Less than a week after garnering the attention of government officials and public employees up and down the Golden State, San Bernardino Mayor John Valdivia and the council majority he controls receded from what was widely anticipated to be a major step in effectuating public employee salary reform.
Indications last week were that Valdivia and his council allies were on the verge of initiating an across-the-board effort to reduce by close to half the inflated salaries of the entire workforce at San Bernardino City Hall in an effort to stave off a looming second bankruptcy in less than a decade.
In 2012, the City of San Bernardino was forced to take refuge in Chapter Nine bankruptcy protection after years of overly generous salaries and benefits provided to city workers had created a $49 million annual operating deficit. The city emerged from bankruptcy in 2017, but now, two years later, expenditures in the soon-to-conclude 2018-19 fiscal year are on a trajectory to eclipse revenues in the same period by more than $11 million. If current trends continue, that deficit will zoom to over $16 million by the end of upcoming 2019-20.
Since 2012, San Bernardino has seen two mayoral turnovers. Patrick Morris, a former Superior Court judge, was at the city’s helm when the bankruptcy filing was made. In 2014, the city turned to Carey Davis, a certified public accountant, who had been endorsed by Morris in his mayoral bid. It was widely hoped that Davis might infuse the city with the fiscal discipline needed to stanch the city’s inveterate hemorrhaging of red ink. While some cutbacks were made and a small reduction in the level of overspending was realized by the city under Davis, the city in the five years that the bankruptcy hung over the city balanced its books in the largest measure by simply skipping out on the mounting debt it had accumulated and continued to accrue. In the four years and ten months between the time it entered into bankruptcy in August 2012 and its emergence in June 2017, the city stiffed a combination of some 209 creditors, vendors and partners for just over $350 million. Left largely unscathed by that devastation were the city’s employees, who continued to draw paychecks throughout the ordeal. They have seen no reductions in pay and their benefits remain intact, including the pensions they were promised by past mayors and city councils, though going forward the city’s employees are now being called upon to make a slight increase in their individual contributions toward their retirement benefits. The employees’ pension plan remains in place, administered by the California Public Employees Retirement System, contributions to which constitute the city’s third largest current expense, behind salaries paid out to the city’s police officers and salaries to the city’s general employees. In order to convince Federal Bankruptcy Court Judge Meredith Jury that the city should be allowed to walk away from the debt it owed, the city utilized the services of the law firm of Straddling Yocca Carlson and Rauth, in particular its bankruptcy law attorney Paul Glassman. Straddling Yocca Carlson and Rauth has been paid $25 million in legal fees over the last six years and eleven months.
In November 2018, Davis was turned out of office by the city’s voters, who replaced him with John Valdivia, who since 2012 had been serving in the capacity of Third Ward Councilman. In the last three years of Davis’ term in office, which was extended by close to seven months when the city adopted a new charter that changed the city’s election cycle from odd-numbered to even-numbered years, Valdivia had emerged as Davis’ main rival on the council.
Since coming into office, Valdivia has had to deal with the legacy of the city’s spendthrift past which includes the unsustainable commitments it has made in terms of the pay level of city employees and the looming prospect that the city will once again fall so far into deficit spending that the only solution will be another bankruptcy or ending its 150-year run as a going concern and disincorporating.
Two weeks ago Valdivia and five of the council’s seven members who are generally considered to be allied with him fired Straddling Yocca Carlson and Rauth, which has continued since the city’s 2017 emergence from bankruptcy to bill the city at a rate of close to $200,000 per month to resolve outstanding claims made against the city by its past creditors who were unwilling to accept the city’s offers made in bankruptcy court to satisfy the remaining invoices against it with payments representing, depending on the case, ten cents, twenty cents, thirty cents or forty cents on the dollar.
Looking forward to this week, Valdivia and his team of strategists, which includes his chief of staff, Bill Essayli, political consultant Chris Jones, former San Bernardino City Councilman/former San Bernardino County Third District Supervisor Neil Derry and Republican Central Committee member Scott Olson, formulated a bold move intended to head off the financial maelstrom that had destroyed the Morris and Davis mayoralties. The plan consisted of reducing – indeed eliminating – the perpetual and overwhelming drain on city finances represented by the city continuing to employ at their inflated salaries all of its employees.
