Giving Up On Pension Reform & Debt Reduction, Upland To Issue $130M In Bond

Without first exploring whether the City of Upland’s astronomical pension debt can be reduced, city officials in the 77,754 population municipality are inching toward an inevitable issuance of so-called pension obligation bonds to render, their advisors say, that arrearage more manageable.
That bond issuance will be for the accumulated debt of roughly $130 million so far. It will not redress the continuing debt going forward.
Upland is not unique among California cities in facing a financial crisis brought on by its commitment to providing generous – what many consider to be overly generous – retirement benefits to its municipal employees past and current.
Upland is at a crossroads, and its elected leadership now in place has the option of using California’s criminal statute relating to public employee conflicts of interest to rescind commitments to enhance the pensions of city employees that were made as part of an effort to keep an illegal enterprise engaged in by former Upland Mayor John Pomierski under wraps. As a consequence of the assistance virtually every one of the city’s employees of that time lent to the mayor, he and his graft-encrusted regime were able to stay in place for over a decade. Those employees, many of whom have retired and some who are still employed by the city, have already seen or will eventually see their retirement checks fattened as a result of their complicity in looking the other way while Pomierski and his associates were engaged in their misdeeds. Those giveaways of public money, tainted by the criminal conflict of interest the city’s employees and their unions engaged in to get those pension benefit increases, provides the city at present, if its council members have the will to do so, with the legal grounds to cancel the generous terms of those pension guarantees, thereby reducing the city’s enormous debt. It does not appear, however, that the current city council, which is being advised by city employees who have a personal interest in seeing those giveaways perpetuated, is willing to seek the remedy that will, conceivably, save Upland’s citizens in excess of $100 million over the next several decades. Nor does the council seem willing to have the city exit from the retirement system that, together with the corruption of City Hall, created the ongoing financial disaster it is beset with.
The City of Upland is a participant in CalPERS, the California Public Employee Retirement System. The terms by which Upland participates in CalPERS is similar to those of all of the other governmental entities that are engaged with the California Public Employee Retirement System. The city contributes a given amount of money to CalPERS for each city employee. The California Public Employee Retirement System then invests that money in a variety of financial instruments, including the stock market and real estate ventures. The return on, or earnings from, those investments is utilized to pay out the pensions to the retired employees.
The two most common type of pension systems exist as either a defined-contribution plan or a defined-benefit plan.
In a defined-contribution plan, the employer and employee make matching contributions on a regular basis toward the retirement fund set up for each employee. That money is either put into an interest bearing account or invested. Upon the employee’s retirement, money drawn from that particular retiree’s account is dispensed on a regular basis, monthly, quarterly, every six months or yearly, to that employee as his or her pension. In a defined-contribution plan, the amount of the employee’s pension is not guaranteed, but instead controlled by how much money is in that particular employee’s retirement account and the earnings from the interest or investments made by the money in that account. If the value of the investments go up, the amount of the pension goes up. If the investments fare poorly, the retiree’s pension goes down.
In a defined-benefit plan, the retiree is provided with a guaranteed pension based on the number of years of employment, the highest salary that retiree earned while employed multiplied by an agreed-upon percentage, usually between 2 percent and 3 percent, times the number of years the employee was employed in California’s public sector.
In a defined-benefit plan, such as that used by Upland, the employer accepts all of the investment risk relating to the retirement fund, such that if the investments over a given year fail to achieve the returns needed to meet the amount of the yearly payout guaranteed to the retired employee, the employer, such as a city or county, must then make up for the degree to which those earnings have fallen short.
The California Public Employees Retirement System is a defined-benefit plan, meaning all of the participants in it, such as the City of Upland, have guaranteed that those who have retired as city employees will receive the full pensions offered them when they were employed with the city.
During the strong economy of the late 1990s and early 2000s, the California Public Employee Retirement System was heavily invested in the booming stock market, which was advancing on the basis of rapidly prospering start-up technology companies. This phenomenon became known as the dotcom bubble. Based on the market’s performance, CalPERS was superfunded, and its investment earnings had created a circumstance where it reportedly had 140 percent of the money it needed to meet its obligations to all of its then-current pensioners. In the exuberance of this confidence and in the mistaken belief that the state’s public employee retirement fund would remain shipshape perpetually, along with the overall bright financial picture at that time, many municipal governments throughout California, including Upland, provided their employees with substantial salary and benefit increases.
