract: The City should consider making the fiscal impacts of the contract available to the public and the City Council at least two (2) City Council meetings prior to consideration by the City Council of an initial meet and confer proposal.

INDEPENDENT AUDITOR – SAMPLE LANGUAGE

An independent auditor, a certified public accountant, or an actuarial accountant, shall prepare a study and supplemental data upon which the study is based, that identifies the fiscal impacts attributed to each term and condition of employment made available to the members of all recognized employee organizations.

The first analysis shall be of existing contract costs and of each thereafter.
The above report and findings of the independent auditor shall be completed and made available for review by the city council and the public at least two (2) City Council meetings before consideration by the city council of an initial meet and confer process.

The above report shall be regularly updated by the independent auditor to itemize the cost and the funded and unfunded actuarial liability which would or may result from adoption or acceptance of each meet and confer proposal. These measurements shall display the fiscal impacts of the employee association and or/city proposals. The report shall be prepared to include all benefit and pay aspects of each MOU, and shall include written council member acknowledgement that the report has been read and considered by the signing councilmember.

3 – Consider Transparent Discussion of Offers and Counteroffers

California’s current open meeting laws provide that a City Council can meet in closed session to provide its bargaining unit representatives with instructions and parameters for negotiation in the meet and confer process. Closed sessions allow City Councils to speak privately regarding their bargaining parameters without disclosing these parameters to labor representatives.

Additionally, the meet and confer process provides the opportunity for city representatives and labor representatives to bargain in good faith in order to reach an agreement on the proposed labor contract. Here are factors to consider:

Report the Facts: Transparency may result in more realistic counters or counteroffers. Broad dissemination of offers and counteroffers provides a progress report and clearer understanding for both the public and bargaining unit members.

Exercise discretion: Disclosure of offers and counteroffers may result in additional public posturing and increased politicization, which can affect negotiations. All parties involved in negotiations should use caution and clear communication when reporting out of closed session.

TRANSPARENCY – SAMPLE LANGUAGE

The city council shall report out the details of all formal offers that have been rejected at the time of the counteroffer rejecting each proposed term. City council labor negotiators shall have the duty to advise the city council during any closed session of all offers, counteroffers, information, and/or statements of position discussed by the labor negotiators taking place in the meet and confer process since the last such closed session.

4. Require Disclosures of Private Communications

Having city council members disclose communication contacts that were had with any labor representative is another way to bring transparency to the negotiation process and to build faith with the public. A careful value judgment can be made to what type of conversation is appropriate to report to the public. Factors to consider:

Disclose communications: While this principle may be contentious for some city council members, it can be viewed as a disclosure requirement, not a “no-deal” requirement. The communication that is disclosed may simply be that the conversation occurred.

Consider the impact on the process: There is some historical context that private meetings, without the disclosure of names, have been the environment needed to reach an agreement. However, a balance can be found to reconcile transparency with private communications. If a council member is going to meet with the employee group they should remember their closed session obligations and just listen. Council members that talk to employee groups outside of formal negotiations may undermine the negotiation process.

Preserve the ongoing relationship: All parties should approach the process in a respectful and sensitive way that will assist in building long-term working relationships that survive the sometimes difficult negotiation process.

DISCLOSURE – SAMPLE LANGUAGE

Each city council member shall disclose both publicly and during closed sessions, the identity of any and all employee association representatives with whom the city council member has had any verbal, written, electronic or other communication(s) regarding a subject matter of a pending meet and confer process.

5 – Allow Time for Public Comment

Disclosing the MOU and making it subject to more than one (1) city council meeting provides the opportunity for the public to effectively weigh in on the matter. Factors to consider:

MOU negotiations should have time for public comment consistent with other ordinances: 1st and 2nd readings at City Council meetings is standard practice for normal ordinances, and this seeks to put labor negotiations under that standard.

Be sure to get the timing right: Cities must remain in compliance with AB 537 (Chapter 785, Statutes of 2013)3 which requires that if a tentative agreement is reached by the authorized representative of a City and a recognized bargaining unit, the city council must vote to accept or reject that agreement within thirty (30) days of 1st consideration at a noticed public meeting.

PUBLIC COMMENT – SAMPLE LANGUAGE

Any agreed upon memorandum of understanding shall be introduced for first reading at a regular city council meeting and presented for approval at the next regular city council meeting in the same manner as a the first and second reading of an ordinance.

