2015: 9 years after the Grand Jury
found Marin's
PENSION programs were a time bomb - it's become a much bigger bomb
Marin's city and county
governments have mounted a retiree debt of as much as
$2.3 billion, making the average resident's share of the bill $25,000,
a new report by pension watchdogs asserts.
In a "first of its kind rating and assessment," the detailed analysis by
fiscal experts associated with Citizens for
Sustainable Pension Plans reported the county and its cities have
banked less than half the money needed to pay for the retirement benefits
they promise.
The report provides a pension primer, compares Marin's situation to
Danville, where there is no pension debt, and analyzes agency liabilities
from a variety of perspectives, including retiree debt as expressed per
household, a measure that brings the issue home.
Corte Madera is at the top of the per-household debt list among Marin
cities, while Tiburon is doing the best to make ends meet, according to
calculations assuming both the 7.5 percent stock market return that most
public pension plans count on, as well as what critics say is a more
reasonable 4.8 percent return that requires higher annual pension fund
contributions. The debt under the two investment earning scenarios ranges
from per household with the first figure assuming a robust stock market, the
second a more modest return: |
Oct 2019
REPORT Marin County Local Government Reform of Pensions and Other Post
Employment Benefits.
Dick
Spotswood :- " Marin’s 10 cities belonging to California Public
Employees’ Retirement System collectively owe CalPERS $176.9 million.
San Rafael, which instead of CalPERS, belongs to Marin County Employee’s
Retirement Association, has a separate $120.6 million MCERA liability.
Add to that $49.3 million owed by 10 of Marin’s cities for pensions and
benefits and another $33.78 million owned by San Rafael for post-retirement
medical insurance benefits. ......
Other Post Employment Benefits (OPEBs-Healthcare)
are controllable. Many were adopted decades ago before Medicare was a
reality. Why not have all public employees join Medicare?"
Aug 2019
Marin school district pension debt can top $24K per household
May 2018
Marin retirement fund’s average full-career pension: $96,401
Feb 2018
The pension nightmare for California’s cities is getting scarier
oct 2017:
Marin County pension contributions to rise.
(reduce
the fund’s assumed annual rate of return from 7.25% to 7%) when
more realistically it should be 4.8%
San Rafael
responds to the Grand Jury Report on Pensions - July 2017 (see
the
original)
SR's Pension
Webpage
San Rafael responds to the Grand Jury Report on Healthcare - July
2017 The report was titled "Marin’s Retirement Health Care Benefits -
The Money Still Isn’t There"
June 2017:
Pension watchdog sues San Rafael
a 2015-16 Marin County Civil Grand Jury report
that criticized the pension enhancements approved by San Rafael, as well as
those by Southern Marin Fire District, Novato and Marin County. The grand
jury report, “Pension Enhancements: A Case of Government Code Violations and
a Lack of Transparency,” suggested Marin public agencies may have violated
statutes for transparency in approving pension enhancements.
San Rafael’s response to the grand jury report was written in
2015 by attorney Michael Colantuono, of Colantuono, Highsmith and Whatley,
PC, of Penn Valley, under contract with the city.
June
2017 CALIFORNIA’S PENSION CRISIS How a pension deal went wrong and cost
California taxpayers billions.