Over the past several decades, the public employee unions representing the city’s employees – the San Bernardino Police Officers Association, the former San Bernardino Firefighters Association and the San Bernardino Public Employees Association – had cultivated the city’s elected leadership, meaning its mayors and council members, by the practice of providing them with larger and larger donations to their respective political campaign funds to the point that union money was their essential lifeblood as politicians. If, and indeed when, any of those officials evinced the temerity of opposing the increasingly favorably-termed employment contracts providing higher and yet higher salaries or hourly pay to city employees accompanied by ever more ample benefits, the unions would instantly cease the flow of donations and vector the provision of money to the opponents of any elected officials who insisted on being hard-nosed in the collective bargaining process. The unions, with their virtually endless supply of money to be applied for this type of political persuasion, would pour whatever it took to provide the candidates they favored with enough of a monetary advantage to either keep them in office or remove from office any politician who did not adhere to the principle that keeping public employees well-paid should be the first priority of government. In turn, the elevated pay being provided to the city’s line employees necessitated that the supervisors of those lower- and mid-level employees, the city’s management division consisting of its administrative ranks such as department heads who were not represented by the unions, be provided with ever greater compensation in keeping with their status as the unionized employees’ supervisors. In this way, the cost of local government had risen into the stratosphere.
The Valdivia team’s plan was relatively simple and straightforward. Beginning where it could and had the unfettered ability to do so, it would impose on those city employees drastic, i.e., in the neighborhood of fifty percent, reductions in their pay and benefits. Upon effectuating those cost reductions, it would then proceed as logically and as efficiently as possible or as dictated by circumstance from there to a) ask of the city’s remaining workforce that they take voluntarily pay cuts in the 10 percent to 25 percent range; b) explore the reduction of that portion of the city’s workforce unwilling to accept drawdowns in their compensation either through layoffs or attrition; c) look into hiring by contract younger and more talented and energetic employees who were anxious to accept public employment and would be enthusiastic about coming to San Bernardino to replace the more expensive staff the city is now burdened with; d) direct the city manager to use the option she has to terminate the city’s remaining department heads who are not willing to reduce their remuneration by 25 percent in order to remain in place; e) fill the existing gaps in the city’s managerial ranks with capable talent hungry enough to take on the responsibility of leading a municipal department such that they would be willing to accept a pay level in keeping with the redefined standards being reformulated for the city; f) offer the city manager’s position to current interim city manager Teri LeDoux with the proviso that she accept remuneration set at a level of two-thirds that of recently-fired City Manager Andrea Travis Miller; and g) upon the expiration of the city’s current collective bargaining contracts, from a position of strength and authority, renegotiate those contracts based on the mandate of preserving the city as a going concern, such that the salaries and benefits to be provided will not threaten the city’s ongoing, continuing and future financial viability.
The gambit, if successful, would have the effect of not just placing San Bernardino on the road to long-lasting economic recovery, but widening and boosting Valdivia’s political prospects. It is no secret that as a young and ambitious up-and-coming politician, Valdivia has ultimate designs on the governor’s mansion in Sacramento. Though handicapped by the consideration that he is a Republican in a state absolutely dominated by Democrats, Valdivia and his handlers perceive, quite possibly correctly, that the Republican Party is just one charismatic Hispanic candidate away from making a vast turnaround in California. Moreover, the problem of excessive public employee salary levels is not one that is endemic to San Bernardino. Indeed, in all but the most economically vibrant of California 482 municipalities, public employee pay scales, by which workers in the public sector are paid by the taxpayers at a rate, on average, that is nearly double that paid to workers in the private sector holding roughly equivalent or comparable positions, exacerbated by the fashion in which public employees are further provided with retirement benefits that are overwhelmingly superior to those enjoyed by workers in private industry, has eaten up funding that would otherwise be used by cities and local agencies to construct and maintain vital infrastructure and provide the services which those agencies and municipalities were originally intended to provide. In the vast majority of those cases, California’s towns, cities and counties are not in danger, of ceasing as going concerns, having to declare bankruptcy or disincorporating as was the case with San Bernardino in 2012 and is again growing increasingly likely. Nevertheless, hundreds of California cities are unable to meet the reasonable expectations of their citizens with regard to maintaining and upgrading existing and dilapidating infrastructure or ensuring the timely delivery of basic governmental services because of encroaching public employee salary commitments. If Valdivia and those within his network could succeed in breaking the public employee culture’s lock on and monopolization of the financial means available to the San Bernardino city government and redirect it to the benefit of the city’s residents, he would very likely create a model that could be replicated throughout the state, demonstrate himself as a visionary, strong and determined leader with the character to stand up to the power and intimidation of public employees and their union, and show he is in possession of the mettle needed to function in a gubernatorial capacity. That was the goal toward which Valdivia was angling. Word to that effect had spread, and as result, thousands of government officials throughout the State of California had logged onto the City of San Bernardino’s website Tuesday night to watch the meeting, to the point that the server was overtaxed and kept crashing.