In the years since, the ebb and flow of the economy, which included the so-called Great Recession which lasted from 2007 until 2013, has shown that the exuberance that led to the provision of those inflated benefits was unjustified. In order to keep up with the financial demands of those commitments, cities up and down the state find themselves reducing the level of services they provide and even reducing their current workforces so they can ensure that past employees are paid their pension stipends.
Upland, like virtually all other cities in the state, has experienced in the last decade financial strain as a result of the CalPERS-driven pension fund collapse. Compounding that was its unfortunate experience with Mayor Pomierski.
John Pomierski was elected Upland mayor in 2000. Domineering, manipulative and dishonest, Pomierski solidified his hold on the city by forming lock-tight political alliances with members of the city council. Virtually from the outset of his time in office he took advantage of his position of power and authority, and violated the trust the voters of the city had placed in him. He took bribes and accepted kickbacks from all order of business interests seeking permits or project approval from the city council, planning commission or community development department or those seeking contracts or franchises to provide goods or services to the city and its residents.
As Pomierski was enriching himself in this fashion, the circle of those who directly saw what he was doing or who had come to understand the depredations he was engaged in widened. In early 2005, he forced the departure of City Manager Mike Milhiser, who had held that post since 1996, conferring upon him a $200,000 severance package to buy his silence. Two weeks later, then-Police Chief Martin Thouvennell was persuaded to retire. Pomierski induced the city council to hire his hand-picked replacement for Milhiser, Robb Quincey, and he elevated a captain in the police department, Steve Adams, to police chief.
Because he had concerns that the circumstantial knowledge about his bribetaking and other illegal activities that existed among city staff might not contain itself, Pomierski made arrangements to increase employee salaries generally at City Hall and had the city go to a four-day work week. A handful of city employees were actively assisting Pomierski in shaking down those doing business with the city or those subject to its regulatory authority. The lion’s share of city employees, while not directly involved in Pomierski’s pillaging, were nonetheless cognizant or subliminally aware of what was taking place. As beneficiaries of the generosity being shown them in terms of the uprating of their salaries and benefits, they simply chose to passively ignore what the mayor was doing.
Quincey had been hired as city manager on a contract that provided him with a combined salary and benefits package of slightly less than $260,000 per year. Pomierski in time arranged to get the city council’s acquiescence in conferring upon Quincey a contract enhancement that guaranteed he would receive the same percentage increase in his salary and benefits that were provided to the members of the police department. Pomierski also designated Quincey to represent the city in its negotiations with the police officers’ union in the collective bargaining process by which the officers’ salaries and retirement benefits were set. During the slightly more than five-and-a-half years that he served as city manager, Quincey was provided with eight raises that boosted his combined salary and benefits from less than $260,000 per year to $429,000 per year, making him the second-highest paid city manager in California. Meanwhile, the members of the police department saw their salaries and benefits escalate significantly, such that their silence and investigative inactivity with regard to Pomierski’s activities was secured. At the pinnacle of the police department was Adams, who, like Quincey, was beholden to Pomierski for his professional and financial advancement. Adams at no point had his department act to bring Pomierski’s violation of the law to a halt.
Throughout his ten years and a little more than two months in office, Pomierski had a free rein and experienced no obstruction from anyone at City Hall with regard to the graft he was involved in, even as that activity intensified during the last five years he was Upland mayor. It was only after Thouvenell approached the FBI in late 2009 that any semblance of an effort to hold Pomierski to account was made. Nevertheless, even after a joint FBI/IRS task force on June 10, 2010 descended on Upland City Hall, Pomierski’s home and his business office as well as the homes and offices of several of his business associates, Pomierski maintained his domination of Upland’s city government. He continued to exact an under-the-table tribute from those who wanted to ensure they had an edge over their competition in securing city contracts or when they were seeking to get permission to proceed with their property development proposals or see their applications for business licenses or permits approved. With the dawn of 2011, in rapid succession, Quincey was suspended in January, Pomierski resigned as mayor in February and in March a federal indictment was unsealed in which the now-former mayor was charged with bribery. The following year, in April 2012, Pomierski pleaded guilty and was given a two-year sentence. In October 2012, Quincey was arrested and charged by the San Bernardino County District Attorney’s Office with three felonies consisting of unlawful misappropriation of public money, gaining personal benefit from an official contract, and giving false testimony under oath. Quincey’s lawyer would later work out with prosecutors a plea deal for him on a reduced charge.