June 2017:
Jury sees $1 billion shortfall in Marin public pensions the
report
Jan 4th 2017: Too much resistance to
Jerry Brown’s
Pension Reforms have
done little to rein in costs
Aug 2016: Appeals Court declared that public retirement plans could be
reduced, saying the law merely requires government to provide a
“reasonable” pension. |
2015 - Marin's pension
obligations per-household |
|
7.5 percent stock market return |
4.8 percent return |
Retiree debt
totals (assuming a 4.8 percent investment return) Source:
Citizens for Sustainable Pension Plans |
Corte Madera |
$16,000 |
$30,206 |
$63 million |
Tiburon |
$10,582 |
$19,523 |
$19.3 million |
Ross |
$16,068 |
$30,023 |
$13 million |
Sausalito |
$15,791 |
$29,460; |
$61.5 million |
San Rafael |
$15,667 |
$29,174; |
$354.6 million |
Larkspur |
$13,490 |
$24,633; |
$61.8 million |
Belvedere |
$13,349 |
$24,942; |
$10 million |
San Anselmo |
$11,527 |
$20,816; |
$33.9 million |
Fairfax |
$11,077 |
$20,188; |
$19.6 million |
Novato |
$10,694 |
$19,645 |
$111.3 million |
Mill Valley |
|
|
$93.7 million |
County |
|
|
$1.5 billion |
|
Marin school district
per-household pension debt, using the “market” earning rate of
3% annually: |
rankings
statewide |
Debt |
|
School District |
116 |
$24,181. |
|
Ross School District, |
319 |
$16,497. |
|
Shoreline Unified School District, |
360 |
$15,375. |
|
Union Joint Elementary School District, |
541 |
$11,420. |
|
Reed Union School District, |
543 |
$11,398. |
|
Novato Unified School District, |
577 |
$10,715. |
|
Kentfield School District, |
583 |
$10,635. |
|
Larkspur-Corte Madera School District, |
607 |
$9,993. |
|
Mill Valley School District, |
688 |
$8,157. |
|
Ross Valley School Distirct, |
691 |
$8,157 |
|
Dixie (now Miller Creek) School District, |
712 |
$7,585. |
|
San Rafael Elementary School District, |
733 |
$7,149. |
|
Lagunitas, |
768 |
$6,410. |
|
Nicasio, |
819 |
$4,991. |
|
Tamalpais Union High School District, |
844 |
$4,224. |
|
San Rafael High School District, |
904 |
$2,277. |
|
Sausalito Marin City School District, |
919 |
$1,786 |
|
College of Marin, |
948 |
$1,005. |
|
Marin County Office of Education, |
|
- The above $'s include the county's $8,181 per household retiree debt, a
tab shared by city residents.
The novel calculations are the first to take all agency pension and retiree
costs, including health care and bond issue debt, into account for public
review. A grand jury review earlier this year covered health debt only, saying
city, county, school and special district agencies across Marin owe $522 million for retiree health care, posing a fiscal
calamity.
Agencies understate potential liabilities by counting on the stock market to
lift investments, but even if optimistic assumptions about 7.5 percent returns
pan out, retiree debt mounted by the county and its cities "is a staggering $1.2
billion," according to the 41-page document. At a reasonable 4.8 percent return
based on the last decade, the debt for cities and the county swells to $2.3
billion, the report says. Conservative calculations by Stanford academics put
unfunded liability for the county Civic Center alone at $2.3 billion.
The failure of elected officials to adequately fund the benefits they have
promised, along with pension programs that are "at least 230 percent (more)
valuable than an 'average' private plan," and an optimistic belief investments
will grow in a booming stock market, add up to "pension roulette" that gambles
with the wallets of a future generation of taxpayers, the pension group
asserted.
And in what it described as a "call to action," the report concluded with a
suggestion that elected officials be replaced by candidates willing to
"effectuate change." Further, tax measures such as sales tax increase proposals
on next month's ballot should be rejected "until meaningful reform is adopted,"
the report indicated.
The highly critical report drew a variety of reactions:
- County Administrator Matthew Hymel recited a list of county moves to rein
in costs, including capping retiree health benefits, allocating $32 million
last year to chip away at pension liability and becoming the only county in
the state to disclose retiree costs on the tax bill. "We are one of only two
of California's 58 counties with AAA ratings from the two largest (credit)
rating agencies," Hymel added.
- Corte Madera finance chief George Topor said the city has done a number of
things to curb liabilities, noted that cutting benefits requires labor
negotiations, and added state reforms will cut costs over the long haul.
- San Rafael Mayor Gary Phillips said he and others on a city panel will
"thoroughly review" the report "in our continued quest to monitor and modify
the city's employee benefits plan and related obligations to be certain we
have a stable program."
The pension group's report dismissed modest cutbacks made to date, noting
they affect new employees. The report, in some respects a sequel to a pivotal 2004-05 grand jury examination that found Marin's pension
program was a "bloated" fiscal time bomb, was prepared by experts
including Marty Miller, a retired actuary who served on the 2004-05 grand jury,
and Bill Monnet of Sausalito, a retired financial manager for firms including
IBM, Siemens and Cisco Systems. Little has changed in the
eight years since the grand jury report, and in the cases of certain employee
groups in Corte Madera, Larkspur, Ross and San Rafael, costs have increased,
according to their calculations.
