The Burlingame Voice

Friends with Benefits: School Pension Payout

Our last Friends with Benefits post was seven months ago, but the Mercury News Internal Affairs section (and blog) ran a provocative piece yesterday on school supe pensions that is noteworthy.  Hillsborough made the news because

More than 400 retired educators in the Bay Area received annual pension payouts of $100,000 or more in 2014, according to the budget watchdog group Transparent California.

Three South Bay and Peninsula ex-superintendents received the highest payout among Bay Area educators.  James Smith, former chief of  the Evergreen Elementary District in San Jose, received $287,434; Marilyn Miller, formerly of the four-school Hillsborough district, received $280,035; and Johanna Vandermolen, retired from the Campbell Union Elementary District, received $278,003.

Interestingly, all three of the former elementary school chiefs received more than retired heads of the area’s big school districts, although in some cases only slightly. Last year, in retirement from San Jose Unified, Don Iglesias took in $239,492. He led a district more than 20 times the size of Hillsborough.

The fiscal ramifications were laid out at the end of the piece

Educators are fond of pointing out that CalSTRS is partly funded by salary deductions. But with the pension system’s future obligations outstripping revenues, the state is demanding higher contributions. Teachers will pay somewhat more, but districts’ share will balloon from under 9 percent of teacher and administrator salaries to 19.1 percent in six years. What will take the hit from that? Likely school programs and staffing.

I don't follow the H'borough school system enough to know when Ms. Miller retired, but you do need to keep in mind that it's possible the overall payout included the one-time costs of unused personal time, etc. if she just retired.  If the report of the districts' shares more than doubling over the next six years is accurate, that is a balloon payment no one will want to make.

 

Friends With Benefits: The Risk of Working for Stockton

If you read or watched any news source yesterday you saw the big ruling on the Stockton, CA bankruptcy case involving whether pension benefits (or liabilities) can take precedence over regular municipal debt.  The Times, Daily Post, Daily Journal, Wall Street Journal and Chron all covered the facts but here at the Voice we look ahead to the ramifications, especially for B'game.

The judge was quoted in the County Times saying "California public employeee retirement law....is simply invalid in the face of the supremacy clause of the US Constitution." and he asked "Is CalPERS  a state unto itself?".  Then he answered his own question with a "no" ruling.

The point for fiscally solid cities like B'game is that we need to realize a dollar of pension liability here is worth more than a dollar in places like Stockton or Vallejo or San Jose.  Hence the idea that we need to pay above-market-rate compensation to attract and retain "the best" has some limits.  It is incumbent on city leaders to be able to articulate this--and to not screw it up by doing fiscally irresponsible things.

 

FWB: $12,000+ per citizen

It's hard to believe I haven't posted in our Friends with Benefits category for nine months.  I just came across this fresh new estimate with the various estimated rates of return on the portfolio:

The total state and local government pensions in the United States at the end of 2013 had an estimated $3.6 trillion in assets. They were 74% funded, with liabilities totaling an estimated $4.86 trillion, and an unfunded liability of $1.26 trillion. These funds, in aggregate, project annual returns of 7.75%. If you apply a 6.2% average annual return to recalculate the liability, using formulas provided by Moody’s Investor Services, the liability increases to $5.87 trillion and the unfunded liability increases to $2.27 trillion.

Using the 4.33% discount rate recommended by Moody’s for valuing pension liabilities, the Citibank Pension Liability Index for July 2014, increases the estimated liability to $7.39 trillion and the unfunded liability to $3.79 trillion. That is, if America’s state and local pension funds were to no longer make aggressive market investments but were to return to relatively risk free investments, the payment required just to return these funds to solvency would be more than $12,000 per American.

 

Apparently, Jerry Brown is trying to do something about accrued sick time.  We'll see if it sticks.

Quotable Quote: Chuck Reed

The Wall Street Journal has a very informative interview with Chuck Reed, the mayor of San Jose, in the weekend edition.  I learned a lot about the man and like him even more than I did before reading it.

The piece goes into some detail about his efforts to reign in pension and benefit costs in SJ.  In June of 2012, he "quarterbacked a city ballot initiative to limit pensions for new hires and scale back future benefits for existing workers....It got a big boost from the Bay Area Council, whose executive committee includes the chief executives of Virgin America, the SF Giants and 49ers, Safeway, Webcor and the SF Federal Reserve."

It goes on to discuss how most big businesses tend to stay out of such discussions, but the situation is dire and is starting to suck infrastructure dollars (a recurring theme here at the Voice especially regarding high-cost rail).  Then comes the quotable quote:

"Driving a Tesla over pot-holed roads is no fun."

Good one.  If you have a Journal subscription the whole piece is well worth a reed.

FWB: Calpers' New Approach

Leave it to the Wall Street Journal to do a better job analyzing California issues than the local papers.  The October 28 edition had an Opinion piece complementing Calpers on its move to "reference pricing" for its beneficiaries looking for knee replacement surgery.  Without getting into too much detail (and no link since it is behind the paywall)

Calpers was upset after noticing that it paid between $20,000 and $120,000 for the same procedure across the state, without commensurate differences in outcomes.  In January 2010, the retirement organization established a $30,000 reference-price limit on what it would pay. .....by the next year  Half of the high-price hospitals cut their rates, many by a considerable amount.  (Guess which number they were trying to hit).

