Saturday, March 08, 2014

A Lot to Be Moody About in Vallejo

A report from Moody’s Investors Service was released recently about Vallejo, Stockton and San Bernardino entitled, “Without Pension Relief, Bankrupt California Cities Risk Return to Insolvency”.

Moody’s warns that because of Vallejo’s continuing structural imbalance, the city, “risks a second bankruptcy filing if it continues on its current path.” And while the City did cut cut retiree health benefits, created a second benefit tier for new hires and made City employees contribute more of their pay toward their pensions, Moody’s argues that Vallejo missed the opportunity in bankruptcy to cut its pensions.
“Vallejo’s current budget challenges are largely driven by its failure to alter its pension obligations to CalPERS, the California Public Employees Retirement System,” the report says. Moody’s analyst Tom Aaron, who co-authored the report, says, “By failing to address its pension liabilities (Vallejo) remains vulnerable to increasing annual payments,” which will exceed 70 percent of payroll in just six years.

Having been through the bankruptcy up close and personally, I have mixed feelings about Moody’s pronouncements. They are spot on about Vallejo’s continuing structural deficits. Giving our police officers, some of the highest paid in the state, raises in bankruptcy was unfathomable, and refusing to cut salaries across the board for all employees, with the highest paid employees taking the biggest hits, was irresponsible. Moody’s is correctly sounding the warning bell about the dangerously steep rise in pension costs coming our way.

Vallejo’s own budget hawk J.D. Miller notes that:
“CalPERS rate increases will raise Vallejo’s pension costs roughly 50 percent by 2020…The combination of increased pension costs and the expiration of Measure B in 2023, in excess of $20 million a year, will reduce the amount of money Vallejo has to spend for police officers and firefighters…Vallejo could have 80 fewer police officers, 80 fewer firefighters, or some combination of these two.”

Many of us in Vallejo hear the tsunami sirens very loudly. We get it and we’ve been asking for pension and pay cuts from our city employees. But Moody’s blithely says that Vallejo should have “cut pensions while in bankruptcy.” Much easier said than done. CalPERS contends that pensions are not touchable under the Chapter 9 bankruptcy code because, under California law, public employees' pensions are contracts that cannot be involuntarily “impaired.” That’s definitely arguable. And with the judge’s ruling in Detroit's bankruptcy that pension obligations are debts that may be subject to modification like other debts — that definitely opens the door to a CalPERS challenge.

But under threats of long and costly legal action from CalPERS, as a Council Member, I made a choice not to cut pensions of current employees. Vallejo simply didn’t have the time or money for a long and protracted legal fight with CalPERS that would have stretched our bankruptcy out even longer. And CalPERS had unlimited time and money to fight us. It was an awful choice to make. But I figured that there would be other cities coming behind us that would file for Chapter 9, and they’d be bigger and wealthier than Vallejo, and therefore would have the resources to fight CalPERS on behalf of the rest of us. That’s what San Bernardino is doing right now. I applaud their chutzpa and wish that Vallejo had been able to lead that charge.

But it shouldn’t have to come down to a legal battle between cities and CalPERS. It really doesn’t have to. If we enacted the pension reform that San Jose Mayor Chuck Reed is proposing, and I am supporting, there would be no need for lawyers and judges to steer us through budget crisis. This statewide pension reform will give California cities the tools to negotiate new pension formulas with current employees for their future earnings (not what they’ve already earned). No bankruptcy or court battles necessary.

Ultimately, many California cities are in this position because they promised their employees much more than they could afford in terms of pensions and health care. And the solution is not as easy as just paying more to cover the deficit. No amount of economic development can cover a structural deficit based on exponentially rising costs like our pensions. Cities like Vallejo can’t pay much more or they won’t be able to provide even basic services to its citizens. The taxpayers have taken the hit again and again and again in terms of paying more to cover the pension deficits. It’s time we addressed these unrealistic pensions head on, together, as a united California.

Mayor Reed’s statewide pension reform — and elected officials with strong political will and public employee unions with integrity — is the only thing that will keep cities like Vallejo from being stuck in a revolving door of bankruptcy.