"It's just ridiculous," Miller said of the pension liabilities mounted
by Marin agencies. "The nature of the promises has been reckless, and the
taxpayers are taking it in the shorts."
"It's scary. It's worse than I thought it was," said Monnet. "I don't
think our public officials are being honest with the public about the
financial state of our pension liabilities."
Among other findings of the 2015 report:
- • Pension debt quickly balloons. In 2005, Sausalito's pension debt totaled
$5.3 million, but by June 30, 2011, the city's debt was "at least" $17.6
million but "could be as great" as $48 million.
- • In 2003, the county issued $112 million in pension bonds to refinance
pension debt, but by June 30, 2012, still owed $110 million on the bonds — and
had incurred an additional unfunded liability of $371 million. "In only nine years the county's total pension debt had
increased by more than 400 per cent to $481 million."
- • San Rafael, Corte Madera, San Anselmo and Fairfax provide retirees with
benefits that are "300 percent as valuable" as
private sector pensions. The others offer plans at least 230
percent more valuable.
- • Most Marin cities calculate pensions based on factors including final
year of salary. Only the county, Fairfax and Ross use an average of the final
three years of salary, a move that curbs spiking, or inflating final salary to
inflate pension benefits. Most programs provide a 2 percent cost of living
increase, but San Rafael provides 3 percent.
- • More than half of the total debt of the county
and all cities is retiree debt "or debt for past services rendered
to past residents" an "alarming" social inequity.
- For every $1 of payroll in San Rafael, taxpayers pay another 64 cents to
cover retiree costs, an "astonishing" 64 percent cost compared to 17 percent
in Tiburon, and 19 percent in Belvedere.
The report is posted at
www.marincountypensions.com Contact Nels Johnson via
email at njohnson@marinij.com.
Appendix E: FY 2016 Public Agency Balance Sheet Data (2017
Grand Jury Report)
Municipalities |
Cash |
Pension Liability |
Pension Liability
% of Cash |
Belvedere |
$3,595,630 |
$3,080,855 |
85.7% |
Larkspur* |
N/A |
N/A |
N/A |
Mill Valley |
$17,919,732 |
$25,010,100 |
139.6% |
Novato |
$59,936,536 |
$32,111,535 |
53.6% |
San Rafael |
$66,009,979 |
$142,323,127 |
215.6% |
Sausalito |
$28,955,501 |
$19,635,621 |
67.8% |
County of Marin |
$408,896,116 |
$203,688,484 |
49.8% |
Corte Madera |
$15,323,517 |
$14,263,877 |
93.1% |
Fairfax* |
N/A |
N/A |
N/A |
Ross |
$10,528,331 |
$3,548,143 |
33.7% |
San Anselmo |
$6,606,250 |
$5,299,442 |
80.2% |
Tiburon |
$21,441,460 |
$5,412,997 |
25.2% |
Totals |
$639,213,052 |
$454,374,181 |
71.1% |
Pension Benefits
While the Bankruptcy
Code grants no special priority to pensions, the California Supreme
Court has recognized a strict “vested right” in public employee pension benefits
under the California Constitution (the so-called “California Rule”). Any
modification of active employees’ vested pension rights must, among other
things, “be accompanied by comparable new advantages.
” Marin Ass’n of Pub. Employees v. Marin Cty.
Employees’ Retirement Ass’n, 2 Cal. App. 5th 674, 697 (2016) (citing Allen v.
Board of Administration, 34 Cal. 3d 114, 120 (1983).
And the pensions of retirees are to “receive an extra
measure” of protection beyond that.3
Id. at n.19.
In the Stockton case, CalPERS asserted that the
California Rule prevented pension obligations from being modified under a plan
of adjustment (though, in fact, Stockton was not seeking to impair pensions).4 In re City of Stockton, 526 B.R. 35, 55-56 (Bankr.
E.D. Cal. 2015). The bankruptcy court rejected CalPERS’ argument, ruling that
3 Recent decisions of the
California Courts of Appeal have called the inflexibility of the California
Rule into question. Alameda Cnty. Deputy Sheriff’s Ass’n v. Alameda Cnty.
