Little Hoover: More CA city bankruptcies loom

Nov. 14, 2012

By Dave Roberts

“Are your cities going to make it for five years?” asked Little Hoover Commission Chairman Daniel Hancock at the recent commission hearing on pension and infrastructure financing.

“That’s a good question,” responded Dwight Stenbakken, deputy executive director of the League of California Cities.

California’s cities are being eaten alive by employee compensation costs. The pension reform measure signed into law in September by Gov. Jerry Brown, AB 340 by Assemblyman Warren Furutani, pretty much left current employees alone, focusing instead on new hires. Government officials will have to wait until 2018 to negotiate with public employee unions to reform pensions for current employees.

Hancock pressed Stenbakken. “We all know when you run these numbers, they’re all hugely back loaded,” said Hancock. “The front end numbers don’t change very much at all. So over a five-year period, this is not going to move the needle very much. Can you guys make it five years?”

Stenbakken hesitated. “Well, uh, I don’t know,” he said. “And that is a looming question over everything. I think it’s one thing that first of all has changed the dynamic at the local government collective bargaining table. Back in 2008, when we first started going into the tank economically and we were trying to make some changes, of course we were accused of cooking the books and hiding things and making this up.”

But in the wake of the Great Recession, union negotiators have not had as strong a hand as when the tax dollars were rolling in.

“At the local government collective bargaining table I think everybody is being a little more realistic about it,” said Stenbakken. “Because there are very few alternatives. And the most ugly one is that we’re going to cut employees. And I don’t think that’s good for employers. I don’t think that’s good for employees. And I don’t think it’s good for the taxpayers, because the services go down too.”

Layoffs

Throughout the state, government employees have been laid off, services have been slashed and just this year Stockton, San Bernardino and Mammoth Lakes have declared bankruptcy. The worst may be over. The real estate market is starting to rebound, so property taxes may start to pick up next year. But it will take a while for most cities to restore employees and services.

“We are at least four to five years behind any kind of recovery in terms of governmental revenues,” said Stenbakken. “So this is a problem that we are going to be dealing with for a long time, not just a short-run problem. And I don’t know if we are going to see more Stocktons or not. I hope not. But that may be the ultimate result.”

AB 340 provides a variety of pension reforms: a cap on maximum pensions, postponement of the retirement age, reduction in the pension formula, cost-sharing, three-year averaging to determine the pension amount, only regular pay and regular overtime can count toward the pension, a ban on buying “air time” service credits to boost the pension payout, and no retroactive benefit increases. But only the cost sharing and air time provisions apply to current employees.

As a result, the reform has been criticized as window dressing. Some studies suggest that California’s unfunded pension liability could total more than $500 billion. But the reform package is estimated to save California taxpayers only $42 to $55 billion over 30 years for CalPERS plans. While pension costs are currently a fairly small part of the state general fund budget, they are metastasizing on the local level, where personnel costs comprise most of the budget.

“With city governments, and to some extent with county governments too, a much higher percentage of that money goes for police and fire,” said Stenbakken. “So we do have a significant problem. We do have an issue of these costs crowding out other services that we provide.”

Current employees

He said that cities need to have the power now to rein in retirement expenses for current employees.

“We would love to … be able to unilaterally implement this at the end of the collective bargaining process, without the five-year time frame [delay] and without the requirement for an MOU [memorandum of understanding],” said Stenbakken. “But that wasn’t going to pass the Legislature and get signed by the governor. We think that there’s sufficient leverage now at the collective bargaining table to make these changes, even with the requirement that we have a signed MOU. Because it is real, it’s happening, and the alternatives are not good for anybody.”

For decades, the legal cards have been stacked against government officials seeking to get a handle on runaway retirement expenses. A League of California Cities analysis concludes that California case law dictates that:

* A public employee’s pension constitutes an element of compensation.

* A vested contractual right to a pension benefit accrues upon acceptance of employment.

* Eliminating this pension right will impair an employer’s contractual obligation to the employee.

One of the precedents was a 1991 case, Legislature v. Eu. State legislators sued to retain their retirement benefits after Proposition 140, the term-limits initiative, was passed by voters in 1990. The legislators argued that they had a vested right to their pensions, and the court agreed. Federal law also dictates that states must honor vested employee contracts.

Controlling costs

Hancock questioned why the law should be so tough on governments trying to control employee costs.

“We’ve spent a lot of time on this over the last few years, and some questions have been hard to get answers to,” he said. “How is it that a private employee working for IBM can work there for 20 years and you vest his pension for the 20 he works and then put him in a 401(k) — and that’s considered OK. And when the state of California, the city of San Jose want to do that, it’s not OK. Under what theory does that happen? If I were litigating this, I would look on that issue, suggesting that it isn’t so clean cut that they’re vested rights.”

Commissioner David Schwarz picked up on the litigation suggestion.