Read more about the Pension Reform Act of 2014:

Sunday, January 26, 2014

It's Time to Take Our Medicine

Daniel Borenstein, columnist for the Bay Area Newsgroup, recently wrote a cautionary and sharp article on the California Public Employees' Retirement System (CalPERS) and the unrealistic life expectancies they use  in their retirement system calculations. By using shorter life expectancies in their calculations, CalPERS is (again) underfuding the retirement system, which will eventually result in increased contributions to the system by local governments to make up for the "error". (And, as Borenstein points out, this is already on top of the underfunding of the system through overly optimistic high rates of return on their investments, which has and will continue to result in rate increases for local governments.) Borenstein said:
"The California Public Employees' Retirement System hasn't previously factored future mortality improvements into actuarial calculations. As a result, it has not collected enough money to pay pensions when workers retire.
The fix, which the CalPERS board will consider in February, would further drive up rates for public agencies, which already face recent changes to correct for the system's unrealistic investment return assumptions and a dangerously slow paydown of debt."
The CalPERS board must stop playing games with the numbers to avoid reality and protect the pensions for current public employee union members. This is hurting our local governments because these unrealisitc calculations are resulting in a seemingly constant rise in payments to CalPERS and a decrease in services to local taxpayers. It will also hurt future retirees, because there simply won't be enough money in the system to fund their retirements.

While the proposed fix the CalPERS board will be considering would result in a rise in rates that local governments will have to pay, not approving the fix will hurt local governments even more in the long run in terms of even higher unfunded liabilities. We can't keep passing these liabilities on to the next generation. It's irresponsible and it's not fair.

I'm not sure when the change occurred from our grandparents' generation that believed in sacrificing for the betterment of the next generation, and the current generation's belief in taking care of themselves first and foremost, the next generation be damned.

But we need to go back to that belief in sacrifice for the next generation, "take our medicine," come to grips with the real costs of the CalPERS retirement system, and realistically fund it. There should be a mandate that local governments with unfunded retirement and OPEB (health care) liabilities develop a 10 or 15-year plan, depending on the size of the liability, to fully fund their employee retirement programs. These plans MUST be available to the public in simple, easy to understand language.

Perhaps by daylighting the additional costs of these unrealistic calculations to the taxpayers, it will show that the current system is simply not sustainable for local governments. If so, then we need to look at transitioning into a hybrid defined benefit/401(k) style system. Either way, we can't keep whistling past the proverbial graveyard when it comes to public employee pensions in California.

Read Mr. Borenstein's article here:

Wednesday, January 08, 2014

My Final Speech: Two Terms and Eight Years

Before I begin, let me thank first and foremost my family, for understanding my absences and single-minded preoccupation these past eight years. I’d like to dedicate my two terms to my mom, who passed away one year ago this month. She taught me to be a strong and independent woman and to stand up and fight injustice, to use my strong voice to speak for those who didn’t have a voice, or whose voices weren’t so strong. Mom was was at every election night party, every swearing-in, and if she could be, she would be here with me tonight to walk up that isle and out the chamber doors. I think she’d be dancing up that isle, actually, as she wanted me to be done with this work so badly. Well mom, I’m done!
I’d also like to thank my friends, who have supported me through many difficult nights in these chambers, and many difficult decision-making processes. They were my sounding boards, my guides, sometimes even my conscience! You made me feel protected when I felt vulnerable. I won’t name you because somebody will be left out and I’ll get in trouble. But you know who you are.
I’d like to thank the city staff who have shared these council chambers with us so often, who I wasn’t always so easy on, but whom I depended on and came to have a deep respect for. We’ve grown together through these difficult years, and I wish you nothing but good luck and continued growth and success.
I have to thank my fellow council members — because despite our differences, together we achieved a lot!
Finally, I’d like to thank the public for voting for me, for believing in me and trusting me to represent you. Each election I felt so humbled by that, and I always remembered that feeling as I went about my business serving you. It has truly been an honor to represent you.

I’ve said this many times over the years, but one of my goals on Council was not to leave for future councils what was left for me. So to the incoming Council — you’re welcome. :-)  
I was fortunate enough to be the public’s representative before, during and after bankruptcy. I sometimes lamented that fortune, that my time on the Council has been full of difficult “Sophie’s choices”, service cuts, personal attacks, intimidation tactics, and employee union  skirmishes. But really, I was probably the right person to pull that short straw. Because I’m smart, I’m stubborn, I’m headstrong, I’m ethical and I’m outspoken. And that’s what we needed to unravel the dysfunction, the misconduct, the backwards financial practices and the unsustainable employee contracts.  
My accomplishments aren't newsworthy or sexy or anything that will get a building named after me some day. My name will be but a footnote in time. But my accomplishments were course-altering. Because in eight years, I, along with several of my colleagues, have dismantled and began rebuilding a strong foundation from which the city can build on in the future. When I was first started, we had a fire union president suing council members, trying to get his personal lawsuits paid for in their new contract, years of raise deferrals coming due that were about 12%, city managers going in and out of a revolving door, a police and fire chief who represented the unions and not the city and definitely not the people of Vallejo, and a budget that was bleeding red all over the place. It was one big hot mess. 
Today, the undue influence of the employee unions is out of the closed session room and contract decisions. We have a City Manager who is professional, ethical, strong and determined to turn this ship around. We are close to having a budget devoid of a structural deficit. And we have police and fire chiefs who represent the City but who also represent their employees in an appropriate  balance.
But don’t let the good news settle you in your seats. There is much work to be done, and there is much danger in the decisions ahead. If this new Council and the citizens of Vallejo aren’t careful, all the work we’ve done to change the trajectory of our city can be turned back around in a minute.
So as I pass the baton of leadership on to a new City Council, I have some thoughts to leave with everyone.
The economy is slowly recovering — do not use that as an excuse to stop restructuring. Our reserve fund is pathetically low and our infrastructure is aging, broken and underfunded. The next financial crisis that hits the country, be prepared to weather it and not be forced to make poor decisions or go into bankruptcy again. Just because the intense pressure of the Great Recession is over doesn’t mean you should let up on reform. Continue full tilt until Vallejo is healthy again.

