Upland Councilman Glenn Bozar’s two-month long effort to persuade his council colleagues to begin the process of incorporating into the Fiscal 2016-17 budget economies to offset anticipated future underfunded or unfunded pension costs failed this week. Instead, Bozar’s persistent request to have city staff shave enough money out of the planned spending for the upcoming year’s budget to allow the city to fatten its reserves was soundly turned back when the council voted 4-1 to accept city manager Rod Butler’s proposed $46.5 million general fund budget.
Since budget discussions began in earnest in May, Bozar has been pressuring Butler to revisit the budget numbers and impose on city staff further discipline. Bozar originally took issue with that element of the spending plan that called for the city to divert into the city’s general fund some $970,000 in gasoline tax the city normally uses to repair streets along with more than $400,000 from its various utility enterprise accounts that are kept on a ledger outside the general fund. Bozar took issue with the consideration that Butler was calling for Upland’s 2016-17 expenditures to grow by $3.8 million over those in 2015-16 while revenues over the same period were to increase by slightly over $2 million. Bozar wanted Butler to meet a requirement that the city achieve the goal of putting 12.5 percent of its revenues into reserves – in compliance with the city’s so-called Fiscal Responsibility Act – without diverting money from infrastructure improvements and maintenance. Bozar suggested instead that Butler reduce to the extent that was workable the hefty increases Butler had layered into the budget for both the fire department and the police department – 12.5 percent and 11 percent, respectively – as well as administrative services division increases of 14 percent.
Giving Bozar heartburn was that the budget called for a 20.3 percent increase – $1,171,145 – of the city’s contribution into the city’s pension fund; a 20 percent increase – $549,7217 – for so-called fringe benefits; and 5.39 percent – $1,024,553 – for salary increases.
Shortly after Bozar came onto the council more than three years ago he latched onto the looming pension crisis which is confronting cities all across California. Over the last fifteen years, governmental entities have offered public employees increasingly generous retirement packages by agreeing to a pension calculation formula that allows thirty and thirty-five year employees to retire at age 55 and draw a yearly retirement stipend that is equal to sixty to ninety percent of their highest yearly salary with the city. In many of these cases, these annual pensions exceed $100,000. In California retirement systems have been created to cover the ongoing and future costs of these pensions, with both the governmental entities and the government employees contributing to them. The most significant of these is CalPERS, an acronym for the California Public Employees Retirement System, which manages the contributions into that retirement fund made by the various governmental entities and public employees. That money is put into the stock market and other interest bearing or revenue-producing securities. CalPERS is the retirement/pension fund managing system for all state employees as well as most municipal employees throughout the state, including those employed by Upland. All government contributions into CalPERS are set at a certain rate each year based upon that particular governmental entity’s number of current employees and the terms of the pension benefits it offers. To stay fiscally balanced, CalPERS also has an earnings goal for the money it invests – 7.5 percent per year. When its investments do well and meet that goal, the only money contributed by the cities and state and participating agencies is the earlier referenced set amount. But if CalPERS’ investment portfolio does not meet its goals, then those governmental entities are committed to make up the difference. Last year CalPERS’ investment return was only 2.4 percent.
As years pass and more and more public employees retire, and with the average lifespan of Americans ever increasing such that many retirees are on average now living well into their seventies, eighties and beyond, the pension burden is burgeoning to a point that it is straining cities financially.
In Upland, which last year had a $43 million budget, $7.1 million went toward pension costs. This year – 2016-17, that cost is anticipated to increase to $8.3 million. Projections are that the city is already committed into the future to having to pay – for just current and past city employees – over $90 million in future pension costs. That number is ever increasing as more city employees are hired. That commitment is referred to as the city’s pension liability. This pension liability has been a major focus for Bozar, who has asserted that as that liability grows to an ever larger part of the city’s costs, less and less money will be available to the city in the future to pay for municipal services, perhaps to the point that the city will be bankrupted entirely.