“My bottom line is ultimately all this discussion about how you rearrange or tweak pension reform; it’s interesting and it’s important,” he said. “And the legislation that was recently passed has moved things before it. At the end of the day it strikes me that this has got to be litigated. We have got to get an answer on whether the federal constitution will permit this impairment [of vested pension rights].”

Stenbakken agreed, saying, “What I don’t think has come in front of [the court] yet is a collectively bargained agreement between an employer and an employee in an economic time we are in right now. And whether or not that combination of facts is going to change a court’s decision, I don’t know. But it seems like until you get that in front of the court, we’re not going to know.”

While Stenbakken is fearful for the fate of California cities as they struggle with employee costs over the next five years, others are more sanguine.

“We believe that, while the fiscal challenges facing cities and counties are difficult for all those involved, pensions are not the cause of, nor a significant contributor toward, bankruptcies we are seeing,” said Ann Boynton, a CalPERS deputy executive officer. “Ambitious borrowing during boom times, and low revenues that came with the bust, are actually the biggest factors behind the recent bankruptcy filings.”

And Ron Cottingham, president of the Peace Officers Research Association of California, said that the employee unions have already agreed to significant benefit reductions. These include contributing more to their pensions and agreeing to anti-spiking measures.

“We think a lot of these things have been accomplished at the bargaining table,” he said. “We realize that continuing changes, because of the [reform] legislation, will occur at the bargaining table. Maybe not as fast as you’d like in some areas. But that will depend on each area’s ability to get to the table and negotiate changes. We have some that have not been to the bargaining table yet. We have one unit that just inked a contract that does not expire until the year 2020.”

It remains to be seen what fiscal shape that unit’s municipality will be in by 2020, assuming it still exists.

38 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 November, 2012, 12:32

    “AB 340 provides a variety of pension reforms:…”

    BA340 doesn’t jack [you know what].

    Reply this comment
  2. Sean Morham
    Sean Morham 14 November, 2012, 13:49

    A great action would be for courts to rule that gov t pensions have to be paid no matter what the circumstances. Tax increase are mandated by courts to fund. A massive migration would happen; the polic and fire could go collect their pensions from what is left, primarily those on public assistance. Must see TV for the masses across the land.

    Reply this comment
  3. ted
    ted 14 November, 2012, 13:59

    Sean— Have you been drinking today?

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 November, 2012, 14:24

    Cal State trustees OK new budget, seek millions more from state
    http://latimesblogs.latimes.com/lanow/2012/11/cal-state-trustees-budget.html

    I LOVE it…CSU requests MORE TAXES to “expand programs”…. 🙂

    Reply this comment
  5. Cloward Piven
    Cloward Piven 14 November, 2012, 14:39

    Well, as the priests used to say to seminarian Jerry Brown, “Pedicabo ego vos et irrumabo”.

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 14 November, 2012, 18:52

    Why care? Just move your single wide down the trail. Simple to sense self preservation trumps manic righty ideology…..or is it?

    Reply this comment
  7. SkippingDog
    SkippingDog 14 November, 2012, 21:42

    There’s a reason Latin will always be the Mother Tongue, ne vos conueniant, CP?

    Reply this comment
  8. Ted Steele, The Decider
    Ted Steele, The Decider 15 November, 2012, 06:50

    Puer et agrikila!

    Reply this comment
  9. SeeSaw
    SeeSaw 15 November, 2012, 09:29

    I think the author mispeaks when he says that regular overtime may count torward the pension. CalPERS has not allowed spiking like that since 1993.

    Reply this comment
  10. Tough Love
    Tough Love 15 November, 2012, 09:48

    Quoting …”He (Stenbakken) said that cities need to have the power now to rein in retirement expenses for current employees.”

    THAT’s the key … VERY significant reductions (of 50+%) in the pension accrual rate for FUTURE service of CURRENT (yes CURRENT) employees.

    Reply this comment
  11. Dyspeptic
    Dyspeptic 15 November, 2012, 10:04

    “Peace Officers Research Association of California”

    So the costumed thug swarm has a “Research Association” does it. I guess when they’re not beating homeless people to death (see Kelly Thomas) or murdering innocent homeowners in phony drug raids (see Donald Scott) they spend our money researching ways to terrorize politicians (see Jim Righeimer) into giving them even more of our money. If there is any life form lower than a police union official I can’t imagine what it would be. A slug maybe. Perhaps a leech. Or how about a Bot Fly larvae or one of those disgusting tropical brain worms.

    @ Cloward Piven, you win a gold star and extra credit for latin quote of the week. Imagine trying to get away with posting the English translation of that here.

