CaliforniaCityNews.org

City Manager Offers A Recommendation To Vallejo - Bankruptcy!

The ongoing saga of the city of Vallejo's financial situation took another turn yesterday as the city manager offered up the unthinkable for so many - bankruptcy. Like many cities in California, Vallejo has been stung by the recession, crumbling housing market and spiraling cost of public employee salaries. It also has suffered years of instability at City Hall, where seven people - including, briefly, the chief of police - have served as city manager in four years.

Tax reformers, labor unions and state politicians have all been watching Vallejo as a possible harbinger of things to come. While the city's payroll is comprised of 74% dedicated to police and fire (about 25% more than the average city) - demographics and public salaries and benefits are often blamed for the precarious financial position cities are increasingly finding themselves in.

Vallejo's city manager advised the City Council on Friday to declare bankruptcy next week after weeks of negotiations with police and fire unions failed to turn around the city's economic tailspin.

If the council votes Tuesday to file for Chapter 9 protection, the city of 117,000 people would be the largest in California to declare bankruptcy - and the first to do so because of long-term economic woes.

City Manager Joseph Tanner made the recommendation after city officials scrambled for two months to fix the budget before the fiscal year ends on June 30, when the city faces a projected $16 million shortfall for the coming year and will have no money in reserve.

Full story in the San Francisco Chronicle.

The Sacramento Bee editorial page also carries an op-ed piece from Marcia Fritz, calling out for unions to lead reform efforts - remember that name and that you heard it here first at CCN - she's likely to be the next statewide champion calling for pension reform.

Has anyone noticed this issue isn't going away? Unions had best lead this effort lest they beget something revolutionary they won't like...

Public Employees Retirement Benefits In Crisis?

Now’s the Time to Address Benefit Funding - authored by Amy Brown, a lobbyist specializing in labor law, public employee retirement and local governments. She is a partner in the firm of DiMare, Van Vleck and Brown and can be reached at abrown@lawpolicy.com

The GAO recently presented a report to the Senate Finance Committee[1] finding that only 58 percent of large public pension plans across the nation are at least 80% funded.  California is doing better—the Public Employee Post-Employment Benefits Commission (PEBC) learned through its survey that the aggregate funded ratio for California pension plans is 89 percent, a respectable figure, with a total statewide unfunded liability of $63.5 billion.  Sounds good; nothing to worry about, right?  Wrong.

Since those numbers were released, the financial markets have suffered a huge downturn during the first quarter of this year.  This difficult investment market is likely to lead to poor returns for the year, putting renewed pressure on employer rates.  While some employers may have seen some rate relief as a result of positive returns in 2007, many others have not. 

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[1] State and Local Government Retiree Benefits:  Current Funded Status of Pension and Health Benefits, Government Accountability Office, GAO-08-223, http://www.gao.gov/new.items/d08223.pdf

PERS, for example, has kept employer rates relatively the same as a result of a new rate stabilization policy, but it’s yet to be seen whether adequate reserves have been set aside to allow employer rates to remain stable in the event of a prolonged market downturn.  Economists aren’t willing to speculate on where we’re headed.

Reminder: Public Retirement Seminar set for June 25

PublicRetirementJournal.org is putting on the 18th Annual Public Retirement Seminar June 25 in Sacramento.  Keynote Speaker Anne Sheehan, a member of the State Personnel Board (SPB), was recently appointed to the PERS Board.  She has also served as the Executive Director of the Public Employee Post-Employment Benefits Commission.  Visit www.publicretirementjournal.org for more information. 

Golden Handshake Embarassment Brought To Light By Assemblyman Hector De La Torre Continues

The Sacramento Bee continues to report on the developing golden handshake imbroglio...In the wake of claims by Assemblyman Hector De La Torre that taxpayers could be ripped off by golden handshakes offered by the Assembly recently, the lower house has decided to keep its data secret.

The Assembly balked at releasing any financial projections or analysis of the offer it made last month to sweeten pensions of up to 222 aides if they retire this year.

