The Bell Syndrome Afflicts More Cities Than Just Bell

Remember Bell, California? Back in 2010 the Los Angeles Times reported that Bell city officials were receiving unusually large salaries, perhaps the highest in the United States. For example, Robert Rizzo, the City manager, had received $787,637. By September of that year, as reported on CNN, the California Attorney General filed charges against eight former and current city officials. The public was outraged.

Not generally known however was the process whereby the City of Bell employees managed to pay themselves so much money. Earlier that summer the Los Angeles Times covered this part of the story, reporting “The highly paid members of the Bell City Council were able to exempt themselves from state salary limits by placing a city charter on the ballot in a little-noticed special election that attracted fewer than 400 voters.”

This use of barely legal maneuvers to extract ridiculously generous salaries and benefits from taxpayers is not restricted to Bell, however. The Bell Syndrome existed before any of us had ever heard of Bell, and even now, in this sanitizing age of transparency, it lingers, continuing to infect our public institutions.

Two cases of the Bell Syndrome are featured in an investigative report just published on UnionWatch entitled “The Pension Scandals in Sonoma and Marin Counties,” written by John Moore, a retired attorney living in Pacific Grove.

Back in the period between 2002 and 2008, Sonoma and Marin counties were, just like virtually every other city and county in California, in the process of granting pension benefit enhancements to their employees. But did they follow due process? Moore writes:

This article deals with pension abuses by two separate CERL agencies, the counties of Sonoma and Marin. Each has its own retirement board. In each county, the civil grand jury found serious procedural violations that were preconditions to the adoption of retirement increases:

Grand Jury Report – Marin County
Grand Jury Report – Sonoma County

Each grand jury report documented the grant of pension increases from 2002 through 2008 without providing the board of supervisors and citizens mandated actuarial reports estimating the “annual” cost of each enhancement.

There are 21 counties in California with independent pension systems. In all, taking into account cities with their own pension systems, along with CalPERS and CalSTRS, there are 81 independent state and local government worker pension systems in California. And most if not all of them adopted pension enhancements between 1999 and 2008, awarding the benefit enhancements retroactively.

Anyone who thinks there aren’t legal grounds on which to question the retroactive pension benefit enhancements that have mired California’s public sector in a swamp of overwhelming debt should carefully read Moore’s article. Improper notice. Poor estimates of “annual costs.” Lack of independent financial review. But the consequences of these improprieties are plain to see.

In Marin County the most recent financial report shows their pension system, as of June 30, 2015, was funded at a ratio of 84.3%. If we were at the bottom of the market instead of on the plateau of a market that has roared for the past seven years, that would be reassuring. But we’re not. Since June 30, 2015, the S&P 500 has risen from 2076 to 2091. That’s less than one percent during a ten month period when – at 7.25% per year – this index should have gained 6.0%. The DJIA for the same period? Up 1.5%. The NASDAQ? Down 2.4%.

On page 27 of Marin County’s most recent pension fund financial report is a table entitled “Sensitivity of the net pension liability to changes in the discount rate.” That table shows the system, as noted, 84.3% funded when assuming – as they do – a “risk-free” rate of return, year after year, of 7.25%. On the same table, the lowest assumption they calculate is at a return of 6.25%, which lowers the funded ratio to 74.4%.

Abstruse Gobbledygook

It’s too bad this is all abstruse gobbledygook to most voters and most politicians, because this is real money. Also shown on page 27 of Marin County’s 6/30/2015 financial report is the amount of the unfunded liability for Marin County’s pension system. If those investments keep on earning 7.25% per year, that liability is $387 million. If those investments only earn 6.25% per year, the liability nearly doubles, to $717 million.

Along with asking questions as to the legality of shoving these pension benefit enhancements through county boards of supervisors and city councils with minimal due process or quality independent financial analysis, one may ask how these pension systems get away with claiming 7.25%, or 6.25% for that matter, is a “risk free” rate of return. When is the last time you went to a bank and bought a CD, or went to a brokerage and bought a treasury bill, and saw a return north of 3.0%? So how much would Marin County’s pension liability be if their investments only earned 3.0% per year?