    Reply this comment
  12. Tough Love
    Tough Love 15 November, 2012, 10:05

    Quoting …”“How is it that a private employee working for IBM can work there for 20 years and you vest his pension for the 20 he works and then put him in a 401(k) — and that’s considered OK. And when the state of California, the city of San Jose want to do that, it’s not OK. Under what theory does that happen? ”

    THAT’s another key point. Public Sector workers are not “special” and deserving of greater pension, better benefits (and greater protection from change) … all on the Taxpayers’ dime.

    Taxpayers should refuse any further funding of Public Sector pensions that are greater (as a % of pay) than what THEY get from their employers, and RIGHT NOW, the Taxpayer paid-for share of public Sector pensions are ROUTINELY 2-4 times (5-6 times for safety workers) greater in value at retirement than those of comparable Private Sector workers.

    Reply this comment
  13. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 November, 2012, 10:46

    I think the author speaks when he says that regular overtime may count toward the pension.
    ==
    seesaw, EVERYTHING counts towards the pension in the 20 1937 act systems, OT, vacation days, sick leave days, uniform allowance, employers payment of the EMPLOYEES portion of the pension even counts towards the pension.

    Scam central and YOU KNOW IT!!!! I love it how you qualify your shifty comment by limiting it to only CalTURDS when there are 20 other systems out there that do allow spiking.

    Reply this comment
  14. SkippingDog
    SkippingDog 15 November, 2012, 12:28

    AB340 applies to all California retirement systems, even ’37 Act counties.

    Reply this comment
  15. Dave Roberts
    Dave Roberts 15 November, 2012, 13:58

    On the question of whether regular overtime is included in the pension calculation, the analysis for AB 340 states that “pay for overtime” can be excluded from the “types of compensation from being used to calculate a retirement benefit” — with the exception of “planned overtime, extended duty workweek, or pay defined in the federal labor codes.”

    Cottingham provided an example for how this works with public safety employees: “You have a formula where some of our safety units work a 12-hour shift where they are actually working an 85-to-86-hour pay period. And those extra hours become part of your compensation. Those are hours worked. If it’s random or nonscheduled overtime, then those areas are not pensionable.”

    Reply this comment
  16. Queeg
    Queeg 15 November, 2012, 15:09

    When a 26 yr. old high school educated fire guy in San Diego makes 90k and drives a candy apple Escalade…..why can’t Poodle make 100k at his truck stop counter job…hmmmmmm….

    Reply this comment
  17. Tough Love
    Tough Love 15 November, 2012, 15:59

    Queeg, It’s ONLY becasue the Fire Guy’s Union has bribed our elected officials (with campaign contributions and election support) to grant such excessive pay, pensions, and benefits.

    Not to worry … this Public Sector pension/benefits house of cards will be collapsing in short order.

    Reply this comment
  18. BobA
    BobA 15 November, 2012, 16:53

    Tough Love:

    Public unions and their employees are like the Borg collective in the old Star Trek Next Generation TV series. Those of us who are not public employees exist to service them. Resistance is futile.

    Reply this comment
  19. Tough Love
    Tough Love 15 November, 2012, 17:23

    BobA, Everything has limits, even the insatiable grred of the Public Sector workers.

    While I’m sure their greed won’t let up. The “math” some big surprises in store for them in the not too distant future.

    Reply this comment
  20. Queeg
    Queeg 15 November, 2012, 17:57

    That future drones on….your bud Lieu introducing tripling car registration fees to pay for the bullet train…….so there…..supermajority is a consequence!

    Reply this comment
  21. Dyspeptic
    Dyspeptic 15 November, 2012, 18:25

    Queeg, your kooky comments can be amusing but please, please, please try to work on spelling and grammar … for the kids 🙂

    Regarding the firefighter with the candy apple red Escalade, my firefighter neighbor went bust from living large and had to sell all his toys and put the wifey to work. They hauled him away recently for a loony bin vacation. Now, no one is ever home except the snarling guard dog. Not a happy family I fear.

    “your bud Lieu introducing tripling car registration fees to pay for the bullet train”

    You know you’re in trouble when Jerry Brown is the adult in the room. Now even Jerry will be window dressing when the super-duper taxaholic majority steam rolls him for massive tax increases.

    We are all Greek now, so pass the Ouzo, I need the whole bottle.

    Reply this comment
  22. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 November, 2012, 18:55

    AB340 does not apply to current employees moron, and that is 99% of the gov employees today.

    Reply this comment
  23. SeeSaw
    SeeSaw 15 November, 2012, 19:38

    CalPERS is the largest pension system Rex, so I quibble with your 99% figure. CalPERS does not allow overtime to be used in the pension calculation.

    Reply this comment
  24. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 November, 2012, 21:25

    Seesaw, the 20 37 Act pensions all allow spiking, except for new hires, new hires account for 1% of their employees today-AT MOST.

    So will you stop spinning your gamed, manipulative JJOBS PATRONAGE scam.