REFERENCES

To read Assembly Bill No. 537 (Chapter 785, Statutes of 2013) please click the following link:  http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_0501-0550/ab_537_bill_20131013_chaptered.htm

ACKNOWLEDGEMENTS

These suggestions were originally crafted by a committee of experienced local elected officials, city staff and thought leaders through a policy committee at the Association of California Cities -Orange County.

 

 

It’s time for your community to create a municipal audit

The San Diego District Attorney last week charged John Collins with misuse of hundreds of thousands of dollars over several years as superintendent of Poway Unified School District.

The allegations would be shocking if they weren’t so common. In Placentia, Bell, Compton, Pasadena, Beaumont, and elsewhere, California cities have needlessly lost millions, and for a time, nobody knew. Accounting is boring. Until it isn’t. Just as the devil is in the details, the financial fate of public agencies is buried in the numbers.

Whether it’s via corruption or incompetence, without vigilant oversight, millions can be lost. Even in wealthy suburban cities with surplus funds, it’s still necessary to verify that internal controls are in place. In larger cities with limited funds and urgent needs for public services, it’s even more important. No matter what sort of city you live in, things can go terribly wrong.

If you’re a concerned citizen or an elected official charged with responsible management of your city’s finances, the annual audit can be extremely helpful. But instead of bringing in a CPA firm merely to verify the balances on your financial statements, you have an opportunity to do much more. Here are some ideas for getting the most out of your audit.

One recommendation, coming from Linda Lindholm, who served for fourteen years on the city council of Laguna Niguel and was mayor twice, is to change audit firms every five years. Let them know when they’re hired that it will be for a five year engagement. This policy helps ensure against the slight but very real possibility that an overly cozy relationship might develop between members of the city’s permanent staff, and the audit partners. A firm that is on a limited term of engagement will have far less motivation to smooth over bad news to keep the account.

Lindholm also recommended keeping an arms-length relationship with the auditors throughout the audit process. Once they’ve been given their instructions, as a matter of policy, council members should leave them alone until their report is completed. This prevents any elected official from attempting to influence the auditors.

So what more should a city have their auditors do, beyond just checking over the financial reports? To answer this we talked with several public accountants who have audited local agencies. Rich Kikuchi, a managing partner at LSA CPAs, makes the distinction between a “financial audit” and an “internal audit,” where the internal audit, or “watchdog audit,” represents this extra work. Other people we spoke with viewed this process as an extension of the normal audit. Some called it a “secondary audit.” Whatever it is called, here are a few of the specific things an elected official can instruct their auditors to add to their regular annual work:

  • Are funds being spent in compliance with the terms of the grants under which they were awarded?
  • Are what are the terms of capital improvement bonds, interest rate, payout timeline, use of funds?
  • Are there any irregularities in city investments?
  • Are the city’s employee payroll and benefits records consistent with what the city council authorized?
  • Are there always two signatures on all outgoing checks from the city?
  • Are all transfers in and out of the city’s bank accounts consistent with authorized city budgets?

Remember. Not boring. Millions of dollars of taxpayers money can be lost when questions like these aren’t proactively answered. In larger cities, hundreds of millions.

Depending on how much extra work auditors get assigned, the added costs to the CPA firm can add up. But often these additional fees are not significant when the work is performed at the same time as the auditors are on-site anyway to do their conventional audit. And of course if these auditors end up uncovering a significant problem in the course of this extra work, the savings realized by solving the problem could dwarf what it cost to get it discovered.

Another tip: When elected officials meet with the audit firm to identify and assign additional work, sometimes it makes sense to keep the additional assignments confidential. If a cover-up is occurring, there’s no benefit in announcing to staff where the extra scrutiny is going to fall.

California’s cities and counties face unprecedented financial challenges. The obvious one, mandatory payments to the pension systems that increase every year, is not going away. Other budget items that may have been neglected such as maintenance and upgrades of roads and other public works, eventually have to be faced, possibly at great cost. The last thing your city needs is to see money being wasted through misuse of funds. Especially when there is an annual opportunity to dig deep, expose the problem, and save that money.

