The Fall of Pacific Grove – Outsourcing of Safety Services Causes Increased Pension Deficits
Part 4 of 7:
How the Unions Control the City’s “Pension Subcommittee”
In Pacific Grove (Pacific Grove), the employee unions rule. They have the full support of the city manager, the city attorney, and the council majority. True “collective bargaining” is a myth.
The Pacific Grove Charter established a strong city manager form of city government. The council is precluded from delving into day-to-day management of the city. The city manager and city attorney are supposed to be talented experts who advise the council about necessary policies and reforms; they control the flow of information provided to the council. In my view, it is that control of information which has been used to trick council after council into approving pension and salary increases that have created unimaginable deficits A good example of how misinformation works is provided by the current council pension subcommittee. It is chaired by the mayor, and has two other pro-union, antipension,
anti-salary reform members. The mayor has voted against every single progressive pension reform opportunity since he has been on the council.
The subcommittee just issued a report that concluded:“The funded ratio (of the Pacific Grove pension plan) compares the market value of our portion of the asset pool to the accrued liabilities for the Pacific Grove plan.” It then went on to say that Pacific Grove was one of the four top-funded plans. Oops! They omitted that Pacific Grove has a $38 million pension bond liability, which, when included, gave Pacific Grove the most poorly funded status by a wide, wide margin. Neither the city manager nor the city attorney corrected the misrepresentation.
The pension subcommittee excuses the city manager and the city attorney from their responsibility to mend the pension/salary problem. The city manager and city attorney are the only two city employees selected by the council. If the two are unable to resolve the pension/salary bubble, then the council should replace them. Currently, the city manager the city attorney, and the council have expended hundreds of thousands of dollars to defeat the 2010 pension initiative that was approved by 76% of the voters—and now to keep the latest initiative off the ballot. At the Sept. 4 meeting, one of the subcommittee members stated that Pacific Grove needed to find a way to stop the annual deficit accruals. Hello. That was precisely the purpose of the 2010 pension reform initiative and of the current initiative.
The current dirty trick is a move by the police unions to get on the payroll of another city, or the county, to avoid the effect of the voters approving the repeal of the 2002 50% pension increase in the 2014 election. Like the fire merger, that would leave Pacific Grove with the deficits created previously. In addition, CalPERS just announced that because of investment losses, the actuarial value of assets is now 120% of market value. So if any public agency quotes its deficit based on CalPERS actuarial valuation, the deficit is materially under-stated.
How Service Cuts and Layoffs Took the Place of Pension Reform
In Pacific Grove (Pacific Grove), large salary and pension increases have been approved with absolutely no cash flow analysis to determine whether the increases are affordable. As a result, Pacific Grove is financially distressed to a level well beyond most neighboring cities.
Pacific Grove also has a severe services deficit. In 2002, it had 234 employees; presently about 70-75. In 2002, the police force had 32 officers; today 12-14. It rents 10% of the Seaside police chief at a cost of about $160,000 per year. The police unions want to merge with the Seaside police department on terms similar to the 2008 merger of the Pacific Grove fire department with the City of Monterey. Under the Monterey merger model, the Pacific Grove officers became employees of Monterey, and Pacific Grove reimburses Monterey for its share of the costs for salaries, pensions, medical insurance, workers comp, etc.
That model destroys any hope for Pacific Grove to manage its pension deficit (about a $45 million deficit and a $38 million pension bond liability), because Pacific Grove would pay out over 2.5 million per year to safety retirees and nothing as an annual contribution to the “safety” plan.
I believe the police unions will prevail politically and merge with the Seaside police department. CalPERS has announced a 50% annual contribution increase over five years to offset growing pension deficits. So within five years, Pacific Grove will reimburse Monterey and Seaside about $1.5 million per year. $500,000 of that sum is designed by CalPERS to offset pension deficits. Monterey and Seaside will get full credit against its pension deficits by the reimbursement of pension costs for its plans, but Pacific Grove will get none.
Each dollar contributed to CalPERS must grow to four dollars over a 25-year period in order to fund benefits. Because of the merger, there would be no growth in the Pacific Grove safety plan from the dollars that reimburse Monterey and Seaside for pension costs. So over time the deficit of the safety plan will grow enormously. The “safety” pension fund will be rapidly depleted. Then Pacific Grove must pay for safety retirements by an annual payment. Because the safety unions rule Pacific Grove city finances, the city council as presently constituted will not bring its fire department home, and it will farm out its police department. There was and is no cash flow planning for either the fire or the police service contracts. Why? Because it is inconsistent with plundering. The unions simply demand raises and benefit increases on the theory that they are entitled to them.
Read the entire series:
The Fall of Pacific Grove – How it Began, and How City Officials Fought Reform
– Part 1, January 7, 2014
The Fall of Pacific Grove – How City Thwarted Reform, and CalPERS Squandered Surpluses
– Part 2, January 14, 2014
– Part 3, January 21, 2014
The Fall of Pacific Grove – Outsourcing of Safety Services Causes Increased Pension Deficits
– Part 4, January 28, 2014
The Fall of Pacific Grove – Anti-Pension Reform Mayor Claims to Favor Reed Pension Reform
– Part 5, February 3, 2014
The Fall of Pacific Grove – Privately Owned Real Property are the Only Assets to Pay for Pensions
– Part 6, February 11, 2014
– Part 7, February 18, 2014
The Fall of Pacific Grove – Conclusion: The “California Rule” Cannot Stand
– Conclusion, February 24, 2014
About the Author: John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar (#34734) and a member of the “Public Law” section of the State Bar. He is retired and no longer practices law, but has Lexis/Nexis for research. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring. In 1987, he was the founding partner of a Sacramento law firm that he formed in 1987 to take advantage of the increased bankruptcies brought about by the Tax Act of 1986. Although he did not file and manage bankruptcy cases, he represented clients in numerous litigation matters before the bankruptcy court, including several cases before judge Klein, the current judge of the Stockton bankruptcy case. He is an admirer of Judge Klein, for his ability and accuracy on the law. As managing partner, he understood the goals of bankruptcy filings and its benefits and limitations.