And don’t forget about our unfunded liabilities. By imposing the police contract and getting agreement on the CAMP contract, the City cut its OPEB (health care) liabilities 70 percent — from $110 million to “just” $33 million. That’s a big deal.
And our unfunded pension liability remains overwhelming. If this City doesn’t address this unfunded liability, we will never be healthy and successful. It will always be a yoke around our collective necks, something that J.D.’s grandchildren and great grandchildren will be stuck with. 
Consider this, and please, heed this warning: 
Our unfunded pension liability is $239 million dollars. This year, for every dollar we spend on salary to a public safety employee, we are paying 52 cents for their retirement and those who have already retired. In just six years, for every dollar we spend on salaries, we will be paying 73 cents for their retirement and for retirees. So this means that in just six years, we’ll be paying almost double for every public safety employee we have on duty.  How will Vallejo afford that? Measure B will be sunsetting just a couple of years later. 

To the City Manager:
(1) Thank you for coming to Vallejo, for believing in us, and for having the spirit that loves a challenge.
(2) Think about offering pension plan education to city council members — we make multi-million dollar decisions on contracts with little to no education. Perhaps make that education available to the public. Knowledge is power.
(3) Good luck. You’ll need it.
To the City Council:
(1) Let your city manager manage the city — he’s the best city manager we’ve likely ever had. He has the education, the skills and the drive to manage this city well. You now have a luxury I didn’t have — a city manager you can trust so you can focus on setting policy.
(2) Your city manager and economic development staff are already bringing in new business opportunities and development proposals. Trust them and work with them on economic development.
(3) Continue the simple but critical fiscal policy of “one time money for one time costs.” Don’t see Measure B money as a solution to our structural deficit. Structural deficits are reduced by ensuring that your long term obligations aren’t larger than your long-term revenues. And you can’t count on the citizens voting for another tax. So be prudent and conservative and base your long-term projections on long-term, reliable revenues. 
(4) Build your reserves as large as you can. If we learned anything from bankruptcy, it was that you can’t live paycheck to paycheck and not invite disaster. 
(5) Continue down the path we’re on to get our pay and benefits package in line with what Vallejo can afford, not with what Napa or Berkeley can afford. 
(6) Remember, a contract is not a promise, it’s a contract. Getting hired as a public employe, and I am a public employe myself, doesn’t mean that we get a lifetime shelter from the economic storms of our country and our economy. A contract is a contract, and sometimes they need to be changed.
(7) Finally, in the words of Steve Jobs: “Your time is limited...Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition.”
To City Staff:
(1) Whether you live here or not, we’re all in this together. Please join with our community to make Vallejo prosper. We know most of you work hard and care about this city. Know that many of us residents recognize this and appreciate you. Please remember that residents in this city have been through the wringer alongside of you. 
To the residents of Vallejo, I leave you with this:
(1) YOU have the most important job to do — more important than the city manager, staff or the city council. YOU are the watchdogs. It’s up to YOU to ensure that the city council does’t let the city backslide. Please, pay attention, read the staff reports, and speak out if you see something wrong. A strong democracy cannot exist without a thoughtful, involved citizenry. 
(2) This last election turnout was abysmal. Next election, please, come out and vote. Get your neighbors, your family, co-workers and friends and convince them to vote. And before you vote, please, do your homework. And by that I don’t mean read the glossy flyers that fill your mailboxes during the election season. The JumpStart mailers are proof that you can’t trust the information coming from special interests — they were so full of lies, but just enough fear, to be effective. So don’t trust what somebody paid for you to read or to know. Study the candidates, go to a forum or two, ask people their opinions, ask questions. 
(3) Take a moment to think about the ramifications of our city employees, most who don’t live in Vallejo, spending large amounts of money in our local elections to sway votes for their chosen candidates who will then approve their pay and benefits packages — pay and benefit packages that are three, four and five times the median household income in Vallejo of $56,000. Remember, when I first ran for office, the public employee unions asked me in my endorsement interview: “If we endorse you, will you stay bought.” Just think about that.
(4) Why is this important to you? Because you take the hit for us not getting employe costs under control in terms of higher taxes and fewer services. Ask yourselves, haven’t our services been cut enough? 
I will say the biggest threat to Vallejo’s economic recovery is what I will call the “police and fire political complex.” (I’ve obviously been reading President Eisenhower’s “Military Industrial Complex” speech!) Those who have had the courage to question the unsustainable pay and benefits of police or fire have been dismissed or attacked as haters of police officers, firefighters or working families. Apparently uncritical support of all things police or fire is now expected from the public safety unions all in the name of “safety”.
The influences of politics and fear, rather than solid financial accounting, is consuming an unwarranted and alarming part of the debate in our elections and the overall budget in Vallejo. We must avoid letting the public employee unions, either separately or together as the Central Labor Council or the JumpStart label, dictate how our city spends our taxpayer dollars or who sits in the City Manager’s seat. 
Again, think about it: employee pay and benefits make up 82 percent of our general fund. That leaves just 18 percent to spend on our roads, trees, libraries, senior centers, etc. Eighty-two cents of every tax dollar we give to the City is consumed by employee pay and benefits. 
That, my friends, is why the public employee unions are willing to spend big money on our little ole’ elections and why your mailboxes are stuffed with glossy, colorful flyers every other November.
So to Jon Riley and his JumpStart Siblings": 
Fool me once, shame on you, fool me twice, shame on me. We’ll be watching you and your “siblings” and will participate equally in our own way. But just know, we’re not going away, and we don't give up easily. Never again will undue influence or corruption control this City because we, the citizens of Vallejo, will be watching with magnifying glasses.