In the meantime, while Pomierski and Quincey were opening up the city treasury and handing money hand over fist to the city’s employees to keep them from going public with their knowledge about the criminality at City Hall, the bursting of the dotcom bubble – the precipitous drop in the value of tech stocks – took place, precipitating the economic downturn of 2007 and the ensuing six-and-a-half year financial slump. The collapsing of the national, state and local economy would have a devastating impact upon Upland as well as the California Public Employees’ Retirement System’s fiscal position. The abrupt drop in stock values meant that the California Public Employee Retirement System’s investments did not net the returns needed to keep the pension plan fully funded, resulting in cities and counties throughout the state along with the state government itself having to step up and make substantial payments beyond what they normally made to CalPERS. For cities like Upland, this meant money that otherwise was used for basic operations, paying salaries and providing services to residents was in short supply. That translated into layoffs and resultant manpower shortages and service reductions, along with delays in constructing new infrastructure, the deterioration of existing infrastructure and the deferring of purchasing new equipment and vehicles and the neglect of maintenance and servicing to city assets.
The difference between the total amount of benefits owed to all of a city’s current employees & retirees and the value of the financial assets devoted to that city’s pension plan is referred to, in municipal parlance, as an unfunded pension liability, what is more commonly understood by the public to be pension debt.
As of June 2012, the City of Upland had an $88,994,066 unfunded pension liability. That debt had reached $99,976,917 as of June 30, 2019, and then climbed more steeply thereafter, hitting $112,039,675 as of mid-fiscal year 2019-20 and $120,920,721 as of June 30, 2020. Unofficial documentation available to the Sentinel suggests that as of March 2021, Upland’s unfunded pension liability had climbed to $130,185,277.
In fiscal year 2020-21, 20.65 percent of the city’s operating costs were devoted to paying those who were no longer actively working for the city, as $8,996,364 of the city’s $43,559,950.78 general fund budget was utilized in paying off its pension debt.
Projections are that 11 years from now, in 2032, with more and more of the city’s current employees joining the rolls of the city’s retirees drawing pensions at ever higher and higher rates, the city will be expending more than 50 percent of its operating budget on paying pensions to former city employees, resulting in the city drastically reducing the municipal services it provides.
A significant factor in the pension debt crisis consists of the very generous terms contained in the formulas for those pensions. Generally speaking, employees are eligible to retire at the age of 55 to 60 and begin to draw a yearly pension equal to two percent of their highest annual pay, including salary and overtime, multiplied by the number of years they were employed in the public sector in California. Thus, a city employee who retires at the age of 55 and has achieved the paygrade of $100,000 per year and has 30 years of employment within the public sector would be eligible to draw an annual pension of $60,000 per year [$100,000 X .02 X 30] for the remainder of his/her life. Upon that former employee’s death, his or her spouse/widow/widower would be eligible to continue to draw a pension equal to half that amount, $30,000, for the rest of her/his life. The more an individual rises in the municipal ranks in the City of Upland, the more generous the formula. Senior administrative employees such as the city manager are eligible to draw a pension equal to his/her highest annual salary and add-on or overtime pay during that year times two-and-a-half percent times the number of years that person was employed in the public sector in California. Thus, a city manager paid $250,000 per year who retires at the age of 60 after a 35-year career as a public employee in California would receive an annual pension of $218,750 [$250,000 X .025 X 35] for the rest of his/her life, with his/her surviving spouse eligible to collect $109,375 yearly for the remainder of his/her life.
