HEADED FOR A FALL
As we said last week, the scandal in the city of Bell will probably end up being a good thing for California municipal governments. Right now, they have to worry about the unusual attention their residents are devoting to cities' financial affairs.
That is, in fact, what's happened in our own town. At the July 27 meeting of the Claremont City Council, Mayor Linda Elderkin went to great lengths to contrast Bell's $100,000 city council annual salaries with Claremont's $4,800 per year for council members. Claremont city staff also made some salaries available online as a show of fiscal transparency.
But in the long run, cities like Claremont will weather the current scrutiny, public attention will fade, the LA Times and other media won't have anywhere near the staff and resources to cover every area of Southern California, and things will revert to the status quo.
Bell represents the far extreme, and their council and city management were caught because they allowed greed to get the better of them. In a town like Claremont, financial losses result from poor decision-making rather than outright fraud or embezzlement, and simply looking at employee and council salaries doesn't begin to capture the full impact of the money flowing out of city coffers.
That kind of financial leakage flourishes on the local level, mostly because, even when citizens are paying attention, elected officials refuse to deal with problems with long time horizons or because city officials refuse to release all of the information needed for a full public accounting.
Consider that July 27 council meeting.
Item number 7 on the consent calendar was a request by staff for the council to adopt a resolution implementing a Memorandum of Understanding (MOU) between the City and the Claremont Police Management Association. The CPMA agreed to conceding a 1.9% cost of living increase for the current fiscal year and to the implementation of a two-tiered CalPERS pension system. Current safety employees receive a 3% at 50 pension (that is, at the age of 50, 3% of their final year's salary for every year of employment).
In return for those CPMA concessions, the City agreed to continue paying for the employees' 9% CalPERS contribution. You can see the discussion here (at around the 57:40 mark).
Councilmember Peter Yao (photo, right) asked for the MOU to be pulled for discussion. Yao, who has been on top of the City's the unfunded pension liabilities, put that amount in the tens of millions and said that by his personal calculation, it was closer to $50 million. (The Courier and Daily Bulletin later reported the unfunded liabilities as $40 million.)
Yao pointed out that the City doesn't possess $50 million in assets, which Yao said meant that "by definition we're insolvent." Yao's problem with the MOU was that, although it introduces a two-tiered pension system, one for current employees and one for future employees, the MOU defers any actual details of the new pension tier until next year. He added that the new tier wouldn't have any effect on the CalPERS problem for anywhere from 15 to 30 years from now, when new employees would be entering retirement.
We might add, too, that there's a hiring freeze on right now and that could extend for several years if the economy doesn't turn around soon. That means that any savings from the new pension benefits wouldn't apply quite a while.
Yao was also unhappy with council members Elderkin, Sam Pedroza, and Larry Schroeder for their failure to address that 9% employee CalPERS contribution the City continues to cover. Elderkin's and Pedroza's refusal to ask the employees to pick up their own 9% contribution was almost certainly out of self-interest. They, along with Yao, could be campaigning for reelection. Linda and Sam may be figuring there's no sense in angering the employee union gods at this point, even if it imperils the City's solvency.
Schroeder's reluctance to correct the CalPERS problem is more puzzling. Schroeder spent 10 years in banking and 19 years as a finance director for the cities of Lakewood and Glendora. And in the July 27 pension discussion, Schroeder acknowledged that "we do have a pension problem." Should that not be a huge red flag, especially coming from Schroeder?
In the end, Schroeder, perhaps because he himself is a CalPERS pensioner, voted along with Elderkin and Pedroza to implement the MOU. Council member Corey Calaycay voted with Yao against the MOU, citing the City's responsibility to not make promises it cannot keep (an ethical sticking point that has never bothered Elderkin, Pedroza, and the Claremont 400).
THE GOOD LIFE
Today's LA Times had an article in its LA Extra section about concerns that CalPERS authorities failed to notify the California attorney general's office in 2006 when they discovered a 47% increase in Bell City Manager Robert Rizzo's salary while conducting an audit of Bell's .
That increase raised Rizzo's salary to $447,000. According to the Times:
Documents released by CalPERS on Thursday show that the fund was also informed of a 42% raise for the assistant city manager and nearly 38% raise for City Council members. That brought council members' pay to $62,000 by 2005 for part-time jobs that in other small cities pay about $400 per month. The newly released records include Bell's explanation to CalPERS of why its officials were worthy of such salaries.
Assistant City Manager Angela Spaccia told CalPERs in writing in October 2006 that the city manager's salary was hiked "to reflect his contributions to the city," which included helping Bell resolve a multimillion-dollar deficit. She said her own pay hike was "provided to reward her for her efforts and new responsibilities" related to a promotion the city had given her.
"It should also be noted that the City Council, also members of the Executive Management classification, were compensated accordingly for their contributions and efforts toward the City's dramatic financial recovery," Spaccia wrote.
The Times said that CalPERS found Bell's documentation sufficient and never did any subsequent audits. CalPERS has already been criticized for using overly optimistic rates of returns in figuring how much local governments and their employees should contribute to their pension accounts. CalPERS has also suffered from a scandal involving a former CalPERS executive and a former board member.
So if you're a public employee, there's no time like the present to retire, if you are eligible. There will be a day of reckoning for California public employee pensions, and chances are that day will arrive sooner rather than later.
One recent retiree familiar to us is former Claremont City Manager Glenn Southard. You'll recall that Southard went to Indio for five years following 17 years in Claremont. He retired from Indio earlier this year.
We were curious about Glenn's retirement. It couldn't possibly be near Robert Rizzo's $600,000-plus annual retirement pay. Figuring pensions is guess work, though there is a website called CaliforniaPensionReform.com that does post a searchable database with all of CalPERS' six-figure pensions. Glenn isn't on their yet, but he will be the next time CPR updates its records.
Southard's base salary his last year in Indio was $300,000. That's important because CalPERS uses that last year when figuring retirement payouts. That's why you used to see certain CHP employees putting in a lot of overtime during their last year of work.
We were able to find an estimate on the size of GS's retirement after a reader alerted us to a blog called Inflection Point Diary that had a couple recent posts about Glenn's compensation. IPD carried a thorough breakdown of Southard's Indio contract, which IPD posted along with the analysis.
As IPD notes, most people, including our local papers, only focus on base salaries when they examine public employee compensation. But buried in the details of their contracts are things like bonus agreements that can add a good chunk more to a fellow's pension. IPD reveals that in addition to the $300,000, Indio also agreed to give Southard an annual bonus of up to 10%, or $30,000 for Southard's last year.
The analysis goes on to say that Southard was eligible for a deferred compensation account with an apparent maximum contribution of $16,500 a year, paid entirely by the city of Indio. There's also the matter of unused vacation time, for which Southard also received compensation. In fact, IPD posted a follow-up on Southard that said he cashed out around $80,000 worth of unused vacation during his time in Indio.
IPD also cited a Desert Sun article from February 24 that said in 2008 Indio overpaid by $5,949.52 for 40 hours worth of vacation time he didn't have, an error that wasn't caught until Southard was getting ready to retire.
IPD estimated that Southard's final year's salary could have been closer to $400,000 the the $300,000 base. Upon retirement, the Desert Sun said, Southard was also supposed to get $162,000 for 136 hours of accumulated vacation and sick time. All in all, not a bad payday for a man who left Indio sitting on a $13.5 million budget deficit. Good thing he didn't stick around for his 2010 performance bonus.