Thus, those who had the best vantage on what was happening at Tuesday evening’s specially-called meeting were those who were physically present in the room. In the main, the meeting had been called so the council could make a review of the city’s proposed 2019-2020 budget. The council was nevertheless purposed to also consider a proposed cost saving measure ostensibly derived by a subset of the city council recently created by Valdivia to consider cost-saving measures. Dubbed the Economic Development Council Ad Hoc Committee and consisting of council members Henry Nickel, Ted Sanchez and Juan Figueroa, that panel’s proposal related to the current positions of the city’s elected city attorney, elected city clerk and elected city treasurer. While under the San Bernardino City Charter established in 1905 all three of those posts were elected ones, the city’s new charter enacted by a citywide vote in 2016 transitioned the city attorney and city clerk into appointees of the council and dispensed with the city treasurer’s post altogether. Because, however, the current holders of those positions – Gary Saenz, Georgeann Hanna and David Kennedy, respectively – were elected in 2015 to terms set to expire at the end of March 2020, they are entitled to serve in those capacities until then.
Under the charter established in 1905, the city attorney and city clerk positions were deemed full-time ones, with the treasurer serving in a part-time oversight capacity. There had been no salary requirement for the positions codified into law or ordinance and previous city councils had conferred upon the positions salaries and benefits they accorded to be fair and within the scale of wages consistent with municipal standards throughout the state for cities of a comparable size to San Bernardino.
Last year, the in-house attorney staff that had supported the city attorney for the last several decades was jettisoned, replaced with two attorneys with the firm of Best Best & Krieger, who are currently functioning in the capacities of assistant city attorney and chief deputy assistant city attorney. On April 1, 2020, with Saenz’ departure, Best Best & Krieger will become the city’s contract city attorney. Saenz has been working with the firm, acclimating it and its attorneys to the hundreds of legal issues the city is faced with.
The proposal by the Nickel, Sanchez and Figueroa committee, which had met on May 30 and June 5, called for reducing by 45.8 percent the compensation Saenz is to receive during the nine months of 2019-2020 that he will remain in office; reducing the compensation Hanna is to receive during the remaining duration of her tenure by 59.2 percent; and lowering the compensation Kennedy is to receive by 90 percent. Saenz currently receives $246,266 in total annual compensation as city attorney, including salary, benefits and add-ons. Hanna currently receives $171,466 in total annual compensation as city clerk, including salary, benefits and add-ons. Kennedy currently receives $65,000 in annual compensation as city treasurer, including salary, benefits and add-ons. Thus the committee was asking the council to reduce the compensation Saenz is to receive from July 1, 2019 until March 31, 2020 from $184,700 to $100,000, the compensation Hanna is tor receive over the same nine-month span from $128,600 to $52,500, and lessen Kennedy’s remuneration in the same timeframe from $50,200 to $5,000. Saenz was being called upon to see his compensation reduced by $84,700. Hanna was to sustain a reduction of $76,100. Kennedy was to accept losing $45,200. The calculated savings in payroll costs relating to the three as proposed was $206,000.
When the council took up the compensation reduction issue Tuesday night, Saenz weighed in.