In this way, members of the city’s managerial echelon, subject to similar or the same rewards as the city’s line employees, have a disincentive to reform the pension system and its terms, as any action they take will impact their own retirement plans.
In the case of police officers, they are eligible to retire at the age of 50 and receive a pension of three percent times their highest level of pay multiplied by the number of years they have worked as government employees in California.
A circle of Upland residents sensitive to their city’s looming pension crisis years ago began a serious discussion over what steps could be taken to reduce the onerous burden of the city’s escalating pension costs and the resultant impact on ongoing and future municipal operations. Among the limited options contemplated was altering future employee contracts to reduce the level of benefits guaranteed to city personnel going forward. Another contemplated solution consisted of maintaining the level of benefits as they are but shifting the cost of participating in the California Public Employees’ Retirement System from the city to the employees themselves, meaning those employees – through payments deducted from their wages – would cover the cost of making annual payments the city is currently making to CalPERS, alleviating the taxpayers of that financial responsibility. Another approach that was floated called for using the collective bargaining process to work into the employment contracts with employees a cap on pension amounts at what might be considered to be a reasonable maximum – $100,000 annually, for example – that would still provide the means for retirees to live in dignity without breaking the public treasury. Another option discussed was for the city to pull out of the California Public Employees’ Retirement System altogether, paying off its debt to CalPERS, and instituting a municipal employee 403 (B) retirement program for those city workers which they pay for themselves, perhaps with some modest city contribution, similar to 401 (K) programs available in the private sector. Another contemplated option called for the city to utilize the legal leverage available to it and uniformly revoke the past salary and benefit increases provided to city employees under the Pomierski regime. Government Code Section 1090 renders null and void any contractual arrangement entered into by a public agency as a consequence of a conflict of interest. The contract negotiations Quincey engaged in with the police union while his contract entitled him to any concessions he made to the police officers constituted just such a conflict of interest. Thus, the enhancements the police officers received as a consequence of those negotiations, including the generous terms of their retirement packages, upon legal challenge, would likely prove unenforceable.
Larry Kinley, a 42-year employee and vice president with the Bank of America who oversaw its problem loan division, was elected Upland treasurer in 2016.  After acclimating himself to the office, Kinley in 2018 and into 2019 attempted to draw attention to the pension cost crisis facing the city by providing a running tab of the city’s unfunded pension liability in the monthly treasurer’s report he signed which gave a tallying of the city’s investments and reserve funds. Then-City Manager Rosemary Hoerning and Finance Manager Londa Bock-Helms, both of whom were on a trajectory to qualify, by the time of their retirements for pensions of, respectively, over $200,000 and over $120,000 per year, altered the treasurer’s report by erasing or whiting out the inclusion of the unfunded pension liability before that document was posted or provided to the city council and the public. Neither considered it to be in their personal interest to draw attention to the pension fund deficit issue, which likely would have encouraged reform that might reduce the eventual retirement benefits they are to receive.
In an effort to divert the momentum away from a reform of the underlying issue – the sheer magnitude of the pension system’s cost and the continual escalation of that cost – city officials sought to refocus the discussion from reform aimed at undoing the pension enhancements engineered by Pomierski to refinancing the debt.
Late last summer, city officials welcomed Suzanne Harrell, a financial advisor, into their midst. Harrell provided the city council with a sales pitch relating to the possibility of issuing pension obligation bonds as a means of defraying over time the exorbitant cost of the city’s unfunded pension liability.
Hailing pension obligation bonds as a debt management tool, Harrell said such bonds could be issued without requiring voter approval, such that their issuance could be subject to a judicial validation proceeding, which would require that a citizen or citizens go to the expense and trouble of going to court to prevent the city from issuing the bonds.
By issuing the bonds at a fixed rate of 3.3 percent, Harrell said the city could undertake a strategy by which the proceeds from the issuance and sale of the pension obligation bonds could be invested in high yield securities that would bring in a rate of return greater than the interest to be paid on the bonds. The money earned in this way could be applied to pay down the city’s pension debt, Harrell said. This involved a gamble that the city would most likely win, she said, essentially a bet that the stocks and other securities that Upland would invest the proceeds of the pension obligation bonds in will perform well and provide the investment returns hoped for.
