CalPERS, CalSTRS and other government pensions
No ceasefire in CalPERS war with San Bernardino
CalPERS made two court filings last month after the San Bernardino city
council approved a confidential draft of a plan to exit bankruptcy, as if
stepping up opposition in reaction to something in the plan.
But a spokeswoman for the big pension fund said the filings are unrelated to
the cityfs plan or gterm sheet.h As directed by a federal bankruptcy judge, the
plan is a starting point for closed-door mediation and has not been revealed to
the public.
The two CalPERS court filings continue an all-out legal battle triggered
when San Bernardino did the unprecedented: skipped employer pension
contributions last fiscal year, running up a tab of about $17 million, before
resuming payments in July.
The giant California Public Employees Retirement System wants its more than
3,000 local government employers to know that withholding pension contributions
is a no-go zone, not an option if they struggle financially.
San Bernardino, in danger of not making payroll, made an emergency
bankruptcy filing in August last year, staying debt collection. The city stopped
about $30 million in various payments, roughly half owed to CalPERS.
In response, CalPERS became the lone opponent of San Bernardinofs
eligibility for bankruptcy, unsuccessfully attempted to sue the city in state
court, and accused the city of creating a crisis and withholding key financial
information.
gI donft believe anyone in this courtroom seriously thought the city was not
insolvent,h U.S. Bankruptcy Judge Meredith Jury said while ruling San Bernardino
eligible for bankruptcy last August.
Two weeks after the San Bernardino city council approved the term sheet last
month CalPERS asked to
appeal the eligibility ruling: gNever has a bankruptcy court set such a
low bar for a municipal debtor to enter the doors of a bankruptcy court.h
And a week after that, CalPERS filed
a brief in support of an appeal by the state Department of Finance and
state Controller of the judgefs ruling on $15 million in city tax revenue.
The judge blocked a state attempt to withhold $15 million in sales and
property taxes. San Bernardino had not returned a similar amount of unspent
housing funds after the state shut down local redevelopment agencies.
gIfm just amazed at their decision to fight the city on land and sea and
air, at every level,h Mayor Patrick Morris told the San Bernardino Sun after
CalPERS filed the brief in support of the state appeal.
Without the $15 million, he said, gWe canft pay our employees. It sinks the
ship — we canft pay CalPERS. Itfs legal idiocy.h
Judge Jury expressed similar puzzlement in August about CalPERS opposition
to bankruptcy eligibility, saying the apparent alternative is dissolving the
city. gHow does that help CalPERS if the employees arenft paid?h she said.
As deep-pocketed CalPERS tries to drive home the point that there is a stiff
price to pay for skipping pension contributions, no legal tactic left untested,
voters delivered another kind of message to politicians last week.
After 26 years as San Bernardino city attorney, James Penman, was recalled
by 60 percent of the vote along with Councilwoman Wendy McCammack. Another
recall target, Councilman John Valdivia, survived the challenge.
Penman twice ran against Morris for mayor and lost. The clash between
factions led by Morris and Penman, said by his critics to be too close to labor,
is often cited when the San Bernardino political culture is called
gdysfunctionalh or gtoxic.h
Morris, who did not run for re-election, is one of the three Democratic
mayors who joined San Jose Mayor Chuck Reedfs drive for a pension reform
initiative opposed by a labor coalition. Penman was replaced by Gary Saenz.
McCammack was recalled by 58 percent of the vote (1,256) in her council
ward. But she was the leader among 10 candidates for mayor (24 percent or 3,043
votes) and will be in a Feb. 5 runoff with Carey Davis, endorsed by Morris and
the Sun.
Two weeks before the election, Councilman Robert Jenkins was charged with
harassing an ex-boyfriend and Councilman Chas Kelley was charged with perjury
about campaign funds. Kelley resigned. Jenkins was defeated last week by Benito
Barrios.
What impact the outcome of the election might have on the course of the
bankruptcy remains to be seen. One of the recent issues debated by the council
is whether costs could be cut by contracting with another government agency for
fire services.
Councilman Fred Shorett, now facing a runoff against Anthony Jones, made
several unsuccessful attempts, backed by Morris, to get the city council to ask
the city manager to solicit bids for city fire services.
At a council meeting Oct. 7, Penman said an earlier request found that
providing police services through the San Bernardino County Sherifffs department
would cost more and put fewer officers on the street.
gThis was especially true because the conversion factor from our pension
system, the CalPERS system, to the county system for the sheriff would result in
an adjustment we were going to have to pay of several million dollars,h Penman
said. gThe same would be true if we were to contract with San Bernardino County
Fire.h
In a sketchy plan last fall for operating in bankruptcy, San Bernardino
proposed a gfresh starth that would greamortize CalPERS liability over 30
years,h perhaps in a way that would grealize value of $1.3 million per year
starting fiscal year 2014.h
Among the unanswered questions now: Did the city make a more detailed or
different proposal for cutting pension debt in the confidential term sheet last
month? Will the election result in a new city direction on pension debt?
As was pointed out in the Stockton bankruptcy, CalPERS is only the manager
of the city pension funds, a gconduith or gpass-throughh agency. The pension
debt is owed to employees and retirees, who presumably would take the hit if the
debt is reduced.
The latest valuation of the San Bernardino pension funds, as of June 30,
2011, shows employer contribution rates for this fiscal year that are not
unusually high: safety (police and fire) 31.5 percent of pay and miscellaneous
18.2 percent of pay.
The funding levels are near the CalPERS norm. Using market value assets, the
safety plan is 74 percent funded with a debt or gunfunded liabilityh of $152.6
million. Using actuarial value assets, safety is 83 percent funded with a debt
of $99.7 million.
In the view of some, what makes San Bernardino unusual, though CalPERS
apparently disagrees, is the ability to pay.
A George Mason University case
study of the bankruptcy said San Bernardino is the gpoorest city of it
size in the state,h with nearly a third of the 210,000 residents below the
national poverty line.
But the city charter automatically links pay for police and firefighters in
San Bernardino, which has a median household income of $35,111, to 10 other
cities that have an average median household income of $62,118.
In the last three decades, said the study, San Bernardino was bypassed by
the I-15 Interstate and three major employers closed: Kaiser Steel, Santa Fe
Rail Yard and Norton Air Force Base.
Three remaining large employers do not pay property taxes: CSU San
Bernardino, San Bernardino Community College and San Bernardino County. State
actions have shifted redevelopment funds and vehicle license fees.
gAs an unfortunate consequence of politics and historical trends, the city
found itself committed to salaries and pensions that were neither proportionate
nor sustainable,h said the George Mason study by Frank Shafroth and Mike
Lawson.
San Bernardino change during three decades (George Mason graph)
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three
decades, most recently for the San Diego Union-Tribune. More stories are at
Calpensions.com. Posted 12 Nov 13