The city attorney said that the city’s charter designates him to “serve as chief legal advisor to the council, the city manager and all city departments, offices and agencies” and that he represents the city “in all legal proceedings.” His authority stems from the city’s charter, Saenz said, asserting the “mayor and council are powerless to change my role, duties, authority, obligation and my responsibilities. Therefore, my role, duties and responsibilities are exactly the same now as they were before the city contracted with BB&K [Best Best & Krieger]. At this time last year, before the BB&K contract, I was provided an in-house staff with some eight attorneys, and near equivalent number of support staff for a total of approximately 17 to 18 staff members. That support staff changed by the council action of July 2018 to two in-house support staff and the contract with BB&K. So while the means by which my duties to the city are met have been so changed, my duties, role and level of responsibility are exactly the same. I am still the city attorney of the City of San Bernardino. While Best Best & Krieger provides the chief assistant city attorney and assistant city attorney and performs the majority of the day-to-day function of the office, BB&K understands that the city’s resolution to contract provides that Gary Saenz is the ultimate city attorney authority. And while BB&K is responsible for meeting its obligations under the contract, Gary Saenz is ultimately responsible for fulfilling the city attorney duties to the city. I am a salaried elected officer. This means that the city and I have agreed upon a reasonable compensation level for my filling the role of city attorney as described in the charter. I am compensated for acting and filling the role of city attorney as defined in the charter and not by the number of hours required to meet that responsibility. Whether I spend 50 hours or 30 hours, the compensation level is the same. The number of hours is not relevant; rather it is the level of authority and the high level of responsibility that justify my compensation. My authority and level of responsibility have not changed with the staffing by BB&K. The mayor’s chief of staff recently came to me and attempted to calculate a change in my compensation via some formula of hours times a dollar amount. Such an attempt demonstrates nothing but a complete lack of understanding of the role and responsibility of the city attorney. As attorney of record for the city in the bankruptcy court, I presently have a high level of responsibility to both the bankruptcy court and to the city as its legal counsel of record. The termination of Straddling Yocca Carlson and Rauth as bankruptcy counsel by the city council means Gary Saenz alone is responsible to the court and to the city. Likewise, in all case litigation pending I am listed as an attorney of record which means that I am responsible to both the court in which the action is pending and to the city with respect to each such case.”
Saenz said, “I am disappointed with the so-called Economic Development Committee’s recommendation, not only because of how it impacts me and my family but because of how it failed to address or recommend any plan of action for economic development.”
He noted that Nickel had said “We need to focus on revenue.” Saenz said, “So, I am bothered that instead, their recommendation is merely to chip away at the compensation of the city attorney, city clerk and city treasurer, elected by the people, to address the city’s $11 million deficit. If cuts to compensation are an acceptable way to address our budget woes, shouldn’t cuts be across the board, to the council members, mayor, perhaps even to all staff? It remains a mystery to me how the committee believes singling out cuts to the city attorney, city clerk and city treasurer and to no other elected officials or city employees is fair, just or reasonable.”
Saenz implied that Best Best & Krieger had advised the council against the compensation reductions. “If council chooses to defy the voters, defy the legal advice of BB&K, a court will address this issue at great cost to the city, including attorney fees for those who seek the court’s intervention, attorneys for the city, and all other costs of litigation, and I predict in the end the reductions in compensation will not be allowed,” he said.
Saenz’ statement was echoed in a warning provided to the council by former Mayor Patrick Morris, who said that the imposition of the compensation reductions would likely result in the filing of litigation against the city.
“Practically speaking,” Morris said, “the ad hoc committee indicates a savings of about $200,000. You can expect, as a mayor and council, immediate lawsuits by these officeholders asking the Superior Court for injunctive relief and a writ of mandate. I’m confident they will be successful in every aspect of their lawsuit, and the cost to the city will certainly be probably a lot more than the proposed savings the ad hoc committee suggests. You will pay your attorney’s fees and costs and maybe for depositions and interrogatories. Losing, you will pay the attorney’s fees and costs for the officeholders, as well. And you will suffer the embarrassment, quite frankly, of having attempted to drive from office and diminish the professional stature and careers of distinguished public officials officers we elected to these offices with the expectation that they would serve until the end of their elected term.”
Saenz said, “If you’d like to adjust my pay to a reasonable hourly wage, $300 per hour is a conservatively reasonable amount for an attorney with 40 years of experience. Last week I worked over 36 hours, which equated to $10,800, extrapolated to an annual compensation of $561,000. More typical for me now is a 25-hour week in the office, which extrapolates to $386,000 total compensation.”