Harrell endeavored to shoot down many of the arguments against pension obligation bonds, including that they would impact the city’s debt capacity and that they would commit the city to a longer debt service period. The city already is overburdened with debt in the form of its unfunded actuarial pension liability, Harrell said, and if the city realized a net gain between its return on the investments made with the bond money and the interest on the bonds, the city’s debt would be reduced. The city could, Harrell maintained, match the maturity of the bonds to a timetable of the city’s choosing, calibrating them so they coincide with the maturity, life or sunset dates of the city’s other debts, and refinance them after ten years if the city deems doing so necessary.
With attention to detail and timing, Harrell said, issuing pension obligation bonds could prove a sound and prudent way for the city to eliminate its existing unfunded pension liability, simply by investing the investment of the bond proceeds in financial instruments with a higher return than the interest cost on the bond debt.
Critics and naysayers such as the Howard Jarvis Taxpayers Association and the Government Finance Officers Association have likened the use of pension obligation bonds to paying off the money owed on one credit card with another credit card.
Harrell minimized, indeed left out of her presentation entirely, mention that she stood to churn considerable fees for herself and her company if the city chose to issue the bonds and utilized the professional services she provided related to those issuances.
By the point that Harrell was making her presentation to the city council, in September 2020, Kinley, aghast at the way in which his efforts to bring the pension fund crisis to the attention of city residents was being thwarted by city staff and despairing of being able to prevent what he saw as the city’s inevitable march toward bankruptcy, had resigned, simultaneously opting out of seeking reelection in the November 2020 election.
The growing contingent of Upland residents concerned with the city’s quickly eroding financial condition brought on by its ever-mounting pension debt coalesced around Greg Bradley, who ran against two others, former Upland City Manager Stephen Dunn and Darwin Cruz, in the November election for city treasurer. Among those residents there was hope that Bradley once in office would have the strength and resolve to stand up to the entrenched forces at City Hall and within the California Public Employees’ Retirement System and city employee unions in a way that would reform the one-sided arrangement that is providing the City of Upland’s public employees with pensions that are on the order of five and six times as generous as those available in the private sector and which is on the brink of bankrupting the city and depleting its treasury. It was hoped Bradley would succeed where Kinley had tried but had been stymied, and that by doing so he would render the city’s finances into a far more manageable state, eliminating the future prospect of bankruptcy and heading off the impingement on city services.
During his ultimately successful campaign for treasurer, Bradley cautioned against blindly utilizing the pension obligation bonds-issuing solution to overcome the financial challenges brought on by the funding demands of the pension system.
“If elected, I would insist that we have a plan to stop adding new debt before we consider a bond to push off old debt. You can’t get out of debt while you’re adding new debt,” Bradley said at the time.
Upon consideration that Harrell’s advisement was compromised by the consideration that she and her firm stood to profit in some fashion if the city elected to issue the pension obligation bonds, the council at that point grew tentative, put off by the potential that the citizenry might conclude that they were depending upon direction from someone who had a conflict of interest. They resolved to have city staff delve further into the option and provide the council with fuller information before any issuance of the bonds was made.
Once he was sworn into office, Bradley consented to hearing city officials out with regard to their assertion that the city could reduce the red ink it was hemorrhaging in servicing its pension debt by creative borrowing, meaning, in essence, the issuance of pension obligation bonds. Both Hoerning and Assistant City Manager Steven Parker were clamoring for the city to utilize the pension obligation bond solution.
Some residents were pushing Bradley toward utilizing the provision of Government Code Section 1090 to rescind the generous terms of the employment contracts offered to city employees during Quincey’s management of the city as a means of buying those employees’ silence with regard to Pomierski’s criminal activity. Hoerning and Parker were having none of that. Instead, they steered Bradley toward the concept of refinancing the pension debt on terms that were represented as being preferable to what the city is now enduring by saddling the coming generations of Uplanders – the children, grandchildren and great-grandchildren of Upland’s current taxpayers – with that debt by the issuance of bonds.
