Generous Pensions Have City In Red, Bozar Says

(February 13)  Upland City Councilman Glenn Bozar this week sounded an alarm to his city’s residents, warning that the City of Gracious Living must deal with a  pension liabiliy that is on the verge of overwhelming it.
Fully 73.6 percent of the city’s operational costs consist of paying for personnel, including meeting  current payroll, covering workers’ compensation and paying the pensions of retired employees. Projections are that those costs will increase, leaving less and less of the money in city coffers available for taking care of its physical needs, such as paving streets, maintaining trees, sidewalks and parks and the  upkeep of other city infrastructure.
In 2013-2014 the city’s pension costs stand at $6 million. The most reliable figures currently available show the city will incur an additional $1.5 million in pension costs next year, 2014-15, escalating to $7.7 million the annual amount city pays  into the public employees’ retirement system.
Bozar said he had made an in-depth effort to study the issue and had learned that the increases in pension costs were outpacing the city’s growth in revenue.
“The most stunning revelation that came out was when city manager [Stephen] Dunn was  talking about this issue and he disclosed that the $4.2 million generated out of the Colonies [commercial subdivision] goes to paying these pension costs,” Bozar said.
“How did we get here?” Bozar asked. He then referenced page 4-10 os a 13-year-old budget task force report which explicated how city officials in the year 2000 assumed “a false sense of security” by relying on data and projections provided by representatives of the California Public Employees’ Retirement System (CalPERS). Those pension fund representatives maintained that the retirement system, including coverage for Upland, was “superfunded” well into the future. City officials, who were influenced by the public employees retrement system board, believed, Bozar said, that the city  could continue providing generous retirement benefits to employees without having to make equally escalating contributions to the system.
“In 2001, the city was told that we could [rely upon available money from the California Public Employees Retirement System to pay for the pensions of city public safety employees for 35 years and our miscellaneous employees indefinitely,” Bozar said. “That was what was put forth by the Public Employees Retirement Board.”
Bozar said those board members, who also participate in the retirement system, had a conflict of interest in making that false projection.
“They benefited from this,” he said.
The city relied uponfalse projections, Bozar said. “When we look at the dates, you can see that  in the first four years [1999-2000 to 2003-04] we paid nothing into this Public Employee Retirement System fund. This was a dream world the Public Employee Retirement System board was in. Then things went wacky in 2004-5. The city paid over $2 million in 2004. Then it doubled the following year. It went down the following year. After that, our previous city manager negotiated a higher formula and you can look and see our pension liability from that point is going up and up and up. The projected cost for the next fiscal year is $7.7 million.”
Also appearing before the city council on February 10 was one of Bozar’s appointees to the  most recently formed city fiscal task force, Robert Nelson, a former corporate chief financial officer and certified public accountant. Nelson  said the city had been far too generous in making promises to its employees in the past with regard to guaranteeing their pensions and it now must take action to either undo what was done or significantly curtail operations to be able to afford providing those too-generous payments to people who are no longer working for the city.
“The biggest cost driver of this general  fund is high wages and benefits that amount to  74 percent of the budget,” Nelson said, saying the financial burden was putting the city into “a death spriral. This is impossible to sustain. Today the public is slow in waking up  to what this means, but we see the  evidence in man of the bankruptcies of California cities. Upland is now on that road.”
Bozar said, “We’re very grateful and appreciative of the employees who now contribute,”  but he reiterated that employees who have worked with the city for most or all of their careers are eligible to retire and get 90 percent of their top pay while they were with the city. That formula is breaking the city’s bank, he said.
“What we are faced with in the immediate and near term is ‘How do we come up with this money?’ We. have to work with our employees who do a great job” to find a solution, he said, or face dire consequences for both the city’s residents and employees.
He said he was against outsourcing, that is, closing out city departments wholesale and contracting with other municipal agencies or private companies for services. But he warned that the outsourcing solution would become increasingly attractive in the future because it would allow the city to get out from under its pension obligation with regard to its future workforce.
“Why do we want to outsource?” he asked, pausing for effect before answering, “To get rid of these salaries and pension costs.” He noted that under the current pension system, the formula for calculating pensions is tied to salaries, so that increasing employee salaries automatically increases pensions.
After his assessment of the city’s financial state, Bozar nevertheless expressed confidence that a solution could be found. “We have to work together with employees and get costs under control,” he said.
City manager Stephen Dunn was less sanguine, saying, “It’s not a problem that we can solve.” He noted that outsiders had a too simplistic notion of how the city’s listing financial ship could be righted.  “It’s really easy to fix what you are not responsible for,” he said. “We do have a lot of work ahead of us.”
He said he had been unfairly set upon by critics who had complained that he had advocated unpalatable solutions to the city’s financial problems, such as selling the city’s water assets.
“People are saying [about me] ‘You want to do this and are wanting to do that.’” The truth is, he said, he was merely providing the city council with money generating or money saving options to consider and that it was up to the council to make the decisions.  “I want to give you guys ideas, and have staff do the work so you guys can make decisions based on the best information available. People get the feeling we can just go to the expenditure side [and make cuts]. Our pension costs are eating us from the inside out. We have reduced our work force in the last two years by 25 percent. The amount of work hasn’t decreased.”
Bozar, pointing out that contracts with employees will remain in place until June 2015, said the council and senior staff should begin to chart now how they will approach the issue of getting concessions from employee unions on salary and pensions in the succeeding contracts.
“We need to start laying the foundation now,” he said.

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