CalPERS tells four cities pay to avoid pension cuts

CalPERS has asked four San Gabriel Valley cities that formed a job-training agency 40 years ago, the now-disbanded LA Works, to begin paying down an 18-month-old pension debt totaling $3.37 million.

A rejection of the request, for which replies were due last Friday, could lead to a 63 percent cut in the pensions of 62 retirees. CalPERS cut pensions for the first time last November, a 60 percent reduction for five former employees of Loyalton, a tiny Sierra town.

The CalPERS board was told last week that LA Works is an unusual problem. Under the CalPERS contract, only the disbanded joint powers authority is liable for the pension debt, not the founding cities of Covina, West Covina, Glendora, and Azusa.

“Whether or not they have a legal obligation, our view is they have a moral and ethical obligation,” Matthew Jacobs, CalPERS general counsel, told the board. “They’re the folks who put this thing together, and it’s their employees, essentially.

“And just like they need to take care of their own employees who happen to have been lucky enough to have worked directly for that city, they ought to be taking care of these folks who they have sent over to the JPA. That’s why we sent the letter.”

The joint powers authority, the East San Gabriel Valley Humans Services Consortium, doing business as LA Works, has not made a monthly payment to the California Public Employees Retirement System since June 2015.

“They are an inactive JPA, and they have basically closed their headquarters office, laid off their staff, and they lost their funding,” Arnita Paige, CalPERS contract management chief, told the board.

Los Angeles County supervisors voted in May 2014 to stop contracting with LA Works. Auditors found the consortium had overbilled the county by nearly $1 million for job training for jail inmates and the unemployed.

LA Works had submitted the low bid for a new contract, $32 million over six years, the Los Angeles Times reported. But after the audits the supervisors decided to give the contract to another bidder.

The consortium formed by the four cities in 1976 grew to have a staff of 125 with a $12 million annual budget while also representing Claremont, Diamond Bar, Irwindale, La Puente, La Verne, San Dimas and Walnut, a San Gabriel Valley Tribune editorial said in June 2014.

A “big part of the problem” was the chief executive, Salvador Velasquez, who had been with the agency since the beginning, said the Tribune. He was out of the country on vacation when audit questions arose.

“For pension reasons, he is technically retired and retained by the board as a consultant,” the Tribune said. “The board dragged its feet on finding a replacement who could have ferreted out the problems, which obviously were myriad.”

Velasquez received an annual pension of $120,777 in 2015, according to Transparent California, a website that lists the annual pay and pension of individual state and local government employees.

Another East San Gabriel Valley Human Services Consortium employee, Kathryn Ford, received a $100,240 pension. The other 42 listed pensions ranged from $51,919 to $1,832.

A CalPERS staff report said the consortium’s pension plan has 191 members — 62 retired, 36 transferred, and 93 separated. The annual pension debt payment expected next fiscal year is $365,419, but it’s a long-term commitment. A termination payment is $19.4 million.

CalPERS sent a final collection notice to the consortium last Nov. 1, followed by a final demand letter on Jan. 6, before sending a letter seeking payment from the four founding cities on Feb. 2, with a response date of Feb. 17.

“If payment is not received from East San Gabriel or the founding cities the next step is for CalPERS staff to recommend to the Board involuntary termination,” Brad Pacheco, CalPERS spokesman, said via email. “If the Board approved then benefits would be cut.”

san-gabriel

The number of local government agencies that are falling behind on their monthly payments to CalPERS, mainly very small ones, is increasing during a decade-long phase in of a series of four rate hikes that began five years ago.

“Yes, we are starting to see more,” Paige replied last week when asked by board member Theresa Taylor if the number of monthly payment delinquencies is increasing.

Paige said she could not give the board the number of delinquent employers and contracts with joint power authorities, including those solely liable, but it’s being researched. CalPERS provides pensions for 3,000 local governments, nearly half of them school districts.