In March 2021, Hoerning and Parker elected to utilize a different advisor than Harrell to stand off a suggestion that the city might not have been getting the straight scoop from Harrell because of her financial stake in the city’s eventual decision. Nevertheless, the other experts Hoerning and Parker turned to in order to provide the city council with orientation with regard to this relatively obscure and complex means of financing themselves have their own financial stake in the outcome of the city council’s decision to utilize pension obligation bonds. Moreover, the firm that employs one of those advisors, Urban Futures, for reasons that were hidden from the city council, the city treasurer and the public, had a motivation to prevent the City of Upland from undertaking pension reform and instead defer the problem runaway pension costs represent into the future through some form of refinancing mechanism, of which a pension obligation bond issuance is the most likely option.
Hoerning and Parker utilized Julio Morales, a managing director with Urban Futures, and Ira Summer, an actuary who is well versed in public pension statistics, in an effort to convince the city council that issuing pension obligation bonds is the best approach to structuring a solution to Upland’s pension debt crisis. Providing legal background on the issuance of the bonds were City Attorney Steve Deitsch and Assistant City Attorney Thomas Rice, both of whom are partners with the law firm of Best Best & Krieger, which provides legal services to the city. Like Morales and Summer and their companies, the law office of Best Best & Krieger has a potential financial interest in the city issuing pension obligation bonds.
Pension obligation bonds can be issued by a city without a vote of its electorate – its residents, citizens and voters – to do so. Instead of a vote, the city can undertake a validation procedure, which is essentially a call to all people of standing, primarily the city’s residents, to lodge a protest in court against the bond issuance if they deem doing so to be called for. If no protest is lodged, the court gives the city clearance to proceed. If a protest is filed, then during court proceedings those contesting the issuance can seek to convince the judge hearing the matter to prevent the issuance.
At present, there is a likelihood that the City of Upland will use the same entity that is to carry out the validation proceeding for the issuance of the bonds as will be used for serving as bond counsel and disclosure counsel with regard to those issuances. Bond counsel and disclosure counsel are involved in the drafting of the documents relating to the issuance of the bonds, and certifying that the issuance passes legal muster. On the inside track for gaining that assignment is the law firm of Best Best & Krieger. By capturing all three of those assignments – validating the bond issuance, serving as bond counsel and then serving as disclosure counsel – Best Best & Krieger stands to gain as much as $1,006,389.57 in legal fees.
In providing their input to the city council throughout the process so far, neither Morales nor Summer nor Deitsch nor Rice engaged in any serious or meaningful discussion of the city’s pension reform options, such as ending its relationship with the California Public Employees’ Retirement System beyond precluding the concept by advising that it was unattainable or prohibitively expensive. Nor have Morales or Summers as the city’s financial advisors, and Deitsch and Rice, as the city’s legal advisors, engaged in a dialogue relating to switching the burden of defraying pension costs to the city’s employees or altering the terms of the city’s employee benefit packages either through negotiation or on the basis of the illegality inherent in the circumstances under which those benefits, during the Pomierski era, were derived, offered and accepted.
Morales acknowledged that in the current economic circumstance, over the last several years, pension funds dependent upon stock market and other investment returns have been about 75 percent funded, meaning cities have been perpetually subsidizing CalPERS.
Morales shot down the concept of the city moving out of its contractual arrangement with the California Public Employees’ Retirement System and switching to a 403 (B) program, the public sector equivalent of a 401 K program, saying that CalPERS would not allow employees in its system to withdraw. He further said that the California Public Employees’ Retirement System would not allow a city that currently has its employees in the California Public Employees’ Retirement System to hire new employees who were not automatically enrolled in the retirement system. Without making any citation to his authority for saying so, Morales indicated that doing so would be a violation of California law.
Morales told the city council it is not impossible for the City of Upland to leave CalPERS, but that it would cost more than paying off its current unfunded liability. Rather, he said, Upland could not buy its way out of the California Public Employees’ Retirement System for anything less than $490 million.
Morales continuously painted the option of issuing pension obligation bonds in the best light possible, acknowledging that doing so would create for the city new debt that would need to be paid, but he insisted payment of that bill would “avert a worse bill,” such that the city and its council would find itself and themselves “in a better position than you would have been” if it did not issue the pension obligation bonds.