References:

State Controller’s Office, Internal Control Guidelines for Local Agencies, 2015 (Betty Yee)
http://www.sco.ca.gov/Files-AUD/2015_internal_control_guidelines.pdf

“Watchdog Audit” Checklist – courtesy of LSA CPAs:

Public Safety
– Cash receipting/fee schedule
– Purchasing – ordering/receiving – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Inventory control
– Fuel usage
– Fleet management
– Capital asset controls – purchasing/receiving/observation & inspection
– Payroll – timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual – period end reporting
– Cost allocations
– Customer complaints
– Other significant revenue sources

Community Development/Planning
– Inspections
– Permitting process and fee determination
– Revenue recognition & accounting for deposits
– Segregation of duties and supervision
– Use of City vehicles & fuel usage
– Cash receipting/fee schedule
– Purchasing – ordering/receiving/ – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Capital asset controls – purchasing/receiving/observation & inspection
– Payroll – timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Housing compliance and monitoring
– Review of any management companies used including controls, compliance, monitoring
– Child development program
– Cost allocations
– Customer complaints
– Other significant revenue sources

Parks & Recreation
– Cash receipting / fee schedule
– Revenue recognition & deposits accounting Class/event enrollment procedures
– Purchasing – ordering / receiving – approval Invoice approval
– Credit card use
– Credit card procedures & online payments Budget monitoring
– Inventory control
– Capital asset controls — purchasing/receiving/observation & inspection
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking) IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Use of City vehicles & fuel usage
– Cost allocations
– Customer complaints
– other significant revenue sources

Public Works
– Capital project controls
– Developer agreements
– Purchasing – ordering / receiving – approval
– Invoice approval Credit card use
– Budget monitoring
– Inventory control
– Land management
– Street management
– Cash flow
– Long-term expenditure planning and capital asset replacement/maintenance on major assets
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection, fair value assessment/Developer contributed assets
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Segregation of duties and supervision
– Revenue recognition & accounting for deposits
– Cost allocations
– Customer complaints
– other significant revenue sources
– Debt compliance

Golf Course, Theatre (other enterprise activities managed by 3rd party)
– Management company compliance, report preparation & management fee verifications
– Fee schedule
– Cash receipting, revenue recognition (all revenue sources)
– Purchasing – ordering / receiving – approval
– Expenditure reporting
– Financial controls over accounting
– Cash & reconciliation procedures
– Financial period close & reporting
– Interim & monthly reporting
– Communication with the City
– City oversight
– Inventory control
– Capital asset controls — purchasing/receiving/observation & inspection
– Segregation of duties and supervision
– IT & systems analysis
– Credit card procedures
– City oversight
– Budget development and monitoring
– Debt/lease management
– Cost allocations Customer complaints
– other significant revenue sources

Water, Sewer, Electric Utilities
– If applicable -Management company compliance, report preparation & management fee
– Billing
– Fee schedule
– Capital project controls
– Long-term expenditure planning and capital asset replacement/maintenance on major assets
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection, fair value assessment/Developer contributed assets
– Review of accounting operations
– Financial period close & reporting
– Interim & monthly reporting
– Communication with the City
– Inventory control
– Segregation of duties and supervision
– Budget development and monitoring
– Credit card procedures & online payments
– Credit card use
– Cash receipting, revenue recognition (all revenue sources)
– Cash receipting / fee schedule
– Purchasing – ordering / receiving – approval Invoice approval
– Fuel usage
– Fleet management
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Complex accounting — derivatives, swaps, futures, intangibles, etc.
– Cost allocations
– Customer complaints
– Debt compliance

Finance Department
– Payroll
– Purchasing / receiving
– Credit cards
– Travel
– IT & systems analysis — redundancy review
– Grant management
– Capital assets
– Inventories
– Journal entries
– Cash/transfers & bank account activity
– Wire transfers / EFT
– Debt management
– Long-term Cash flow & expenditure forecasting
– Cost allocations
– Customer complaints
– Billing for miscellaneous revenues
– Fraud management
– TOT/UUT/ business license/ other significant revenue sources
– Debt compliance

Governance
– Risk management
– Information & communication
– Credit card use
– Conflicts of interest
– Oversight of financial reporting & management override of controls Fraud hotline and Customer complaints

Transportation
– Management company compliance, report preparation & management fee verifications
– City oversight
– Communication with the City
– Cash receipting / fee schedule
– Purchasing – ordering / receiving – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Inventory control
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Customer complaints
– other significant revenue sources

Internal service funds
– Allocation, classification
– Cost analysis

 

 

In Search of Heroes

California is not just any “blue state.” By many measures, California is a blue nation. It boasts the world’s sixth largest economy, isolated from the rest of the nation by mountains and deserts that were virtually impassable before modern times. It is blessed with diverse industries, abundant natural resources, and the most attractive weather in North America. California is nearly a nation unto itself.

And it is an occupied nation. California is ruled by a coalition of monopolistic businesses, public sector unions, and the environmentalist lobby. These Occupiers control a Democratic super-majority in the state legislature, as well as nearly all of California’s major cities, counties and school boards. To enrich and empower themselves, the Occupiers have oppressed California’s dwindling middle class and small business sectors, and condemned millions more to poverty and dependence.