The historic decision to cut Loyalton pensions last November, coming nearly four years after the city stopped making monthly payments to CalPERS in March 2013, seemed to be a clear signal of a crackdown on unpaid pension bills, followed by new attention from the board.

In the first quarterly collections and termination report last week, the interim CalPERS chief financial officer, Marlene Timberlake D’Adamo, outlined a number of improvements, including a new “team approach” using members of several departments.

Copies of pay-up letters will be sent to employees, making them aware of the problem and giving them a chance to apply what pressure they can. Legislation may be proposed to shorten a one-year delay in contract termination.

To set a termination fee, CalPERS drops the earnings forecast used to discount future pension debt (now 7 percent) to a risk-free bond rate (now 2 percent), saying a lump sum large enough to pay all future pensions is needed because employer-employee contributions stop.

Several cities have considered leaving CalPERS (Villa Park, Pacific Grove, Canyon Lake) but did not due to the large fee. A federal judge in the Stockton Bankruptcy called the fee a “poison pill.” Others say of CalPERS: “You can check in, but you can’t check out.”

The report last week said four local governments left CalPERS, paying the termination fee to avoid pension cuts:

Citrus Pest Control District No. 2 of Riverside County, seven members, $447,041 termination fee; Newport Beach City Employee Federal Credit Union, six, $1,207,695; Metro Gold Line Foothill Extension Construction Authority, 23, $10,109,618, and San Diego Rural Fire Protection District, 40, $3,567,318.

Since February 2015, two local governments adopted resolutions to terminate contracts, Niland Sanitary District and Trinity County Waterworks District No. 1, and four sent a notice of intent to terminate: Alhambra Redevelopment Agency, California Redevelopment Association Foundation, Herald Fire Protection District, and Exposition Metro Line Construction Authority.

In the last four months, four delinquent local governments paid up and avoided termination, including the Central Sierra Planning Council.

At Loyalton, which faced a $1.7 million termination fee, Mayor Patricia Whitley was unavailable. But a city hall spokeswoman confirmed a report that the city, on a month-to-month basis, is paying retirees the amount of the 60 percent pension cut.

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 20 Feb 17

12 Responses to “CalPERS tells four cities pay to avoid pension cuts”

  1. jskdn Says:

    “Whether or not they have a legal obligation, our view is they have a moral and ethical obligation,”

    Government pensions as “moral and ethical”- we could only wish.

  2. Tough Love Says:

    Just the tip of a HUGE iceberg.

  3. john moore Says:

    If a city or county elected a pension reform majority to its council or BOS, it could avoid the reduction of pension process revealed above by reducing salaries across the board by, say, 30% and freezing salaries until the pension system was 100% funded. Pension reform must take place at the ballot box, or not at all. Everything else is just NOISE.

  4. S Moderation Douglas Says:

    reducing salaries across the board by, say, 30% and freezing salaries until the pension system was 100% funded.

  5. S Moderation Douglas Says:

    LOL:

    February 20, 2017 at 10:59 pm “Your comment is awaiting moderation.”

    My comment IS moderation. Moderation is my middle name. And this is the reason why.

    I agree, and a San Jose judge agreed, that, though it is not legal (yet) to modify pensions, it IS legal to reduce salaries to obtain the same or similar savings. Legal, but not likely, at least not likely to the extent of a thirty percent decrease. That’s a non starter.

    A salary freeze is possible, and has been done in the past, up to a point, but not for more than a couple of years, certainly not until “the pension system was 100% funded.” It just doesn’t work that way. It’s not even a matter of “fairness”. With normal inflation, a three year freeze could leave an employee another ten percent behind similar private sector jobs, and many public employees are more than ten percent behind (in cash wages) already. It’s a matter of attracting and retaining qualified employees in a competitive market.

    No need to wait. This is a very moderate comment.

  6. john moore Says:

    It is a pipe dream only if we COWARDS!

