Upland Council & Staff Continue To Muzzle Kinley On Pension Debt Warning

Upland municipal officials, including city management and the city council, this week prevented the city’s treasurer from alerting the city’s 76,000 residents of the looming pension debt crisis that is threatening to bankrupt City Hall.
More than seven months after effectively moving to muzzle Larry Kinley, who in 2016 was elected to the treasurer’s post by an overwhelming 62.46 percent of the vote, the city council this week for the eighth straight month prevented him from providing the city’s residents with a notation of the amount of money the city’s taxpayers are on the hook for to keep retirement stipends flowing to former city employees. Simultaneously, the council stopped Kinley from making a written public disclosure of the dramatic escalation in those payments that will occur in future years when the city’s current workforce retires, depleting the city of the money it will need to deliver services and maintain infrastructure.
Because cities such as Upland generally create their year-to-year budgets on the basis of current operations without making any preparation or allowance for how accumulating costs will burden the city in future years, the future debt is referred to as an “unfunded liability.”
For two closely related reasons, city employees and elected city officials would prefer that the city’s residents ignore this unfunded pension liability. Kinley believes city officials’ efforts to downplay that troubling financial indicator is grossly irresponsible.
Kinley worked for Bank of America for 42 years, the last 15 of which he was a manager in the problem loan administration department dealing with borrowers with financial difficulties. After his retirement, Kinley in 2013 by chance heard that Standard and Poor’s Financial Services intended to downgrade the City of Upland’s credit rating. As an Upland resident, and indulging the interest and expertise he had cultivated professionally, he began looking into the situation involving his city, coming across as well an auditor’s opinion from the certified public accounting firm Mayer Hoffman and McCann from 2012 stating that there were serious questions with regard to the city’s solvency to the point that in a short while “it will be unable to continue as a going concern.”
Delving further into the matter, Kinley discerned that the major factor forcing the city closer and closer to the fiscal abyss was its pension debt, which was then, and is yet, growing at an alarming pace. Based on his analysis, Kinley determined that the pension debt escalation grew out of the consideration that the city for decades had made what he says were unjustifiably generous commitments to pay city employees retirement benefits which are in the cases of the city’s lower paid employees, three times what are provided to employees in the private sector, and in the case of the city’s higher paid employees, five, six and even seven times what is a standard retirement stipend in the private sector.
At that point, Kinley set about trying to calculate what the city’s unfunded pension liability was at that time. Based on data he obtained from the California Public Employees Retirement System, with which the City of Upland is contracted to deliver pensions to its employees, what Kinley found was that as of June 30, 2012, which at that point was the last date for which figures were available, 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 was $33,370,136 and calculated on a market value of assets basis was $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 was $21,234,203 and calculated on a market value of assets basis was $34,780,257.
In this way, Kinley derived a $88,994,066 figure, using market value actuarial terms.
In 2016, when the city’s then-current treasurer, Dan Morgan, opted out of running for reelection as treasurer to instead seek a seat on the city council, Kinley tossed his hat into the ring, as did Stephen Dunn, who had departed as Upland city manager that year and had served in the role of Upland’s finance director prior to that. Campaigning on a platform that made reference to the unfunded pension liability while noting that Dunn was a pensioner drawing a $104,000 annual pension who therefore might not be sensitive to the need for pension reform, Kinley handily won the 2016 election for treasurer, capturing 16,625 votes or 62.46 percent to Dunn’s 9,992 votes or 37.54 percent. Kinley’s performance in that election made him the top vote-getter among all of the city’s elected officials, including the council members and the mayor.
In addition to carrying out the standard duties of the city’s treasurer, Kinley was resolved as well to see that he continued in his elected capacity to bring the same degree of focus to the unfunded pension liability issue as he had as a candidate. He saw this as part of an effort to get Upland’s citizenry to take up and embrace the concept of pension reform, such that the burden of paying for the hefty pensions would be transferred from the taxpayers and future taxpayers to the city’s employees, who would be called upon to up drastically their contribution toward sustaining the pension fund as a part of contract negotiations.