When Valdivia offered Hanna an opportunity to address the compensation reduction proposal, she declined, citing the advice of legal counsel.
Nevertheless, P.J. Seleska addressed the council, in so doing relating events which strongly implied she was speaking on Hanna’s behalf.
“The San Bernardino City Clerk is a working master municipal clerk who reduced her office from six employees to three and one part time, and did cut seven percent this year as requested, while the mayor exploded his staff budget,” Seleska said. “Not a single council member has a clue how many hours the city clerk puts in, let alone what the job entails. This is not about the budget. This is not fiscal responsibility. This is about political retribution, corruption, and overstepping authority to exact revenge. The San Bernardino mayor and his chief of staff are angry because, in their words, ‘The people know too much.’ They want to censor access to publicly-funded information, insisting they should have the final say as to who gets access to what public documents. The city clerk refused this demand, as they do not have the authority. The mayor shared that he intends to limit public comment to 90 seconds and intends to challenge those who speak against him. He expressed his desire to scrub the city website of public officials’ statements of economic interest and other relevant information. This administration is blatantly terrified of the San Bernardino city clerk’s sunshine ordinance campaign, which calls for governmental transparency.”
According to Seleska, “On two separate occasions, San Bernardino Mayor John Valdvia has attempted to bribe San Bernardino City Clerk Georgeann “Gigi” Hanna. He summoned her to his doughnut shop on 40th Street, after hours, where he made an offer that Gigi Hanna turned down. Subsequently, John Valdivia called the city clerk into the mayor’s office and made multiple offers that were again turned down. The Economic Development Council Ad Hoc Committee recommendation is in direct retaliation of Gigi Hanna’s refusal to be bribed. The administration can’t buy her out, so let’s starve her out or force her to quit. All contemporaneous notes and evidentiary supporting information regarding these actions have been submitted to various appropriate authorities.”
Ultimately, the council voted 4-to-2, with Councilman Jim Mulvihill absent, to ratify the compensation reductions as proposed. Along the way, however, there were several remarkable developments, not the least of which was the Valdivia team’s abandonment of the underlying game plan, of which the reductions had been designed as a crucial starting point.
While councilmen Nickel, Figueroa, Sanchez and Councilwoman Bessine Richard voted in support of giving Saenz, Hanna and Kennedy the pay cuts, that vote had come on a substitute motion to a previous motion made by Councilwoman Sandra Ibarra. Ibarra, who heretofore had been a steady ally to Valdivia and one who could be counted upon to support his agenda down the line, had departed from his fold when the discussion regarding the compensation reduction matter intensified. Ibarra’s motion called for keeping compensation for Sanez, Hanna and Kennedy intact and instead reducing where appropriate the city’s contracts with and payments to outside counsel, supporting a staff recommendation to reduce outlays in the mayor’s office by four percent and an entirely unanticipated proposal to terminate Bilal Essayli as Valdivia’s chief of staff by eliminating that position. Councilman Fred Shorett seconded her motion but they were outmaneuvered through the majority’s use of parliamentary procedure whereby Sanchez’s substitute motion prevented Ibarra’s motion from being voted upon.
Treasure Ortiz, who last month vied unsuccessfully against Figueroa to succeed Valdivia as Ward 3 council representative, addressed the council. “You really think we’re here talking about a budget the ad hoc committee thinks is going to save $200,000 when you had behind the scenes tried to give the chief of staff a $20,000 increase in his pay?” Ortiz asked. “He makes $94,000. You gave the police department over $430,000 in raises. This is about a budget? No. What this is about is retaliating against the city clerk because she controls public records and you want to control the information that comes out of this city.”