  7. S Moderation Douglas Says:

    Note:

    “… a city hall spokeswoman confirmed a report that the city (Loyalton), on a month-to-month basis, is paying retirees the amount of the 60 percent pension cut.”

    Do they really have a choice? CalPERS is just an agent. The city has a contract with it’s employees to pay the agreed upon pensions. Unless the city literally runs out of money, it seems they would have to make up the difference. Or file bankruptcy. This is the difference, though. This is a case of “governments don’t go out of business”, normally.

    This is a different case, though. In this case, the government ( joint powers authority) DID go out of business. It no longer exists, has no taxing authority, and no other means to raise revenue. My guess is the four founding cities do have a legal obligation. Or at least may spend more money in litigation than it is worth to find out.

  8. CalPERSon Says:

    I agree with SMD. Looks like we need a law to require that when local governments create a joint powers authority that they shall assume the CalPERS payments or pay the termination fee in the event the JPA dissolves. Otherwise cities or counties will just walk away from their obligations.

  9. Tough Love Says:

    No CalPERESon, the Taxpayers need to outsource every employee except Police.

    And Police salaries should be frozen untill all existing officers (currently on DB pensions) quit, and then hire new officers at higher salaries with 3% of pay DC retirement Plans and no more.

  10. Arnold Says:

    TL, disconnecting Police & Fire from the same Public Safety compensation argument is a no-brainier. FD total compensation makes zero sense. The vertical structure of their comp packages/hierarchy guarantees exorbitant annual wage increases which enhances their pension payout – at a very young age. It shouldn’t come as a surprise to anyone that FD employees have the largest pension payouts.

    The Ca Police Department unions control the narrative regarding the number of qualified candidates, and the number of people leaving the force. The public employee unions also control the politicians that should be challenging the unions assumptions.

    It’s all garbage. The foundation is crumbling. And the Orville Damn (200 thousand evacuated) is symbolic of the misguided priorities, and also misguided budget priorities, of our deteriorating state.

    And yet CalPers, while charging many cities over 300 percent of the advertised cost – to cover their own self-serving, illegal & bone-headed decisions, is still playing “Hotel California” on an endless loop

    While CalPers has made some small semblance of progress,in regards to accountability in terms of their discount rate, they continue to add BILLIONS to taxpayer debt while driving a stake into into the budgets of counties, cities,and school districts.

    It’s difficult to imagine a bigger BOONDOGGLE than the CalPers of the past 17 years.

  11. Tough Love Says:

    Arnold,

    CalPERS is run BY Unions FOR unions. Why, when the Taxpayers are called upon to pay for all but the 10% to 20% of total Plan costs actually paid for by employee contributions (INCLUDING all the investment earnings thereon)? It’s the Taxpayers, NOT the Unions who should be ruling the roost.

    Interestingly, to stifle the CA pension changes pushed by the Gov in 2014, CalPERS came up with a list of 99 ways to spike one’s pension …… and those lists could be found on CalPERS website here:

    http://www.calpers.ca.gov/eip-docs/about/newsroom/proposed-adoption-pensionable-compensation.pdf

    and here:

    http://www.calpers.ca.gov/eip-docs/about/committee-meetings/agendas/pension/201408/item-5-attach-e.pdf

    Unsurprisingly BOTH of those pages have been taken down.

    Well, CalPERS can hide the list, but they can’t squelch the negative commentary that accompanied the creating of that list. Here’s an article that shows exactly how outrageous CalPERS actions were:

    http://www.latimes.com/business/la-fi-pension-fight-20141023-story.html

  12. S Moderation Douglas Says:

    9/11 was not an inside job. And CalPERS did not “take down” those pages.

    https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.calpers.ca.gov/docs/proposed-adoption-571-1.pdf&ved=0ahUKEwiWzL7NlPLSAhVPwGMKHdmpBz0QFggaMAA&usg=AFQjCNF5qo_81NSvs5SbDn_XbdOKi589cw&sig2=CrsFsjoPKjXm1ZMhtQSC-w

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