Assembly Chief Administrative Officer Jon Waldie, responding to a request by The Bee, said the Legislative Open Records Act does not require release of legislative memos or correspondence to lawmakers.

This year's golden handshakes were identical to an offer made in 2002, which Waldie called successful but had no data on money saved.

Attorney Terry Francke, an expert on public-records law for Californians Aware, which promotes open government, said cities and counties are required to disclose any financial data associated with golden handshakes they propose.

Francke said the Legislature breeds distrust by not imposing the same standard on itself.

"What it means is that those who make the law have made themselves above the law," Francke said.

Private Sector Workers Hopping Into the CalPERS Pool?

Governor Schwarzenegger and Assemblyman Kevin de Leon have unveiled a plan that would allow CalPERS, the largest pension fund in the United States, to administer individual retirement accounts (IRA's).  Get the dry details from Reuters here, or a more insidery piece from John Hill in the Bee here.

Meanwhile, Assemblyman Albert Torrico has withdrawn a bill that would have prevented CalPERS and CalSTERS from making new investments in private-equity firms "partly owned by foreign governments with weak records on human rights."  The Bee covers that one here.

18th Annual Public Retirement Seminar

Join colleagues from around the state for a day of in-depth discussion on current and future issues facing public retirement in California.  The event, sponsored by the Public Retirement Journal, is set for Wednesday, June 25 at the Le Rivage Hotel in Sacramento.  Keynote Speaker Anne Sheehan, a member of the State Personnel Board (SPB), was recently appointed to the PERS Board.  She has also served as the Executive Director of the Public Employee Post-Employment Benefits Commission.  Visit www.publicretirementjournal.org for more information. 

The Tale Behind Vallejo's Brush with Bankruptcy

The SF Chron takes a closer look at Vallejo's woes in an in depth piece on how the city neared the unthinkable: becoming the first California city to declare bankruptcy.  The story traces the city's struggles from closure of its naval base through a crime wave, over stretched pension agreements and up to the recent housing slowdown.  The story is well worth a read, and not just for a story about a local businessman who: "bought a freshly butchered pig's head, mounted it on a Weber barbecue grill and wheeled it into a packed City Council meeting last week," before announcing the city's finances had been "hogtied." 

The Gadfly Hall of Fame is loathe to admit it had missed this episode, and tips its hat to the Chronicle.

Pension plans offered to new city employees would be restructured under new proposal

"Put quite simply, our existing retirement system is not sustainable over the long term," Sanders said.

Those are the words of San Diego Mayor Sanders and are a likely preview of statements from many a Mayor throughout the state. San Diego has had the dubious distinction of being a precursor of many a bad omen - from the first city to suffer from the energy crisis to the first major California city to reel from financial setbacks resulting from "pension over-extension".

And those who do not learn from history are doomed to repeat it.

"The existing pension plan is not fair to taxpayers who have had to bear the burden of the benefits it provides and pay for an unfunded liability that has grown because of neglect," he said.

Read the full story here.

How is the Bear-ish Market Affecting CALPERS?

The Sacbee took a look at how the sell-off on Wall Street has hit pension funds, notably for all of us: CALPERS and CALSTERS.  The long and the short of it -- CALPERS Chief Investment Officer is quoted in the piece: "Our portfolio is down 3 percent. We have been in a relatively defensive position." 

No kidding.  With the Presdient set to give his final State of the Union tonight and with economic stimulus expected to be a major focus, it will be good to keep an eye on how he discusses the financial markets, as the lull in the economy starts to ripple a lot farther than your weekly dining-out budget. 

Public Safety Pensions Under Scrutiny

The Stockton Record and Modesto Bee both put public employee -- and specifically public safety -- pensions under the microscope today.  In the Record, "The Costs Are Too High" calls out the "nation's most generous retirement plan" for over burdening local budgets while robbing them of their most experienced employees.  Meanwhile, up the road the Modesto Bee ran a story titled "Retiree benefits in state are at the crossroads" that focuses more on the technical issues of financing public pensions and the tremendous power of the unions that negotiated them.  Both are worth a read as this issue picks up even more steam... and public awareness.