The Final Chapter, Part 4 of 4
The facts and law indicate that the lawyers defending the city in the POA pension reform law suit, directed by the city attorney, and supported by a city council majority, consciously and intentionally failed to uphold two legal ordinances which could have prevented the financial “Fall of Pacific Grove.”
Current annual pension costs for Pacific Grove, including the pension bonds and a new $625,000-per-year charge are about $4 million, soon to increase to $5 million, then $6 million, and increasing forever. Its unfunded deficit grows at about $3 million per year, and in 9.2 years will grow at $6 million per year. Average revenues are about $17 million. The current unfunded deficit (based on a 3.5% income rate) is about $90 million; it will double every 9.2 years. Pacific Grove is upside-down financially.
It is important for pension reformers to understand that a legislative body, after negotiating with the unions, and after impasse, can reduce salaries under California law. Currently salary reduction is the only leverage for pension reform, but it will require the election of a majority loyal to the salary reduction plan to save cities and counties like Marin and Sonoma.
An alternative for Pacific Grove would be to terminate with CalPERS and modify pensions and salaries in a chapter 9 bankruptcy. Bonds like pension bonds get reduced dramatically in bankruptcy, and pay for the bankruptcy.
Neither of the two alternatives will happen in Pacific Grove, because it is impossible to apprise the voters of the impending peril. The local press does not have forensic capabilities in law and accounting, so it refuses to acknowledge the serious financial plight of Pacific Grove and surrounding cities.
Pacific Grove’s current commercial district contributes insufficient tax revenue to fund
six-figure pensions for the city’s retirees. Time to rezone and sell public assets!
The current Pacific Grove (union controlled) council majority plans to pay for pensions by attacking the current zoning laws and thereby build three large hotels and permit several bars in the downtown area. Pacific Grove is fully built out and has a dearth of parking spaces; it has one-way streets each way, so its current residential culture will disappear with such development. A second plan of the unions and the council is to sell off city property, like the recreation field and center. So far they have granted a long-term lease of its 18-hole municipal golf course. Tennis courts and parks will be sold off for development. There is no alternative without pension reform.
Lack of Impartial Lawyers and Financial Experts
Recent grand jury findings in Marin and Sonoma counties document corrupt pension enhancements since 2002, benefiting all unions, staff, the board of supervisors and the local pension administrators. Marin just announced that next year’s pension contribution cost for each supervisor is $54,000. The Marin county counsel receives an annual retirement payment and a salary that total about $475,000 a year. He was county counsel in Sonoma at the time the corrupt pension enhancements were adopted there.
In both Marin and Sonoma, the agents who planned the illegal pension enhancements were experts in the laws mandated for pension enhancement. The law mandated an actuarial declaration of the yearly cost of the proposed benefit. The lawyers, actuaries and financial experts in both counties had to knowingly and covertly by-pass the law. Including interest on pension bonds, each county now has about $1.5 billion in pension debt (up from almost zero).
Each county hired outside lawyers to respond to the grand jury reports. Each outside law firm treated the beneficiaries and the perpetrators of the wrong-doing documented in the grand jury reports as the client, and wrote astounding mythical legal opinions saying that everything was fine with the law. There were no lawyers in the system to protect the voters and the integrity of the grand jury findings. Where were the district attorneys? Evidently they intend to keep every penny of the illegal pensions.
The State Bar must enter this fray and set forth rules for public agency lawyers that provide legal representation to the voters and protect them from the insidious practices that occurred in Marin County, Sonoma County, Pacific Grove, and cities that went through bankruptcy without modifying pensions.
A Surprise Ending
In the game of golf, there is a saying, “Don’t ever say that things can’t get worse.” They can and do.
Take the POA v. Pacific Grove pension reform law suit as an example:
- As referenced above, the law firm of Liebert Cassidy Whitmore (LCW) sponsored a CEB-approved course about the acquisition of vested rights. The course was accurate and faithfully laid out the rules to establish a vested pension or OPEB in California: A+
- A partner from LCW applied the referenced principles to convince the trial and appellate court that the South Pasadena POA did not have vested rights based upon years of MOUs and reliance by employees, providing a medical benefit that had been reduced going forward: A+
- Pacific Grove was represented by LCW in the POA law suit discussed at length herein. The lead attorney in that defense was the same LCW partner who led the defense in the South Pasadena law suit, and totally failed to explain the principles set forth in the CEB course and in the South Pasadena law suit to Judge Wills, the voters, and the city were defrauded by their lawyers. F-
As demonstrated by this case study, also by the response to the grand jury reports in Marin and Sonoma counties, the current agencies of state and local government are opposite to the interests of its citizens.
I believe there will always be collective bargaining in the agencies; talk of eliminating collective bargaining is a pipe dream.
The problem is that in the current system, the governor, city and county managers and administrators, lawyers, and financial experts are de facto union members. That must change. The executive staff of each agency, particularly the lawyers, administrators, and financial experts, must be removed from the collective bargaining process.
It is beyond the scope of this effort to provide the solution. But as shown in Pacific Grove, Marin, and Sonoma, the current system of de facto union membership will trash each and every pension reform.
Read the entire series:
The Fall of Pacific Grove – A Primer on Vested Rights
– The Final Chapter, Part 1, October 20, 2015
The Fall of Pacific Grove – The City’s Tepid Defense of the Vested Rights Lawsuit
– The Final Chapter, Part 2, October 27, 2015
The Fall of Pacific Grove – The Judge’s Ruling
– The Final Chapter, Part 3, November 2, 2015
The Fall of Pacific Grove – The Immediate Future
– The Final Chapter, Part 4, November 9, 2015
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About the Author: John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar (#34749) 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.
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Note to readers: During 2014 author John Moore published the first chapter of The Fall of Pacific Grove in an eight part series published between January 7th and February 24th. For a more complete understanding of the history, read the entire earlier 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
The Fall of Pacific Grove – CalPERS Begins Calling Deficits “Side Funds,” Raises Annual Contributions
– 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
The Fall of Pacific Grove – The Cover-Up by the City After the Hidden Actuarial Report Surfaced in 2009
– Part 7, February 18, 2014
The Fall of Pacific Grove – Conclusion: The “California Rule” Cannot Stand
– Conclusion, February 24, 2014