Bozar is the chairman of the city’s finance committee. The two other members of that committee – city treasurer Dan Morgan and councilwoman Debbie Stone – supported him in his direction to Butler in May and June to revisit the proposed budget and make cuts where possible. Butler, however, defied in some measure Bozar’s expectations, dragging his feet in instituting the reductions to the rate of growth to certain department operations and expenditures. For example, Bozar wanted Butler to cease the diversion of gasoline tax into the general fund and reserve it all for road and street improvements. Instead, Butler simply reduced the diversion from $970,000 to $600,000 of the revenues from gas tax. Nor did Butler make cuts to the operating budget but sought to utilize creative ways to pull money out of the city’s utility enterprise funds to shore up the general fund. Both Morgan and Bozar expressed consternation at this approach and three times sent Butler back to the drawing board to find expenditures to cut.
This week, Butler came before the full council with what essentially was his original proposed budget intact, calling for $46.5 million in spending in 2016-17. Bozar again sought to have the budget number revisited, calling upon his council colleagues to instruct Butler to find a way to reduce spending so more money can be put into reserves to give the city the opportunity to deal with its burgeoning pension liability from a position of strength. Bozar asserted that the city should initiate an austerity program now, so it can stay ahead of the curve while it is still solvent, rather than putting itself into the position of having to make desperate cuts under the onus of future deficits.
Bozar used a graph giving projections of the city’s expenditures against revenues going forward that showed that the last year the city could count on a surplus was in 2016-17 and even that was not certain because CalPERS has already indicated it will not meet its ongoing earnings goal this year, necessitating an even heftier contribution from the city than the assumption in Butler’s proposed 2016-17 budget. “We’re not being transparent with the public or this council,” Bozar said. “We can’t control costs but we certainly can project. That’s what we did, but we’re not sharing it with public or this council the way this is being presented tonight.”
Bozar said the city’s Fiscal Responsibility Act required that the budget make some allowance for the anticipated increased financial burden the city will have to bear to make up for CalPERS lackluster earnings performance. “You are going off the fiscal cliff according to what is not being disclosed tonight,” Bozar said. “I think we have to identify the problem before we can offer solutions. You have to know what your problem is and how big it is and be transparent about it, then you can come up with recommendations. So, what this is showing me is when the city manager reports things are looking good in his report to the public and us, this belies that fact. We need a plan right away.”
Not exhibiting fiscal discipline at this point, Bozar warned, was tantamount to “just kicking the can down the road. I can’t support this budget as presented. This budget should not move forward until all of this information is presented.”
The balance of the council, however, consisting of Mayor Ray Musser, Stone, Gino Filippi and Carol Timm, opted to approve the budget as Butler had presented it.
Councilwoman Stone said it was time to accept the budget that Butler had presented and that he and staff had already been put through the ordeal of “a brutal four meetings.”
Stone rejected Bozar’s call for making further reductions in the budget to ensure the city can meet its mushrooming pension costs. “I completely disagree with Glenn on this,” she said.
She said staff had gotten into the spirit of austerity by agreeing to consider treasurer Dan Morgan’s suggestion that there be “a freeze on employees for six months.” Saying that “We can beat CalPERS to the bitter end,” she indicated that the city had to simply accept that “there is nothing we can do as a city to change any of that. Sitting here and saying we’re not transparent, I don’t feel that is fair to you guys [i.e., staff] because I know you are doing your due diligence to be up front.”
The taxpayers would simply need to take up the slack of the commitment past city officials had made to provide generous retirement benefits to city employees and live with the situation, Stone indicated. She said Bozar was taking the wrong approach in trying to apply the accounting and accountability standards of the business world to local government. “Glenn, I know what you are talking about in private industry, but I’ve learned since I’ve been on the finance committee that public and private budgets are completely different animals,” Stone said in directly addressing her colleague. “I don’t see why we have to be notified every time Rod wants to do something We hired him as city manager. Let’s let him do his job.”