Blogging Bayport Alameda

June 27, 2012

Reform and function

Filed under: Alameda, City Council — Lauren Do @ 6:07 am

A few meetings ago, Mayor Marie Gilmore referenced a legal analysis in her remarks about Alameda’s ability to pull a San Diego or San Jose and go to the voters to adjust pensions for its employees.   The short answer to the question of whether cities like Alameda can do that, is “no.”

Highlights from the analysis:

Many cities, counties and special districts in California are contracted with the California Public Employees’ Retirement System (“CalPERS”)… it is the State, not the individual public employers, that decide who will be CalPERS members, how contributions will be made, how investments will be handled, and the terms and conditions for retirement benefits. This leaves public employers contracting with CalPERS with little control.

Because the Cities of San Diego and San Jose maintain their own pension systems governed by their own charters, ballot measures like Measure B and Proposition B passed last week, cannot be done by CalPERS, STRS, and ’37 Act employers, at least not at the local level. CalPERS employers are heavily restricted to the changes that can be made to save on pension costs by State law, such as Government Code sections 20474 and 20475. Because CalPERS is governed by the California Constitution and ensuing State legislation, any change to the governing law must be made only through State legislation implemented by State legislators.

The piece goes on to point out that Governor Jerry Brown’s 12-point pension reform plan is probably the best way to affect change for these larger pension entities that folks on the local level have no ability to change.   But given that the pieces in the 12-point pension plan will have to be legislated, there shouldn’t be an expectation that anything will happen quickly in that arena.

The piece also has a good chart which shows the comparison of the San Jose, San Diego, and the proposed 12-point pension reform plan.  The piece concludes with a reminder the both the San Jose and San Diego measures will be heavily litigated and in fact faced legal challenges even before the vote was calculated.

the San Jose Police Officers’ Association and active and retired members of the San Jose Police and Fire Department Retirement Plan filed complaints for declaratory and injunctive relief on June 6th….alleg[ing] Measure B impairs vested retirement benefits, violates the Contracts Clause and Takings Clause of the U.S. and California Constitutions, violates constitutional principles of due process and right to petition, as well as separation of powers.   The Police Officers’ Association also alleges other violations of State law including the Meyers-Milias-Brown Act and the California Pension Protection Act.

So even as folks interested in these sorts of government issues watch and wait to see how the San Jose and San Diego measures shake out, the reality for Alameda is that post-retirement benefit reform internally has to be done with the agreement of the bargaining units.   Any expectation that the City wave a wand and unilaterally slash post-retirement benefits is completely unrealistic.

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27 Comments

  1. Any expectation that the City wave a wand and unilaterally slash post-retirement benefits is completely unrealistic outside of Chapter 9.

    FTFY

    Comment by Jack Schultz — June 27, 2012 @ 7:13 am

  2. Even inside Chapter 9 the City can’t wave a wand.

    Comment by Jack Richard — June 27, 2012 @ 9:15 am

  3. Lauren, you & Lena can wave the banner of State law & lawsuits all you want, but the basic rule that you cannot obtain blood from a turnip will always apply. An uncollected judgement is no victory for the winner. It is Stockton you should be looking at, not San Jose. The biggest budget breaker there-and here-and probably everywhere-is Lifetime Health Care for City Pensioners & most of those are Public Safety. Stockton took it away because it could not pay. I doubt its coming back, even with a lawsuit. Which may be a good thing for all of us in the end, since what CalPERS & the big public safety unions negotiate with insurance cos such as Kaiser determines what even You pay in premiums!

    Comment by vigi — June 27, 2012 @ 9:34 am

  4. So we waved a magic wand and gave away the farm and ain’t nothing we can do about it cept just keep wavin…

    Comment by Jack Richard — June 27, 2012 @ 12:12 pm

  5. This is Exactly what happened to the Airlines and Car companies with the unions.

    No insurance for defined contribution plans

    One reason Congress enacted ERISA was “to prevent the ‘great personal tragedy’ suffered by employees whose vested benefits are not paid when pension plans are terminated.”[18] When a defined benefit plan is properly funded by its sponsor, its assets should be approximately equal to its liability, and any shortfall (including benefit improvements) should be amortized in a relatively short period of time. Before ERISA, employers and willing unions could agree to increase benefits with little thought to how to pay for them. A classic case of the unfortunate consequences of an underfunded pension plan is the 1963 shutdown of Studebaker automobile operations in South Bend, Indiana, in which 4,500 workers lost 85% of their vested benefits.[18] One of ERISA’s stated intentions was to minimize underfunding in defined benefit plans.