Each year, Kinley would recalculate the degree to which Upland’s unfunded pension liability would increase. He also kept an eye on how much, as a percentage of the budget, payments into the retirement pool consumed money from the city’s general fund. As treasurer, he approached other officials at City Hall, informing them that he wanted to kickstart the pension reform movement in Upland by having the city carve out for him an opportunity to weigh in, albeit briefly, during city council meetings, through a forum from which he could give a brief overview of the city’s financial picture, perhaps from a seat provided for him on the council dais. Marty Thouvenell, Upland’s former police chief, at the time Kinley came into office was serving as the city’s interim city manager. Thouvenell was originally supposed to remain in that capacity for only a brief interlude while a full-fledged city manager was being recruited, but as it turned out, he remained in that post for 18 months, a duration in place that was actually longer than the tenures of the two city managers who served before him and the two who served after him. When Kinley engaged with Thouvenell, who was a pensioner himself, and told him of his plans to spark pension reform from the bully pulpit within the council chambers as a co-equal with the rest of the city’s elected leadership, Thouvenell immediately let it be known that no one was interested in hearing Kinley prattle on about how the sky was falling and City Hall would be buried under an avalanche of pension debt. There would be no forum for him as city treasurer, Thouvenell told him.
If Kinley wanted to sound his dire warnings about the unfunded pension liability at those forums, he would not be given a platform to do so as city treasurer, but had to present a speaker card to the city clerk and make his presentation from the podium provided to members of the public. On those occasions when Kinley summoned up the dignity to do so, if his message did not contain itself to the three minutes allotted to public speakers, Mayor Debbie Stone, who had received 588 fewer votes for mayor than Kinley had received for treasurer in the 2016 election and who had heard as much about the city’s unfunded pension liability as she could stand, would shut off the microphone.
Kinley battled on, undercut at virtually every turn. He was able to score one significant and meaningful breakthrough, though it was grudgingly conceded to him. Using his status as city treasurer and the authority of his elected position, he arranged to have not only a reference to the unfunded pension liability made in the city’s comprehensive annual financial report, but a projection of where that liability stood as of June 30, the end of each fiscal year, based upon actuarials composed of the pensions being provided to the city’s retirees, their ages and current average life expectancy.
Last year, taking stock of the implication of his calculation that at the end of Fiscal Year 2018-19 as of June 30, 2019 that Upland’s unfunded pension liability had reached $112,039,675, up from $99,976,917 at the end of Fiscal Year 2017-18, Kinley felt it his duty to redouble his efforts to get the issue front and center before the residents of Upland. At the rate it is metastasizing, the runaway unfunded pension liability train by 2030 will monopolize 60 percent of the city’s general fund, meaning the city will be paying 60 cents out of every dollar it spends to pay people who are no longer working for the city. Desperate for a forum from which to project his alarm, Kinley set his sights on the monthly treasurer’s report that traditionally was posted publicly as part of the first city council meeting of each month. Treasurer’s reports are a relatively common document among municipalities, one which lays out what the city has over its history up until the present salted away in terms of its surpluses garnered from revenue in excess of its expenditures in current and past budgetary cycles, and delineates how and where that money is invested. Typically a treasurer’s report is current to approximately 60 days prior to its issuance, and it shows the amount of money the city has in investment funds, shared investment funds with other municipalities, interest-bearing bank accounts and change funds, securities, money market funds, government agency securities, corporate bonds and U.S. Treasury notes. Municipalities generally present their treasurer’s reports to the treasurer before they are made public, so that the treasurer can inspect and sign it. Figuring that the treasurer’s report is a listing of the net assets the city has, and further figuring that any indebtedness against those assets would impact the total amount of available savings, Kinley believed that the city’s outstanding debt would be properly listed on the treasurer’s report.
Realizing, however, that he was isolated on the issue in the city, Kinley decided against going out on a limb and simply altering the treasurer’s report from what was presented to him using his own authority. Instead, he sought backing for what he was going to do by going further up the governmental evolutionary chain, getting from state financial affairs experts clearance for what he planned to do.