Employees’ Retirement Ass’n, 19 Cal. App. 5th 61 (2018); Marin, 2 Cal. App.
5th 674. Marin allowed “reasonable” modifications to the pensions of active
employees without a comparable new advantage. Marin, 2 Cal. App. 5th, at
697-700 (2016). The Alameda court disagreed with the holding of Marin. It
would permit changes only if there were “compelling evidence” that the
changes were necessary for continued operation of the pension system.
Alameda, 19 Cal. App. 5th at 123. The issue is expected to come before the
California Supreme Court shortly.
4 Because Stockton did not
attempt to impair pensions, CalPERS did not oppose the plan of adjustment.
Rather, the bankruptcy court decided the issue because an objecting capital
markets creditor argued that Stockton should be required to impair pensions.
Stockton, 526 B.R. 35.
the Bankruptcy Code preempted a California statute
(Cal. Gov’t Code § 20487) that purported to limit the rejection of pension
contracts.
The bankruptcy court concluded that pensions contracts
could be rejected and pensions may, as a matter of law, be modified by a chapter
9 plan of adjustment. 526 B.R. at 62.
The court reasoned that pension rights are contract rights. And, while a state
may decide whether or not its municipalities can file for bankruptcy, the
debtor’s ability to impair contracts under the Bankruptcy Code is available to
states only on “an all-or-nothing, take-or-leave-it basis.” Id. at 55.
Thus, if a state allows its municipalities to file for bankruptcy, it cannot
prevent those municipalities from impairing particular contracts. See id. at 57.
Had Stockton rejected
or otherwise attempted to impair its contractual relationship with
CalPERS, it could then be liable for the
CalPERS termination charge under Cal. Gov’t Code §
20577. CalPERS asserted that Stockton would owe $1.6
billion, but the bankruptcy court suggested that
CalPERS would not have been able to enforce its statutory
lien under Cal. Gov’t Code § 20574 because certain liens can be
avoided (made unenforceable) in bankruptcy cases.
If that were the case, CalPERS’ termination charge would have been only a
general unsecured claim in the bankruptcy.
The statutory lien issue was not actually litigated in the recent Stockton or
San Bernardino cases, and no California bankruptcy court
has yet addressed the enforceability of the lien.
The bankruptcy court in Detroit followed Stockton on
bankruptcy impairment of pension obligations, holding that the city could impair
pensions notwithstanding the Michigan State Constitution provided that pensions
and retirement benefits were contractual obligations that could not be impaired.
In re City of Detroit, 504 B.R. 191, 244 (Bankr. E.D. Mich. 2013).
Despite the Stockton
bankruptcy court’s ruling that pension contracts could be rejected and pensions
could be modified, Stockton did not reject its
agreement with CalPERS or attempt to modify pension benefits under its plan of
adjustment. San Bernardino made a similar decision
in its chapter 9 bankruptcy.
Both faced the same fundamental issue: pensions are a crucial component of
employee compensation, and there is no pension administrator in the marketplace
comparable to CalPERS.
Rejection of a CalPERS contract would have
chilled negotiations with unions and retirees, and might even have precipitated
a mass exodus of employees. However, the continuing rise in pension costs
will no doubt lead cities to seriously consider attempting to impair pension
obligations in future chapter 9 cases.
Both Stockton and
San Bernardino were ultimately able to reach new
CBAs and other agreements with unions and retirees that provided
substantial pension savings for the cities.
Stockton reached some of those agreements before
bankruptcy, while San Bernardino first imposed the
changes unilaterally in the first few months of its bankruptcy case, then moved
for bankruptcy court approval of rejection of the Collective bargaining
Agreements ( CBAs), and finally reached consensual agreements with the
retirees and new CBAs with the unions that were implemented under the chapter 9
plan.
San Bernardino’s new CBAs included a variety of
provisions that reduced pension and benefit costs,
including:
- requiring employees to
contribute the full statutory employee rates,
- eliminating the employer paid
member contribution,
- removing pension-spiking
provisions,
- reducing accruals and
cashouts of leave time,
- modifying retirement health
benefits, and
- other related changes.
SOURCE:
|