City of Richmond Faces Pension Stress

Pick a city in California. Pick a county in California. Odds are, they could be the topic of this analysis instead of Richmond. But Richmond is the focus of a recent analysis published in Reason entitled “Richmond, California’s Finances Remain Shaky,” and that work provides solid data from which to take a deeper look at what’s truly driving their financial challenges: compensation and pensions.

To summarize the Reason analysis, their most recent financial statements include the following excerpt from the auditor’s comments: “If deficit spending continues in the funds that continue to borrow from the General Fund and other funds, it reduces the likelihood that the City will be able to continue as a going concern.”

In plain English, what the auditor is saying is that the City of Richmond is spending more than they’re taking in, and they’re at risk of running out of cash. Reason’s senior policy analyst and the author of the report, Marc Joffe, writes: “Richmond’s unrestricted general fund balance of $18 million is small relative to general fund expenditures of $157 million. The ratio of 9% compares unfavorably to the 17% level recommended by the Government Finance Officers’ Association.”

Where is the money going? Compensation and pensions. Using raw data readily available from the California Office of the State Controller, in 2018 Richmond paid $121 million in base pay, overtime, other wages, health benefits and pension fund contributions. This represents 77 percent of their general fund expenditures.

When that percentage of a […] Read More

Were Pension Benefits Enhanced Without Due Process?

In 1999, at the height of the stock market runup fueled by the internet bubble, California’s state legislature passed SB 400, which increased pension benefits for officers with the California Highway Patrol. Over the next several years, pension benefits were similarly increased for government employees working in nearly every one of California’s cities, counties, state agencies, schools and special districts. But in California’s wine country, a case is quietly moving forward that argues these pension benefits were enhanced without due process.

The case, George Luke vs Sonoma County, is based on California Government Code Section 7507, which prohibits adoption of retirement benefit plan increases unless the approving agency first (1) retains an enrolled actuary, (2) who prepares an actuarial report, (3) which estimates future annual costs of the increases, and (4) the estimate of future annual costs are made available to the public at a meeting at least two weeks before the agency approves the increases.

The lawsuit was originally filed in 2017 and dismissed the following year by a trial court judge who said it didn’t meet statute of limitation requirements. But in his initial appeal, Luke is arguing that his claim isn’t barred by the statute of limitations since his taxpayer dollars are still going toward the increased benefits.

This week the most recent development in this appeal is a reply brief filed with the first appellate district court which argues “the judgement of dismissal must be reversed because the lower court misapplied the doctrine of […] Read More

City of Oxnard Pension Contributions Set to Double by 2024

As reported by the Ventura County Star, the City of Oxnard faces budget headwinds. Quoted in the article, Mayor Tim Flynn had this to say:

“We’re making decisions that should have been made 10, 20 years ago to put the city on a sustainable path,” Flynn said. “These are very painful cuts, but we have to live within our means. The city historically has not lived within our means.”

City Manager Alex Nguyen was more specific:

“Skyrocketing pension costs and spikes in health care are some of the reasons for the budget shortfall. With projected expenditures approximately $10 million more than anticipated revenue, there is no choice but to recommend programmatic cuts to the City Council.”

Skyrocketing pension costs. You can say that again. Depicted on the chart below is a summary of what’s happening to Oxnard, thanks to “skyrocketing pension costs.” The biggest takeaway from this chart is the fact that Oxnard’s pensions have just begun to “skyrocket.” If you want to skip the details and cut to the chase, view the yellow highlighted figures in the middle and at the bottom of the right column.

The first highlighted numbers show how much Oxnard had to pay CalPERS (not including employee contributions through withholding) back in 2017. Back then, it cost them $23 million. Now look to the bottom of the chart, to see what these pensions are going to cost the city in 2024 – nearly twice as much at over $45 million.

The numbers on […] Read More

Why is San Diego’s Pension Settlement Estimate So Much Money?

In 2012, San Diego voters approved Proposition B, a pension reform measure that replaced pensions for new hires with a 401K plan. Seven years later, it is possible this reform will be completely unwound, because union attorneys have successfully argued that the city didn’t “meet and confer” with the unions before putting the reform measure on the ballot for voter approval.

As reported two weeks ago, the U.S. Supreme Court refused to hear the city’s argument that the San Diego’s mayor, who supported Prop. B, was exercising his right to free speech, and to force him to meet and confer with the unions prior to supporting Prop. B would have been a violation of that right.

Since then, the case has been returned to the original appellate court, which on 3/25 ruled that the city must “meet and confer over the effects of the initiative and to pay the affected current and former employees represented by the Unions the difference, plus seven percent annual interest, between the compensation, including retirement benefits, the employees would have received before the initiative became effective and the compensation the employees received after the initiative became effective.”

This ruling raises more questions as it answers. For example, does this ruling definitely require the city to pay those employees affected by Prop. B? This is unclear, because the next sentence of the ruling seems to offer the city a way out, by stating:

“The City’s obligation to comply with the compensatory remedy extends until […] Read More