    Defined contribution plans — by contrast and by definition — are always “fully funded.” Thus Congress saw no need to provide insurance protection for participants in defined contribution plans. The Enron scandal in 2001 demonstrated one potential problem with defined contribution plans: the company had strongly encouraged its workers to invest their 401(k) plans in their employer itself, violating primary investment guidelines about diversification. When Enron went bankrupt, many workers lost not just their jobs but also most of the value of their retirement savings. Congress inserted trust law fiduciary liability upon employers who did not prudently diversify plan assets to avoid the chance of large losses inside Section 404 of ERISA, but it is unclear whether such fiduciary liability applies to trustees of plans in which participants direct the investment of their own accounts.

    “Defined contribution plans — by contrast and by definition — are always “fully funded.”

    So we have been Broke For a while Jack…….And to NOT FULLY FUND THESE IN the BUDGET and DEFER is a Crime to the Citizens and the Employees.

    In 2001 they were way Underfunded after the Financial Collapse…….We Gave HUGE raises and Contracts then.

    We have given 70-80% Total Pay Compensation to our Employees since 2001 .

    Comment by John — June 27, 2012 @ 5:43 pm

  6. That should read

    We have given 70-80% INCREASES in Total Pay Compensation to our Employees since 2001 .

    Comment by John — June 27, 2012 @ 5:46 pm

  7. Don’t even worry about the Citizens Assets like Buildings and Streets and Just keep Deferring.

    We Need to PUT all our Liabilties on the Table and quit with the Accounting Magic and Feel Good Jerk Sessions presented by Staff.

    Comment by John — June 27, 2012 @ 5:57 pm

  8. The City Staff is great at Putting Citizens FEET to Fire if they don’t pay a fee and lien their property on a Building Issue……… Yet we let our assets deteriorate and basically abandon and don’t do anything and just defer….

    Comment by John — June 27, 2012 @ 6:10 pm

  9. “Any expectation that the City wave a wand and unilaterally slash post-retirement benefits is completely unrealistic.”

    Is it just me, or is there a sense of satisfaction I detect from the author of that sentence?

    Comment by Jack Richard — June 27, 2012 @ 7:31 pm

  10. Without revealing any details, the committee the city convened some time ago is continuing to meet and is coming to the point of deciding on a variety of recommendations, so for all of you who believe that we are all in Alameda “fiddling while Rome burns” – not so much. No wand waving is being considered; I can tell you that much. If you want to continue to believe that nothing is being done and nobody is taking this seriously, do so, but you will be in error.

    Comment by Kate Quick,. — June 27, 2012 @ 8:44 pm

  11. Kate

    We Hear same Story every Year……. The Base is Closing we need to make and adjust our Revenues and Costs ..1994 1995 1996 base closes revenues still stagnet .Police about 16% of Budget and Fire about 15% of Budget…2000 2001 Market Crashes Millions out of Work , Calpers Loses 10’s of Billions and we Give Huge Salary and Benefit Raise and a 10 year Contract.with 70-80 percent Total Compensation increases ..2002 2003 ..2008 housing bubble pops and CALPERS loses Hundreds of Billions…2009 Fiscal Sustainabilty gives HUGE Wake up….Nothing done..Well something is done. We Start Escalating Fees and keep not taking care of Maintenance of our Assets and Defer Pension and Health Care Benefits to Employees..

    Beginning in fiscal year 2010, this report includes two additional categories of liabilities.
    The first category is the City’s liability to make payments that have been earned by
    employees in prior periods, but do not yet require actual cash payment. The primary
    example of this category is the City’s $74 million and growing liability for OPEB costs.
    The second category is the setting aside of funds for future expected liabilities. This
    category includes maintenance that must be performed to maintain City assets, costs to
    replace City vehicles and equipment when they become unserviceable, and other
    liabilities and reserves.

    http://www.cityofalamedaca.gov/getdoc.cfm?id=4624

    I’m sure the Picture at the Alameda COUNTY and State are not much better….