    Whats a patronage job?
    Patronage refers to the corrupt practice of hiring friends, rather than looking for the best employees.
    Read more: http://wiki.answers.com/Q/What_are_patronage_jobs#ixzz2CMP2m6VS

    Reply this comment
  25. Rex the Wonder Dog!
    Rex the Wonder Dog! 15 November, 2012, 21:28

    JOBS PATRONAGE;
    “…the control of or power to make appointments to government jobs or the power to grant other political favors.”

    Other Policitcal Favors = fraudulent and unearned cahs salry and retroactive benefit hikes.

    Reply this comment
  26. Queeg
    Queeg 15 November, 2012, 22:19

    Dys….you lost……pay your taxes….we need your money!

    Reply this comment
  27. SeeSaw
    SeeSaw 15 November, 2012, 22:23

    I have nothing to do with the 37 Act systems Rex–I was just saying that I doubt, due to the size of CalPERS, that the numbers of those other systems would total 99% of all current public workers.

    I have no idea what you are talking about when you say I am participating in a manipulative patronage scam. Patronage in the public sector is mainly with appointments where termed-out legislators get Board posts that pay them 100,000+ to meet a few times a year. Rank and file workers, go through a testing and interview process–favortism is rare, but it does happen. It happens in all employment sectors, public and private.

    I am sitting here enjoying my fifth year of retirement. Not participating in anything.

    Reply this comment
  28. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 November, 2012, 00:16

    I have no idea what you are talking about when you say I am participating in a manipulative patronage scam.
    OH PLEASE SEESAW!!!!!!!

    John, Katy, Wayne, Chris, PLEASE help ole Rex out here, and state to seesaw the OBVIOUS, that public sector jobs are PATRONAGE JOBS today where money goes to the politicians with contributions, then tax dollars are given to the PATRONAGE contributors, which is then laundered back into more campaign contributions, repeat cycle to infinity.

    And virtually ALL of the high paying jobs (firewhiner, all management, various $150K “boards” and “commissions”) are given to those with connections, or fit a predetermined profile without regard to merit or objective qualifications (such as LE hiring 50%-90% of their employees from the military).

    That is Patronage.

    Reply this comment
  29. Ted Steele, The Decider
    Ted Steele, The Decider 16 November, 2012, 06:46

    Yes—You lost—-again—–pay your taxes and shuffle off to your cubicle at once. –We the people

    Reply this comment
  30. CalWatchdog
    CalWatchdog Author 16 November, 2012, 08:09

    Ted: More like shuffle off to another state or country with lower taxes.

    — John Seiler

    Reply this comment
  31. Ulysses Uhaul
    Ulysses Uhaul 16 November, 2012, 08:15

    PACK AND SHIP!

    Really tired of the trolls’ moaning.

    Reply this comment
  32. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 November, 2012, 08:41

    Teddy has two comments before 8:15 AM, and only two minutes behind the queeg comment on the first thread….Teddy, you are melting down lil buddy 😉

    I predict Vallejo back in BK within 5 years 🙂

    I pedict CalTURDS loses their priority in BK funding 😉

    I predict teddy will continue posting under the queeg and Uhaul sock puppets for man more months 😉

    Reply this comment
  33. Ted
    Ted 16 November, 2012, 13:05

    Poodle— still 0 for 14 ™ !

    mmmmm it’s fun!

    Reply this comment
  34. Rex the Wonder Dog!
    Rex the Wonder Dog! 16 November, 2012, 14:48

    HEy Teddy what does 14 ™ mena ;(

    Reply this comment
  35. SeeSaw
    SeeSaw 16 November, 2012, 14:49

    Well, I was never involved in patronage, Rex. I served on plenty oral boards for miscellaneous employees, where the applicants were judged on their qualifications and fitness for the jobs. I have known many PS employees during my years, and they were hired on the basis of their qualifications–Academys are not Kindergarten, and no amount of patronage can pass them–they are on their own. Political patronage on the part of elected officials, I understand–rank and file employees are rarely on the receiving end of such.

    Reply this comment
  36. eatingdogfood
    eatingdogfood 17 November, 2012, 09:38

    The Dumb Unions Played Chicken And Lost !!! Better Call The White House For A Lifeline !!! OMG, The Unions Are Going To Lose All Those Good Paying Dues !!! Not To Worry, Maybe The Bakers Can Get Hired By Some Municipality or even The Communist SEIU !!!

    Reply this comment
  37. Rex the Wonder Dog!
    Rex the Wonder Dog! 17 November, 2012, 17:44

    eatingDF, there is a very good chance Obama will backstop state pensions in IL and CA with federal $$$$ (fresh off the printing press of course), so be careful about those WH lifeline comments.

    Reply this comment
  38. David
    David 18 November, 2012, 09:44

    This article lays out the situation very clearly. More people need to read it.

    Reply this comment

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