Valdivia had Nickel explain the rationale for the council’s action. While asserting that ultimately, “cuts are not the answer” and that “growth is the answer,” Nickel lamented a bleak budget picture consisting of an $11.2 million shortfall as the current fiscal year is concluding and prospects that look even worse as 2019-20 is about to start. Wielding the budget rapier, he said “reflects the reality we are having to face this fiscal year. We’ve got, over the next year, a very short window of time to turn around a very dire situation. We stood back and we said, ‘What makes sense?’ We proposed some cuts, but we knew when you start diving into salaries of individuals, first of all, it’s radioactive. I wouldn’t want anyone diving into my salary, but the reality is the charter allows that. That’s the way it works. So I’ve learned to deal with that. The fact of the matter is we have a firm, BB&K, on board. We also looked at the functions of the city clerk. I’ll be honest: There’s some cities where the city clerk is more or less a figurehead, especially the elected city clerks, some of the appointed city clerks. They are. That was information that was presented to us. That’s not to say that that’s necessarily the case here. And certainly, if we want to keep time cards now, when they were elected officials, they didn’t have to keep time cards. If they want to consider themselves employees, then yeah, we’re going to have to track your time, because at the end of the day, the taxpayers pay all of our salaries here. And we have to respect the taxpayers. It’s never easy to cut budgets, and we have quite a few competing priorities in the city,” Nickel said. “This isn’t an easy process, and nothing we do up here in the context of our budget this year is going to be easy or pleasant.”
Ultimately, after achieving the reductions in Saenz’s, Hanna’s and Kennedy’s compensation, the Valdivia team abandoned the strategy of seeking across-the-board reductions in employee pay, when they came to terms with the consideration that two of Valdivia’s council allies whose votes would be instrumental to carrying out his plan are themselves government employees pulling comfortable salaries with a considerable investment in the public pension system. Councilwoman Bessine Richard, has been an employee with San Bernardino County since 1981. In 2014, she was promoted to the position of workforce development supervisor with the County of San Bernardino Workforce Development Board and was working that job when she ran for the city council in San Bernardino’s Sixth Ward in 2015 and finalized her election to the council post in a run-off in February 2016 before being sworn into the post in April 2016. Five months later she was promoted to a senior position as workforce development manager.
Councilman Henry Nickel is an analyst with the County of San Bernardino Workforce Development Board, having been in that position since November 2016. He previously worked in government as a rail analyst with the Riverside County Transportation Commission.
Were the City of San Bernardino to prove successful in cutting city employee salaries and benefits, in the event that would trigger similar governmental employee pay decreases, both Richard and Nickel would potentially be impacted, seeing their own paychecks reduced.
Contacted by the Sentinel after Tuesday’s vote, Valdivia’s chief of staff, Bilal Essayli, indicated that a move to trim San Bernardino’s operational costs by drastic reductions in employee compensation in general was no longer and had never been a seriously contemplated option.
Essayli acknowledged that the city’s participation in the California Public Employees Retirement System represented a major drain on the city’s finances.
“We will be paying CalPERS [the California Public Employees Retirement System] $3 million more than last year,” he said. “It’s the pension plan that’s the problem, not salaries.”
Asked directly if the Valdvia team was preparing to secure salary and benefit reductions from city employees as part of the effort to stave off another bankruptcy, Essayli said, “I would say no. I haven’t heard anything like that. The issue is CalPERS. The reality is that San Bernardino has been harder hit by the loss of revenue. Revenue has stagnated. That is a problem in every jurisdiction in the state. It is not something that is going to be solved by San Bernardino.”
Queried as to whether what the council did Tuesday was a first salvo in the war against overpaid employees and if the balance of the city’s employees should prepare themselves for a round of similar belt tightening, Essayli said, “That action was very specific. Those three positions have been abolished by the charter. There has been a significant reduction in their duties. Their suggestion that they should receive the same amount of pay is ridiculous. Their reduced compensation is directly related to their reduced duties under the new charter.”
Essayli again resisted the Sentinel’s invitation to divulge what efforts the Valdivia administration is on the brink of taking to either impose salary and benefit reductions on city employees or request of them on a voluntary basis to head off massive layoffs.
“We have very limited leverage,” Essayli said. “Under the collective bargaining contracts now in place, their salaries and benefits are locked in, and when we go into negotiations, if we don’t come to an agreement they continue on the same terms as before. They can never lose. They can only gain. It is a very difficult situation. The problem is not salaries. The real problem is the ongoing cost, the total ongoing and future cost of pensions, the unfunded liability.”
Valdivia Team Abandons Salary Reform Goal
Less than a week after garnering the attention of government officials and public employees up and down the Golden State, San Bernardino Mayor John Valdivia and the council majority he controls receded from what was widely anticipated to be a major step in effectuating public employee salary reform.