    Comment by John — June 27, 2012 @ 9:20 pm

  12. Alameda had a Bad Decade…..Alot of Same Pitfalls

    How Stockton Went Bust:

    A California City’s Decade of Policies and the Financial Crisis that Followed

    http://www.recordnet.com/assets/pdf/SR1474619.PDF

    Comment by John — June 27, 2012 @ 9:57 pm

  13. Off to the Funnies.

    States Facing ‘Sleeping Cancer’ in 96% Unfunded Retiree Benefits

    “It’s like a frog being slowly boiled to death,” said Crane, who teaches at Stanford University near Palo Alto, California. “They’re not doing anything about the liabilities. In most states, they’re not being funded at all.”

    http://mobile.bloomberg.com/news/2012-03-07/states-facing-sleeping-cancer-in-96-unfunded-retiree-benefits

    Comment by John — June 27, 2012 @ 10:16 pm

  14. 9)

    Jack …No its not just you…..Watch the faces on Mayor and City Manager when describing situation at City Council meeting….Smile while I Sqweeeeeeeze…Does NOT take Body Language Expert to see…Interesting cast of Characters.

    Comment by John — June 27, 2012 @ 10:24 pm

  15. John, the ‘bad decade’ will seem like the ‘good old times’ in the coming decade. Thanks for telling it like it is.

    Comment by Jack Richard — June 27, 2012 @ 10:48 pm

  16. Jack

    We have a tremendous group of Employees. I’m still proud to say I still live in Alameda…We have gotten ourselves into a Card Game with NO WINNERS……But to SIT and Listen to a Budget Meeting and not Address Actual Numbers of our Real Liabilities we have Deferred and Real Money we OWE and just say how proud we are of Balanced Budget is a real disservice. On top of that watch presentation on NEW FEE INCREASES.

    I think the Two Kevin’s went Easy……Plus it looked like all the Air had been sucked out of room after watching staffs presentation and then cheer leading by Mayor and City Manager. They know BS when they see it. I’m sure they both needed Band aids for their tongues from biting down so hard.

    I don’t know if I’m telling it like they want to hear……But I’m telling it as I see it……No one would like to see this City Thrive more than the two Kevin’s and you or I and thousands more…..Otherwise we would just close our eyes, get a lobotomy and let Doooooo Tattoo the Employee Union Talking Points on our Foreheads and Body.

    I hope everyone comes to their senses from the STATE, COUNTY and CITY.

    Comment by John — June 28, 2012 @ 2:14 am

  17. California, has laws that explicitly place bondholders ahead of pensioners in repayment priority.

    Bloomberg 6/26/2012

    Why Better Reporting Won’t Lead to Healthier Pensions

    Six states have passed laws in the last three years that retroactively cut pension benefits earned by government workers, but none has so much as breathed the thought of a general obligation bond default. Several states, including Rhode Island and California, have laws that explicitly place bondholders ahead of pensioners in repayment priority.

    The Governmental Accounting Standards Board approved new rules yesterday that will change the way states and municipalities report their unfunded pension liabilities. Many governments will report much larger funding gaps, but the actual effects on bond markets and public policy are likely to be small.

    This sounds like an arcane accounting matter. But the discount rate is one of the most important components of a pension fund’s financials. Typically, adopting a 5 percent discount rate would increase a pension fund’s reported liabilities by 30 percent to 40 percent. Universal adoption of a 5 percent pension liability discount rate would add about $2 trillion to the liabilities of state and local pension funds in the United States.

    The new GASB rules will force funds with significant underfunding to use “market value” discount rates, close to 5 percent, to value the portion of their liabilities that are not covered by assets. That means reported funding gaps will rise, and they will especially rise at the funds that were already reporting big gaps. Under the new rules, the Illinois Teachers’ Pension System, one of the country’s worst funded, would have shown just an 18 percent funding ratio as of July 2010.