So we stand now on the other side of the painful precipice that was bankruptcy. Looking backwards, there is a wide and deep canyon behind us. I can confidently say that Vallejo is better off than it was eight years ago. But we’re not that far from the canyon. I hope our new leaders won’t let us fall backwards into the precipice and instead will take strong and confident strides into a healthy future.
My parting words to the new Council: you will face extremely difficult choices, made that much more difficult because of the demands you will get from your special interest campaign donors. Don’t give in to that pressure. Remain independent. Do what’s right for us, the citizens and taxpayers of Vallejo. 
Please don’t make me come back and say “I told you so.” Remember, reality leaves a trail. I wish you good luck and prosperity for all. 
I will end with a final quote by Sir Winston Churchill: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Faces in the Crowd

By Vice-Mayor Stephanie Gomes
December 20, 2013

Monday, December 16, was my last “full” meeting of my two terms on the Vallejo City Council. And it was a tough one. A fitting end, I think, because so many meetings over my eight years have been just like this -- extremely difficult decisions, lots of controversy and people crowding the chambers with passions running high. 

There’s one common thread that has been woven throughout all of these meetings for me: the faces in the audience. Friends and strangers alike, there were always familiar faces I could look to for a friendly smile, an emphatic shake of the head, or just a solid supportive presence. Some of these people have spoken eloquently and passionately at the podium, and some sat quietly and radiated their passion. You know who you are, and you’ve meant the world to me in some of my most difficult moments as a Councilmember.

And while they weren’t sitting in those uncomfortable, ugly green chairs in the chambers, I know many people who watched every Council meeting on television. There were people who watched quietly, and then there were the people who loved to provide a running commentary of the meeting on my voicemail, which was always hilarious to listen to after the meetings! Please know that although I couldn’t see you, I knew you were watching and I felt your support.

And last but not least, to those of you who took a moment to write a quick email or note of appreciation — you’ll never know how much that meant. Those emails or notes always seemed to come when I needed them most, when I felt the lowest. You helped pick me up and keep me going when sometimes I didn’t feel like I could.
Lots of people say they could never do my job, they just don’t have it in them. Well, it takes all kinds of participation to make a democracy work. Yes, it takes the people who can sit on the dais and make the difficult and sometimes unpopular decisions. But I could never have done my job without the people who took it upon themselves to stand in solidarity with me and show their support. Courage comes in many colors.

You all know who you are. Thank you for your support not just of me, but most importantly, for our work for a better Vallejo. Nobody could do it alone — it takes all kinds and levels of participation to make the changes we’ve been making. Lasting change is the hardest of all to make; and for all of us, that’s the only change we’ll accept in Vallejo now.