Admitting the city could take the approach of having its employees pay more of their pension costs, Morales nevertheless said the best that would do is have some impact “around the margins” of the mounting debt issue. He told the city council that it would essentially prove futile for the city to seek getting out of its relationship with CalPERS or to strive to lessen its actual payments into the system, but should instead seek to use bonds to reduce the cost of financing its pension debt. Doing so at this point, he explained, would escalate the savings the city is to potentially reap, given the historically low interest rates in the financial marketplace at present.
At no point did Morales address the concept of the city using the violation of Government Code Section 1090 that Quincey engaged in to render the contracts the city had entered into with its police officers which escalated their pension benefits null and void. “You cannot undo these formulas,” Morales solemnly informed the counsel with reference to the pensions that Upland’s past and current employees are guaranteed through the California Public Employees’ Retirement System.
While Morales acknowledged the city ran a certain limited risk in utilizing the pension obligation bonds option, explaining that the city would save money, relatively, by issuing the bonds as long as the earnings of the California Public Employees’ Retirement System’s investments remained higher than the interest on the bonds. If CalPERS suffered consistent or sustained low, flat or negative earnings on its investments, Morales pointed out, the relative advantage of issuing pension obligation bonds would be wiped out. He nevertheless said it would be to the city’s advantage to pursue the pension obligation bond issuance option and that doing so immediately while interest rates remain low offered the greatest chance of benefit to the city.
Urban Futures has long been involved in an advisory or consultancy role in Upland municipal operations. A major portion of the firm’s work consists of advising the city with regard to and then making the arrangements for debt refinancing. In doing so, Urban Futures stands to gain fees pursuant to the ancillary services it provides relating to the city refinancing its debt. Given the financial stake Urban Futures has in these refinancings, questions have arisen about the integrity of its advice.
Moreover, in this circumstance, Urban Futures, or at least some of its employees, have an interest in discouraging any options that might pertain to Upland exiting the California Public Employees’ Retirement System or altering the employee contracts the city entered into during the Pomierski era.
Steve Dukett from 2018 until 2019 served as Upland’s contract development services manager after having served, more than a decade prior to that, as an Upland municipal employee, in the post of development services manager. Dukett is one of three managing partners with Urban Futures. In addition to his work for Urban Futures, Dukett draws a significant amount of his personal income from CalPERS. Dukett served stints as the redevelopment or development director with the cities of Redlands, Upland, Hesperia, Ontario, Lancaster and San Bernardino. He was briefly, in the late 1990s, the interim city manager in Hesperia. His employment in Upland took place during the reign of then-Mayor Pomierski. At present he pulls a $173,071.80 public pension consisting of $119.863.44 per year provided to him by the California Public Employees’ Retirement System based on his 29.43 years with various municipal entities, as well as $53,208.36 from the retirement system Los Angeles County has for its public employees, based on the 12.42 years he worked there, including within the county administrative office.
At a March 2 workshop relating to the issuance of pension obligation bonds, Parker stated that the city at that point was utilizing both Urban Futures and Summer only for advisory and informational services. Simultaneously, the city is contemplating roles for both with regard to professional services related to the bond issuances.
Parker was formerly employed with Urban Futures. During a nearly five-month interim between the time he ended his employment with the Yorba Linda Water District in early July 2013 and the time he was hired on as the director of administrative services with the City of Stanton in late November 2013, Parker was among the stable of municipal advisors Urban Futures provided to its clients. In that span, he was employed as a consultant on loan from Urban Futures to the City of San Bernardino, serving in the capacity of financial manager in the county seat.
Since he has been in office, Bradley has continually huddled with Parker, who has by this point convinced the city treasurer that pension obligation bonds are the way to go. At least some of Bradley’s most passionate supporters in the 2020 election have expressed dismay at the way in which the city treasurer has been beguiled by Parker, and has signed on to the stratagem of taking on low-interest bond debt to finance a paydown on the city’s pension debt while forsaking any effort to reduce the debt prior to securing that financing by addressing the illegal activity that precipitated the increase in Upland municipal employees’ pension benefits.