    Taxpayers and pensioners do have an interest in pension underfunding, but in practice the reporting of larger numbers (“You thought you owed $6 billion but really you owe $16 billion”) tends to cause their eyes to glaze over. What really moves taxpayers and pensioners to demand reform is when changes in liabilities translate to changes in cash flows: Either governments must start putting lots more money into a pension fund, driving taxes up or spending down; or the pension fund’s ability to send actual checks is called into question.

    http://www.bloomberg.com/news/2012-06-26/why-better-reporting-won-t-lead-to-healthier-pensions.html

    Comment by John — June 28, 2012 @ 5:24 am

  18. Probably Fire , Police and Staff think I’m trying to Screw them by pointing things out. Real World is the Kevin’s are the frkn experts and should be listened too. They are really trying to protect you….I don’t have 1/1000 of their expertise or brains but know they are saying and doing things in your best interest…The Union Mindset BK’d all the Car Companies and Airlines and most got short end of straw when everything said and done. Go ask an Old Pilot or take a Ride thru Detroit.

    Comment by John — June 28, 2012 @ 5:59 am

  19. @Jack you wrote:

    “Any expectation that the City wave a wand and unilaterally slash post-retirement benefits is completely unrealistic.”

    Is it just me, or is there a sense of satisfaction I detect from the author of that sentence?

    If that is an implication that I have some government based post-retirement benefit that I will reap upon my retirement in oh, 30+ years from now — still have a lot of working years in front of me — you would be incorrect. While I did have a government job fresh out of college, I was there for less than three years and haven’t worked in government since.

    Comment by Lauren Do — June 28, 2012 @ 6:11 am

  20. 18.
    “Real World is the Kevin’s are the frkn experts and should be listened too.”

    These are the Kevins that supported Measure C.

    Comment by dc — June 28, 2012 @ 6:46 am

  21. 19 .You wrote: “Any expectation that the City wave a wand and unilaterally slash post-retirement benefits is completely unrealistic.”

    First, it certainly was not because I felt you could or would reap monetary rewards. So let’s look at the sentence and see if I can put my finger on what caused the feeling of author satisfaction.

    The author uses the words, “Any expectation…”, now who would have such an ‘expectation’ (of unilaterally slash) except those citizens so totally out of the loop (completely unrealistic) who anachronistically think that power of government flows upward from the people.

    Those ‘in-the-Progressive-loop’ know the true power flows downward so I guessed it was with great satisfaction that you waved your wand and essentially made your pronouncement to the people of the city,

    Comment by Jack Richard — June 28, 2012 @ 12:27 pm

  22. Considering that an elected official who should be “in the loop” about the limitations of labor negotiations and what can and cannot be done, it’s not a surprise that ordinary citizens don’t know either.

    Comment by Lauren Do — June 28, 2012 @ 12:43 pm

  23. Well, there you go, I was right, (even out-of-the-loop elected officials need pronouncements).

    Comment by Jack Richard — June 28, 2012 @ 1:56 pm

  24. Jack

    We as a City also have the right to change our CITY by laws to NOT keep defering maintenance of our assets and not defer pension and health benefit obligations and make sure these are number one priorities in our Budget for the Fiscal Health and Safety of our City.

    Comment by John — June 28, 2012 @ 2:23 pm

  25. Our Charter,,,,,,,,,,,,the Key Word is sound actuarial principles….Nothing about our retirement system is Sound Financially .for the employees or the Citizens.

    I) Establish on or before July 1, 1938, a retirement, pension and insurance system for City officers and employees based on sound actuarial principles, which system once adopted shall not be amended except by majority vote of the full Council and shall not be repealed except by the People. Such system shall provide for the support thereof by deductions from the compensation of officers and employees of the City and contributions from City funds and funds under the control of the respective boards.

    http://www.cityofalamedaca.gov/getdoc.cfm?id=99

    Comment by John — June 28, 2012 @ 2:33 pm

  26. Jack

    Some Cities in their charters don’t allow Defering any pay or compensation longer than 12 Months.

    Comment by John — June 28, 2012 @ 2:53 pm

  27. We need to take care of our Obligations before signing all these Contracts which makes us more and more Liable.

    Beginning in fiscal year 2010, this report includes two additional categories of liabilities.
    The first category is the City’s liability to make payments that have been earned by
    employees in prior periods, but do not yet require actual cash payment. The primary
    example of this category is the City’s $74 million and growing liability for OPEB costs.
    The second category is the setting aside of funds for future expected liabilities. This
    category includes maintenance that must be performed to maintain City assets, costs to
    replace City vehicles and equipment when they become unserviceable, and other
    liabilities and reserves.

    Comment by John — June 28, 2012 @ 2:56 pm


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