For the average working family, no state in America is harder to live in than California. It has the highest cost-of-living, the highest taxes, the most onerous regulations, one of the worst systems of public education, congested freeways and failing infrastructure.  It will take heroic efforts to turn this around. And heroic efforts require heroes.

In the face of this overwhelming power, this alliance of oligarchs and government bureaucrats that has conned voters into embracing their servitude, where do you begin? What steps can you take? How do you rescue education, cut taxes, encourage new homes and new infrastructure, and save small businesses from crippling regulations?

As it turns out, a lot has been done in select locales, where heroes stepped up and successfully fought for reforms. And if those reforms could be replicated in other cities and counties, things would begin to change. To borrow a quote from Winston Churchill, if small local reforms began to spread across this great state, it would “not be the beginning of the end, but it would be the end of the beginning.” Here are some examples:

(1) Turning failing schools into charter schools:

As recently reported by CPC general counsel Craig Alexander, in 2015 parents at the Palm Lane Elementary School of the Anaheim City School District turned in far more signatures than needed under the Parent Trigger Law. The goal of the law and the parents at Palm Lane was to convert a public school that had failed their children for over a decade into a charter school. But the district, as a pretext to denying the Parent’s Petitions, improperly disallowed many signatures. It took a few years for parent volunteers and pro-bono attorneys, all of them heroically volunteering their time, to fight in court. But on Friday, April 28, 2017, the Court of Appeals issued a 34-page opinion that upheld in full the trial court’s ruling in favor of the parents and against the Anaheim Elementary School District. The Appeals Court found the trial court’s initial ruling, including the court’s findings of the bad faith tactics of the district, was correct in all aspects. Palm Lane Elementary school will start the 2017-2018 school year as a charter school.

(2) Stopping secret negotiations between cities and counties and public sector unions:

It wasn’t easy, but a few years ago, heroic progress was made. Orange County, Costa Mesa, and Fullerton all adopted so called “COIN” ordinances. COIN stands for “civic openness in negotiations.” This prevented elected officials from approving sweetheart deals with the government unions whose campaign contributions got them elected, all behind closed doors with minimal opportunities for public review. And to explain what happened next, one may borrow a quote from Tolkien: “Sauron’s [the Occupiers] wrath will be terrible, his retribution swift.” California’s union-controlled legislature passed a law they termed “CRONEY” (Civic Reporting Openness in Negotiations Efficiency Act), which mandates government agencies with COIN ordinances make public all negotiations with private vendors involving contracts over $250,000. There’s no comparison, of course. Private vendors disclose proprietary cost information in negotiations, and public entities are already required to take multiple bids in a competitive process. By contrast, public sector compensation, benefits and work rules are by definition not proprietary, they are public. And public sector unions, regrettably, have no competitors.

(3) Reforming financially unsustainable pension benefits:

If someone told you that they were going to invest their money, but if that money didn’t earn enough interest, they were going to take your money to make up the difference, would you think that was fair? Of course not. But that’s how a couple of million unionized public sector workers are treating the rest of us. California’s annual pension costs have risen from 3% of all state and local government revenue (i.e., “taxes”) to nearly 10% today, and there is no end in sight. But heroes are out there. In June 2012 voters in San Diego and San Jose passed pension reform initiatives. In both cases, to borrow some Star Wars terminology, “The Empire [The Occupiers] Strikes Back.” After relentless attacks in court, San Diego’s reforms were left largely intact, and San Jose’s were severely undermined, although some important provisions were preserved.

The people who fought for these reforms are too numerous to mention. They are all heroes. Some of them, like San Jose mayor Chuck Reed, San Diego councilmember Carl DeMaio, Costa Mesa mayor Jim Righeimer, and California state senator Gloria Romero, were elected officials whose courage has earned them the permanent enmity of the Occupiers. Other heroes, far more numerous, were the citizens, parents, and activists who dedicated countless hours to these causes.

Turning California back into a place where ordinary citizens can afford homes and get quality public education is not going to be easy. But there is no chance unless heroic individuals band together and fight the Occupiers, one issue at a time, one city at a time, one school district at a time.

Over the next several months, the California Policy Center intends to find more examples of heroic local reforms. It is our intention to not only compile these stories, but for each of them, distill them to the essential steps that were taken, so that these winning formulas can serve as an example to others.

We are in search of heroes. Contact us. Tell us your story.

 *   *   *

Ed Ring can be reached at ed@calpolicycenter.org.