“I called the state treasurer’s office to ask if there is something I can do to ensure I am able to fulfill my duties as I see them,” Kinley previously told the Sentinel. “I was handed over to one of their lawyers. The first question I was asked was ‘Who do you report to?’ I said, “Per the city’s organizational chart, I report to the citizens of Upland. That is the only line going to anyone above me. The lines from me or to me go down to the rest of the city staff.’ The lawyer’s comment was, ‘Therefore, since there is no one in the city with higher authority on financial issues than you, you are independent and you can add the information you deem relevant to the treasurer’s report.’”
Kinley next consulted the California Government Code relating to a municipality’s financial reports. California Government Code § 53646 requires and authorizes municipalities to carry out financial reporting no less frequently than quarterly. There is nothing in California Government Code § 53646 which expressly forbids a city treasurer from making mention of the city’s unfunded financial liabilities in a statement of investment policy, which, California Government Code § 53646 states, “the board [i.e., the city council] shall review and approve at a public meeting.”
Indeed, in subparagraph 3, California Government Code § 53646 reads, “The quarterly report shall include a statement denoting the ability of the local agency to meet its pool’s expenditure requirements for the next six months, or provide an explanation as to why sufficient money shall, or may, not be available.”
If questioned about what he was next going to do, Kinley was prepared to contend that the city’s unfunded pension liability has the potential for preventing the city from meeting future expenditure requirements.
Based on that, when the treasurer’s report was next given to him, Kinley took what he calculated would be the first incremental step. “What I wanted to do in the treasurer’s report was add a comment as the treasurer about the city’s pension liability, to see if I could get it in there,” Kinley told the Sentinel last year. “I wanted to provide both sides of the balance sheet, the net, if you will, which would include not just our assets but our liabilities.” He handwrote onto the treasurer’s report a note that showed his calculation of what the city’s unfunded liability was at that point.  Then he signed the report.
City Manager Rosemary Hoerning and Finance Officer Londa Bock-Helms were having none of that, however. Hoerning went to the city’s finance committee, consisting of Councilwoman Janice Elliott and Councilman Rudy Zuniga, Bock-Helms and Kinley, who has essentially been disenfranchised from it. The committee made a directed determination that the language Kinley was seeking to include should not be contained within the report. He was proffered a clean version of the report for his signature and his signature only.
“I told them that if they were going to erase my input, I just wouldn’t sign the report,” Kinley said. “And I didn’t.”
Thereafter, Hoerning and Bock-Helms changed the title of the treasurer’s report to the treasury report. They now sign it in lieu of Kinley.
The degree to which Hoerning and Bock-Helms are invested in the California Public Employees Retirement System perhaps explicates why both are so adamantly opposed to Kinley’s efforts to draw attention to the unfunded pension liability sword of Damocles hanging over all of Upland’s citizens’ heads, which might touch off a reform movement contrary to their personal interest. The California Public Employees Retirement System formula for someone in the position Hoerning holds calls for her highest annual salary times her number of years times the multiplicand of 2.5 percent. Earlier this year, the city council conferred upon Hoerning a three-year contract starting at $230,000.04 in salary before benefits annually. Thus, were Hoerning to retire today, she would be entitled to receive a pension of $184,000.03 annually for the remainder of her life, based upon $230,000.04 X 32 (years) X .025. If Hoerning serves out the full three years on her contract, she will then qualify for an annual pension of $201,250.03, based upon $230,000.04 X 35 (years) X.025. The California Public Employees Retirement System formula for someone in the position Bock-Helms holds calls for her highest annual salary times her number of years times the multiplicand of 2.25 percent. A calculation with regard to Bock-Helms’s eventual pension is less precise, given the relative dearth of publicly available information pertaining to her job history and future unknowns. Nevertheless, what is known is that Bock-Helms in 2016 was employed with the City of Murrietta with the title of finance manager, for which she was provided an annual salary before benefits of $113,725. She left Murrietta in 2017 to take a lesser position in Upland, bearing the title of finance officer, which entailed a salary reduction to $105,000 per year. This year, while yet holding the title of finance officer, she is being provided with a salary before benefits of $118,632.85. Bock-Helms is on a trajectory to promote in the relatively near term to the position of finance manager, and eventually, if she remains in Upland, to finance director, a post that now, if filled, would pay in the $150,000 range and would be likely to top out at $160,000 to $175,000 by the time Bock-Helms will be eligible for retirement. Thus, if she retires with 35 years as a municipal employee, she will likely be, at the very least, eligible for a pension of $126,000 per year, based upon $160,000 X 35 years X .0225, annually for the remainder of her life.