Maybe there is hope for this state after all.........

FWB: SMUHSD Antes Up

The Daily Journal has a piece on teacher negotiations that notes

Teachers in the San Mateo Union High School District are getting a raise for the second year in a row, which the district says will help offset rising health care costs.  At a meeting Thursday night, the district voted 4-1 to give teachers a 5 percent raise for this school year, costing $2,367,500.

Click through and read the whole piece to get a sense that the SMUHSD Trustees voting was not quite that strongly in favor.  And if I'm reading this Board page correctly, there was one absent or abstaining.

Although Trustee Stephen Rogers voted in favor of the agreement, he takes issue with how the negotiation process is run. He said he couldn’t go into detail, as some of the process took place in closed session.

“Our teachers do a great job,” Rogers said. “My disagreement was with how the process worked. There are a host of things we’ve got to get better on [for negotiations]. I wish the process was different, with some chances on both sides.

I know at least one trustee reads the Voice regularly, so perhaps we can get just a bit more info.

 

 

FWB: Paycheck > Work

I've been hoping the Sunday Mercury News-Times-whatever front page article from Sunday would appear on its website, but the website is such a disaster I still cannot find it.  So here are a couple of tidbits from Thomas Peele's piece; retyped by yours truly

San Mateo Harbor Commissioner Pietro Parravano got $25,757 in cash and benefits last year for attending 21 meetings that lasted an average of 77 minutes each, the (Mercury News') analysis shows.  That's $1,094 an hour.  Parravano, 64, a commercial fisherman from Half Moon Bay who also serves on several national fisheries commissions, said he's never questioned receiving full benefits for the part-time office he's held for nearly two decades.  The harbor commission oversees two marinas and a park and employed 27 workers in 2012.

The article really laid into the another aspect

Being a San Mateo County harbor commissioner can pay even beyond the grave.  When Commissioner Sally Campbell died in April 2012 during her 20th year in office, her cash pay stopped but the district continued to fund her medical insurance at a cost of more than $18,000.  That's because Campbell included her a grandson, whom she'd adopted as to make a legal dependent, on her policy.

Finishing on a high note, the article concludes by saying

In San Mateo County, Parravano said there is talk about rolling the harbor commission's functions into county government and doing away with the elected commission.

Shouldn't that be about a 3 second conversation??

Post on Peceimer

The riches just keep on coming in today's Daily Post round-up of the City Council race.  The Post's interview of Andrew Peceimer reveals this gem

Peceimer, 48, is a commercial real estate broker and said what makes him stand out as a candidate is that he will have his own privately hired person to put another set of eyes to go through the city's budget.  He said as a person who has managed hundreds of millions, he "reads the fine print" and has taken the time to study the numbers.

Left unsaid was why he needs to privately fund some unknown person if he is the person who "reads the fine print"?  One also wonders why this initiative was not mentioned during the candidates' debate?  I have to admit, I tire of him saying the unfunded pension liabilities have to be "tackled" and yet he has already read the fine print but isn't saying how.

Friends with Benefits - Part 22 BART 70% Labor

We last looked at our FWB theme in January.  Mike Rosenberg's article in today SM County Times regarding BART's costs had a couple of interesting tidbits like

The average worker in BART's largest union, the local Service Employees International Union, earned $77,366 in gross pay and $32,235 worth of benefits in 2012. Their average benefits cost is up about 12 percent since 2010, the first year this newspaper began collecting benefits data, while gross pay has remained roughly flat since their last contract was signed in 2009.

Out of the $568 million operating budget for the fiscal year that began this month, BART plans to spend about 70 percent on labor and 30 percent on electrical power, equipment and other programs needed to run service.

That benefit to gross pay ratio is 41.7% or roughly two and a half times (250%) of the US private industry standard.  The top part of the article shows why.  It's definitely unsustainable!

 

Friends with Benefits - Part 21 This would be funny....

This would be funny if it weren't so sad.  The San Mateo Mercury Times somehow found an administrative assistant in the SJ school district's special ed department to write an OpEd claiming "Californians have had enough of pension reform".  The piece is so lightweight I thought my paper was going to float up to the ceiling as I read it.  First, the author--one Donna D'Arcy claims

Legislators may have lost their appetite for using pensions as a scapegoat for budget woes.

That's funny on its face since it isn't apparent legislators outside of the locals in San Jose and San Diego have done ANYTHING about pension reform except to watch the tidal wave of cash that crushed Prop 32.  You can read up on the problem here, here and here.  D'Arcy goes on to claim

Critics also were quieted by the California Public Employees Retirement System's announcement that its investments earned 13.3 percent in 2012. Over the long-term, that number is even bigger, showing that California's pension system is strong.

That last bit about "that number is even bigger" begs a footnote.  Really?  Where is she getting that and what selective bit of data is she hiding behind?  The suffocating future pension liabilities are well-documented.

But the most egregious part is the idea that Californians have had enough of reform.  D'Arcy should go look at the polls and the few elections that aren't swayed by forced union dues money.  She can also take a look at the Seventh Circuit Court ruling last Friday that reaffirmed the reforms in Wisconsin.  The article would be funny--if it weren't so sad.