The city council placed Hoerning on administrative leave in March, and the city parted ways with her the following month. Since that time, Parker has been acting in the capacity of interim city manager.
Parker has made steady progress in convincing not only Bradley but the five members of the city council that the city should move ahead with issuing the full $130 million in pension obligation bonds. In making that case, he has relied on a support network – consisting of Morales, Summer, Deitsch and Rice – who themselves have a financial interest in the city issuing the pension obligation bonds. It does not appear that the council and Bradley have taken full stock of the degree to which this may have compromised the integrity of the advice they are receiving.
At present interest rates stand at 2.5 percent/2.6 percent. The city is striding toward a vote by November to issue the bonds, at which point it is believed that interest rates will reach no higher than 2.8 percent to 2.9 percent. The city’s advisors have convinced Bradley and the council that issuing the bonds while interest rates are at historic lows are a “no-brainer,” and that the city most assuredly will see a financial benefit by refinancing its pension debt if upon doing so the interest rates are below 3.5 percent, and would very likely realize marginal inroads against its pension debt totals even if the interest rate climbs to as high as 4.5 percent. The sole risk the city runs in issuing the pension obligation bonds, the city council is being advised, consists of the off-chance that the stock market will tank in the six-to-eight month period after the bonds are issued.
While city officials maintain that they are being deliberative in the consideration of whether to issue the pension obligation bonds, the Sentinel has learned that Parker, now fully in control at City Hall, is moving forward with laying the groundwork for the issuance, including having committed to using J.P. Morgan as the bond underwriter.
Parker, Morales, Urban Futures, Summer, Deitsch, Rice and Best Best & Krieger are now stampeding the city council toward the inevitable issuance of the bonds by the threatening suggestion that if the city does not act now, the opportunity to realize a reduction in the cost of retiring the city’s contemplated future bonded indebtedness will be lost if interest rates should increase. As a result, the brow-beaten city council is on the brink of exercising the pension obligation bond issuance option.
Based on the increases in salary and benefits provided to city employees in the crucial 2006-to-2010 timeframe when Quincey was engaged in his conflict-entangled role of negotiating Upland employee contracts, utilizing the Government Code Section 1090 option to rescind the generous terms of the benefits provided to city employees under the reign of Pomierski and Quincey could have the effect of reducing the city’s current $130 million unfunded pension liability by what is calculated to be somewhere between $30 million to $50 million, meaning the city’s current pension debt could be reduced to $100 million or as low as $80 million. The city council, however, has given no indication it has the stomach to do so. Not only have their advisors refused to explore that concept, the council on its own does not have the will to confront the city’s employees and their unions over the matter. Moreover, the council is now in the middle of recruiting a new city manager, whom they will be calling upon to run City Hall. Saddling their new city manager with a situation where he or she must ride herd on a discontented workforce sore over having lost the overly generous benefits they feel they are entitled to would almost certainly rock the city’s boat unto capsizing, thereby consigning the city manager the council is going to hire in upcoming weeks to failure.
The council’s unwillingness to make a concerted effort to reduce the retirement benefits conferred upon city employees during Pomierski’s tenure as mayor has an impact beyond potentially reducing the current unfunded pension liability. Addressing the overly generous retirement benefits that have been in place for the past decade-and-a-half would give the city leverage to further downscale the future unfunded pension liability that is being created at present and will accumulate and increase in the years going forward. Reduction of the unfunded pension liability to date and reduction of the future unfunded pension liability potentially would provide Upland, at a point two generations hence, with savings estimated at upwards of $100 million. Given the current elected leadership’s fear of the city’s municipal employee unions and its inability to resist or see beyond the advisal of top city staff and the consultants staff has hand-picked to reinforce the script being writ large at City Hall, it is highly unlikely the council will seize the day and choose the more bold options that lie before it.
It is anticipated that on August 9, when the council next meets, it will make a decision to allow Parker, as he is recommending, proceed with putting all things in place to accomplish an issuance of the pension obligation bonds in November.
-Mark Gutglueck

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