Using formulas developed by Moody’s Investor Services for this purpose, as explained in the California Policy Center study “A Method to Estimate the Pension Contribution and Pension Liability for Your City or County,” if Marin County’s pension system were to earn a risk free 3.0% return per year, their unfunded pension liability – that’s “debt to taxpayers” in plain English – would be $2.1 billion.

Two-point-one-billion. Billion with a “B”.

When pension benefits were enhanced by one local government after another between 1999 and 2008, the means by which they were approved were barely legal, if they were legal at all. The chicanery and insider-dealings that constituted these decision making processes rival the scandal in the City of Bell. The syndrome is the same – financial corruption that enriches the government while disenfranchising and diminishing private citizens. But the sheer scale of the financial consequences of these retroactive pension enhancements, the literally hundreds of billions of debt that these shady machinations imposed on California’s taxpayers – that dwarfs the scandal in Bell like a whale dwarfs a minnow.

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Ed Ring is the president of the California Policy Center.

10 replies
  1. Avatar
    talltalk says:

    the intent of pensions has changed from being income for the very last few years of life, after all debts are paid during working lifetime.

    now, pensions are funding entire 2nd lives, a lot of pensioners support children and grandchildren. this is terrible for society.

  2. Avatar
    richard says:

    I live in San Bernardino county, and I suspect the same “let’s get what we can” attitude exists here too, from salaries to pensions, from county supervisors to water boards to school boards, they all look for ways to get as much for themselves as possible. Very sad.

  3. Avatar
    Pierre says:

    CALPERS pension create Millionairres at the expense of the Public.
    Our Roads & Bridges are in disrepair primarily due to the excessive payments the Cities and Counties must make to CALPERS.
    Every group of Unions point to others demanding parallel wage payments and the one at the TOP DICTATES THE ENTIRE Wage Scale.
    Pensioners save your money as the day will come when CALPERS checks will be returned “Not Sufficient Funds”.

  4. Avatar
    maori says:

    Does anybody know if there is a pension database for federal employees, like there is for California? Doing some research and have not been able to find it in a search. Need for project. Thanks in advance.

  5. Avatar
    Rex the Wonder Dog! says:

    I have told John Moore in several comments going back several years that a civil RICO action could undo all of the fraud by these unlawfully gifted pensions, as they were a classic case of fraud.

  6. Avatar
    SkippingDog says:

    Oh yeah, Rex. You and Moore would make an amazing team of legal beagles. Have either of you ever won any of your frivolous cases? By the way, have you paid your court ordered attorney’s fees yet, or are you going to be a useless scofflaw all your wretched life?

  7. Avatar
    SeeSaw says:

    I give monetary gifts to my children and grandchildren for birthdays, graduations, and gift-giving holidays. A pension allows me that privilege. It is not ongoing support. Why would you want to deprive me of being able to do the things that make life worthwhile in later life? What would be terrible for society would be if there were no pensions.

  8. Avatar
    SeeSaw says:

    Balderdash!!! You pay taxes to fund the services you receive as a citizen and it takes people to provide those services. The average CalPERS pension is modest–the $100K+ group that you and others fret about consists of 3% of over 600,000 annuitants. You should be thankful that you don’t have to fund them through social services after they retire. Our roads and bridges are in disrepair because the Republican party refuses to fund those needs. I agree that the infrastructure is falling apart. Let’s get busy and repair it–let the funding begin!

  9. Avatar
    SeeSaw says:

    Having too rosy a picture of the future of Wall Street is not fraud. For fraud to occur there must be intent–there was no such intent on the part of the pension providers. The bankers involved in the housing bubble did commit fraud. It you want to go after anybody that industry should be the target.

  10. Avatar
    Etickets says:

    A few months back my mom and her husband were on California I-5 North on their way home to Washington state and they hit two different potholes at two different times blowing out a tire each time. They were not speeding. My mom is a former California resident and staunch liberal. Karma.

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