Two months after Upland officials were thwarted in their effort to issue $120 million in pension obligation bonds to defer for another 20 years having to come face to face with the City of Gracious Living’s overwhelming pension debt, the council this week signed off on another bond funding scheme to pass the city’s past and current financial commitments to keep its former employees comfortable in their golden years on to the city’s succeeding generations.
The funding mechanism the five members of the city council unanimously embraced involves, according to Assistant City Manager/Finance Director Steven Parker, a blending of water bonds and general fund lease revenue bonds.
According to Parker, what the city is going to do consists of the council “authorizing the transfer of $10 million from the city’s Section 115 Pension Trust to make an additional discretionary payment to the California Public Employees’ Retirement System” and “authorizing an additional discretionary payment from the city’s enterprise funds to pay off their current share of the city’s unfunded actuarial liability.”
The city’s enterprise funds extend to the money generated by the city’s provision of services to residents and businesses, such as the money the city takes in with the water department’s provision of water to households and businesses.
The strategy further consists of, according to Parker “approving a revised pension funding policy,” together with “a revised investment policy.” Thereafter, according to Parker’s game plan, the city is to “to assemble the financing team, and prepare related legal documents for subsequent council approval of the issuance of the 2022 water bonds” to be augmented with city staff taking measures “to prepare the necessary legal documents for an internal general fund lease revenue bond issue (sale) for purchase by the water and sewer funds.”
City officials maintain that by issuing pension obligation bonds at a lower interest rate than the percentage of payment demanded annually by the California Public Employees Retirement System and which that system will continue to demand in the future, the city can reap a relative savings in the millions of dollars over what will otherwise be required for it to meet its pension system obligation going forward.
Legal experts say the plan as being hatched by Parker entails some risk, as funds in the city’s water department accounts must remain sequestered and cannot, under California law, be utilized for anything other than water operations or providing capital improvements for the drafting of, storage of, distribution of and/or improving the quality of water. Using that money to pay for pensions or any other purpose would run, those attorneys say, afoul of the law.
The city, however, is in a financial fix, and desperate circumstances call for bold action, city officials say.
A major factor in how Upland got to this point consisted of the depredations of John Pomierski, who served as Upland’s mayor from 2000 to 2011. Taking all order of bribes from individuals and businesses that had applications for franchises, contracts or project approvals at City Hall, Pomierski’s activity came to the attention of a wide cross section of city employees. With the assistance of his handpicked city manager, Robb Quincey, Pomierski arranged to buy the silence of those municipal workers by offering them employment contract enhancements that included a significant increase in the pension payouts those employees would receive through the California Public Employees Retirement System.
Ultimately, Pomierski and Quincey were caught. After an extensive investigation by the FBI, Pomierski was indicted on bribery charges in 2011 and convicted in 2012, whereupon he was sentenced to two years in a federal penitentiary. Quincey, who was fired in 2011, was charged by the San Bernardino County District Attorney’s Office in 2012 with misappropriation of public funds, gaining personal interest from a public contract and perjury. In 2014, after extended plea negotiations with prosecutors, he pleaded guilty to reduced charges.
Despite Pomierski’s and Quincey’s legal travails, their coconspirators in the scams they had pulled – the city employees who had maintained their silence about what they knew was going on at City Hall – continue to reap the fruit of the arrangement they had made with the disgraced mayor and city manager to keep the corruption at City Hall under wraps. None of those employees were ever asked to undo the generous salary increases and accompanying pension enhancements they were provided during the Pomierski administration.
Consequently, the city’s pension debt – known in municipal parlance as an unfunded liability – continued to escalate at an astronomical rate.
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 at mid-fiscal year of 2019-20 and $120,920,721 as of June 30, 2020. Unofficial documentation available to the Sentinel suggests that by March 2021, Upland’s unfunded pension liability had climbed to $130,185,277. Given recent earnings by the California Public Employees’ Retirement System’s investments, according to Parker, the city’s actual but somewhat dated actuarial liability is $127,706,000.
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, with $8,996,364 of the city’s $43,559,950.78 general fund budget being 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 nearly 50 percent of its operating budget on paying pensions to former city employees, resulting in the city either drastically reducing the municipal services it provides, declaring bankruptcy or disincorporating to allow the City of Ontario, the City of Rancho Cucamonga or the County of San Bernardino to inherit the burden of continuing to administer government in the 15.62-square mile city.
At present, the current city council is afraid to request that the city’s municipal employees unions have the employees they represent give back the generous pension allotments made during the Pomierski regime or, in the alternative, allow the exorbitant pensions to continue but have the employees pay for them through their salaries. Seeking such a reversal of the concessions made to the city’s public employees unions in the past might trigger the city employee unions to run campaigns to keep the current members of the city council from being reelected. As a consequence, the city council asked Parker to come up with a way to pass the city’s past and current financial commitments on to the children and grandchildren of the city’s current taxpayers.
In response Parker formulated the plan to issue $120 million in pension obligation bonds. The Howard Jarvis Taxpayers Association, however, stepped in and contested that approach, and the city abandoned it in October.
The plan to issue the water bonds and general fund lease revenue bonds is the latest permutation of that strategy,