The city’s employee unions are among the heaviest contributors to the mayor and council members’ campaign funds. Advocates pushing finance reform in the city have suggested that the council members, individually and collectively, fear that their participation in efforts to reform the city employees’ pension system will result in the employees and their unions withdrawing their political support from the incumbents and bankrolling their opponents.
The slight to Kinley and the fashion in which city officials are seeking to prevent any heed being given to the ticking time bomb of Upland’s unfunded pension liability made its way into the public consciousness this week, prompting Councilman Zuniga at the Monday night council meeting at which the council was set to accept the treasury report, to say, “I’d like to ask the city manager or Londa Bock-Holms if they can explain why the city treasurer’s signature is not on the document and does it need to be on the document [i.e., the treasury report], and why the PERS [California Public Employees Retirement System] liability doesn’t show up on this document. I know why, but I would like it to be explained to the community.”
“So, this is the treasury report, and we provide this report to the treasurer, so he does get a copy of it,” Hoerning said. “In the past he, as the treasurer, has signed the report. However the reason for the signatures on the report is to certify the six items that are listed on the front of the report where the signatures are contained. It doesn’t require that the treasurer sign the report. However, when the treasurer was signing the report, he would alter it, so our finance officer, Londa Helms, would sign the report as it stands, which is just reflective of all of our treasury investments, and then the treasurer would make alterations to the report and then sign it. So, it didn’t have her concurrence with any corrections. The correction that he was making to the report is regarding the city’s unfunded liability position, which is included in part of our CAFER [comprehensive annual financial report] document, and is indicative of information that is not necessarily germane to this particular report. That is the reason why he has elected not to sign the report.”
Zuniga asked if it “is legal for the city manager to sign this report instead of the city treasurer?”
“Well, it doesn’t require that the city treasurer sign the report,” said Hoerning “I sign it as a matter of a second, so I’m reviewing the report that Londa has signed, so it has two official signatures on it.”
Hoerning said the treasurer’s report is an outline of how the city’s monetary reserves are being invested.
“Mr. Kinley has been notified that he can come up with his own type of report and produce it,” Zuniga said. “He can go in front of the council and let the community know what’s going on and how much is owed in this unfunded liability, and he refused to do so, correct?”
“That’s correct,” said Hoerning. “He always has an opportunity to speak or write a separate report and submit it to the city.”
“So there’s other ways he can push that communication of what’s unfunded in our city, but it doesn’t belong on this report,” said Zuniga. “This is an investment report. That’s all this one is.”
Councilman Bill Velto asked, “So, Mr. Kinley is shown this report, correct?”
“That’s correct,” said Hoerning.
“And Mr. Kinley is not required to sign the report, correct?” Velto asked.
“He’s not,” said Hoerning. “He’s given the opportunity to sign it, if he would like. In past practice the treasurer has signed the report, but they’ve signed the report without making corrections to the report or altering it.”
Hoerning said she was “not aware of past treasurers making changes to the reports.”
Velto asked, “The changes he chooses to make, are they inconsistent with his role?”
The question stymied Hoerning, who made an atypical five second pause in the cadence of her speech before answering, “They are inconsistent with this particular report. This is the investment report.”
During the evening’s public comment session, Marjorie Mikels told the council, “We are a general law city and we have a duly elected treasurer. His name is Larry Kinley. The people voted in a man with 40 years of banking experience.”
Mikels said that Mayor Debbie Stone had deliberately disenfranchised him.
“You never talk to him, Mayor Stone,” she said.
The council is overstepping its authority by preventing Kinley from carrying out his function as he deems appropriate, Mikels said.
“The government code gives him certain responsibilities,” Mikels, an attorney, said. “You have interfered and obstructed him in the performance of his duties as our elected treasurer. The city manager and someone called the finance manager signed off on the treasurer’s report. It’s illegal. You don’t want Mr. Kinley to disclose the truth about the unfunded pension benefit at this time that could bankrupt this city.”
-Mark Gutglueck

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