(May 15)  The city of Upland has a future unfunded pension liability totaling just under $89 million, according to actuarial figures available from the state pension system.
Despite the current and future financial burden the city’s pension fund arrangements represent, those figures were not available in the city of Upland’s audited financial statements provided by the accounting firm of Mayer Hoffman McCann.  Nor did Mayer Hoffman McCann bring the future pension liability to the attention of Mayor Ray Musser and the other members of the city council in its transmittal letter presenting the audited financial statement.
The full depth of the city’s unfunded liability was made public by Larry Kinley, an Upland resident who in recent months has made repeated inquiries and public observations about the city’s shaky financial standing.
Kinley, worked for Bank of America for 42 years, the last 15 of which he was a manager in the problem loan administration dealing with borrowers with financial difficulties.
Ironically, Kinley was prompted to find and ultimately confirm the $88.99 million pension liability because of the skepticism that had been expressed about his  warnings to his fellow citizens about the city’s dire financial condition.
Last month, after Kinley asserted at a city council meeting that there was insufficient transparency with regard to the city’s finances, city manager Stephen Dunn extended an invitation to him to meet with him to clarify those issues.  Kinley took advantage of what Dunn touted as his “open door policy” and scheduled a meeting with Dunn for earlier this week. Prior to that meeting, Kinley was under the impression that the city had an unfunded pension liability of somewhere between $30 million and $40 million.
Kinley said that upon meeting with Dunn, he asked the city manager what the current unfunded pension liability was. Dunn told him it was in the neighborhood of $80 million. Kinley asked if that was reflected in  the city’s accounting system. Dunn paged through what the Sentinel believes was  the city’s audited financial statement compiled by the city’s auditing firm of Mayer Hoffman McCann but was unable to find it there, either in the body of the 150-page text or in any of its footnotes.
Kinley asked if Dunn would be in favor of exiting the current retirement plan and substituting a defined contribution plan. Kinley said Dunn said he would entertain that notion.
After the meeting, Kinley consulted the website for the California Public Employees Retirement System, with which the city of Upland is contracted to deliver pensions to its employees. Poring through what for many would be arcane financial data, Kinley was able to extrapolate the $88.99 million number. What Kinley found is that as of June 30, 2012, the city of Upland’s unfunded pension liability for its safety [i.e., police and fire department] employees, current and future, calculated on an actuarial value of assets basis is $33,370,136 and calculated on a market value of assets basis is $54,213,809. Kinley further learned that as of June 30, 2012 the city of Upland’s unfunded pension liability for its miscellaneous [i.e., those other than policemen and firefighters] employees, current and future, calculated on an actuarial value of assets is  $21,234,203 and calculated on a market value of assets basis is $34,780,257.
In this way, Kinley derived the $88,994,066 figure, using market value actuarial terms.
Kinley said he hit it off with Dunn, who is a certified auditor himself and was Upland’s finance director before he was elevated to the city manager’s post.
“I was impressed with him,” Kinley said. “I think he is a pretty straightforward guy. He gave me the answers with no hesitation or hemming and hawing.  In that sort of one-on-one situation, I found him knowledgeable and realistic in his assessment of the challenges the city is facing.”
Kinley said he found the work of Mayer Hoffman McCann less satisfactory.
“The city was given a certificate of achievement in financial reporting from the Government Finance Officers Association, essentially on the basis of its audited statement produced by Mayer Hoffman McCann,” Kinley said. “That bothers me when you consider that nowhere in the financial statement for the city is the unfunded pension liability raised.  I think that is a meaningful number, one that would help Upland’s citizens understand what position the city is in financially. If it wasn’t put in the report, I think it should at least have been in the transmittal letter.”
Kinley then took it upon himself to call the Government Finance Officers Association to ask why it had conferred the certificate of achievement in financial reporting on Upland when its audited financial statement contained no information whatsoever   about the city’s unfunded pension liability. “What I was told was that the current rules do not require Mayer Hoffman  McCann to disclose that,” Kinley said. “I was informed that there is a pending change to the standards so that, once the rules are adopted, including a calculation of unfunded liabilities will be mandatory.”
While Mayer Hoffman McCann may not have been technically required to include the information in the report, Kinley said he considered it inexcusable that the firm did not make some effort to memorialize the future funding burden the city faces. “At the very least, such liability should be disclosed in the cover letter from the accounting firm to the mayor,” he said. “How can the city budget for the future when you have no indication of what those costs, which are humungous, are going to be?”