Next CalPERS victim: Oroville—10-% pay cut for cops

Oroville is facing bankruptcy, cut back in basic services, tax increases—all to finance the collapsing CalPERS—and it will not, and never, be enough.  How much longer will the cops stay working for the people of Oroville?  Not much longer.  He is why.

“The city cut down its $1 million deficit to achieve a balanced budget this year but is not exactly thriving financially, operating with low staffing levels and recently negotiating a 10 percent pay cut for police, with more negotiations to come.

“It’s crazy to even try to think about doing more,” Wright said. “We’re already providing such minimal services to the community.”

Wright projects the city will plummet into debt again when reserves run out in about four years, with added CalPERS expenses mostly to blame. It is expected Oroville will have to pay over $5.6 million in increases by 2023.”

Oroville is the next victim of CalPERS.  Is your City on the list?

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

CalPERS rising costs could cause Oroville – and cities like it – to go bankrupt

By Risa Johnson, Orovillemrc,   9/27/17

The city’s finance director Ruth Wright told the California Public Employees’ Retirement System (CalPERS) finance and administration committee last week that the word “bankruptcy” was being thrown around, though not at council meetings.

CalPERS manages pensions and benefits for employees of Oroville and thousands of other local and state entities as the nation’s largest public pension fund. With lower than expected return rates, the pension fund has been asking state and local governments to make higher contributions.

The city cut down its $1 million deficit to achieve a balanced budget this year but is not exactly thriving financially, operating with low staffing levels and recently negotiating a 10 percent pay cut for police, with more negotiations to come.

“It’s crazy to even try to think about doing more,” Wright said. “We’re already providing such minimal services to the community.”

Wright projects the city will plummet into debt again when reserves run out in about four years, with added CalPERS expenses mostly to blame. It is expected Oroville will have to pay over $5.6 million in increases by 2023.

“All cities and counties cannot keep up with the increases,” she said. “I think it’s up to them (CalPERS). They need to do something. They need to do a better job investing.” The organization announced in December that discount rates would drop from 7.5 to 7 percent over the next three years in an effort to make the fund more stable, but with impacts to state and local governments.

“CalPERS has a few levers to pull in dealing with pensions, having to do with discount rates,” said Wayne Davis, head of public affairs for the pension fund. “We’re very much aware of what lowering the discount rate means.”

Oroville’s finance director said the number of city representatives coming to confront CalPERS has been growing. At the meeting last week, officials from cities such as Chico, Santa Rosa, Laguna Hills, Lodi, West Sacramento, Vallejo, Yuba City, Hayward, Manteca and Concord were there. A legislative representative for the League of California Cities also participated.

“Everyone is referring to it as a ‘PERS crisis,’” she said. “We’re all banning together to urge CalPERS to offer relief.”

Wright said most of the CalPERS representatives she has spoken with seem “out of touch” with the issues cities like Oroville are facing. She is planning to meet with them once a month for the foreseeable future.

“They said ‘tighten your belts’,” she said. “To think we just need to tighten our belts … How do you look me in the eye and tell me to get back to the bargaining table? It’s very clear CalPERS does not understand the burden they are putting on cities.”

Dane Hutchings, League of California Cities representative, said Oroville’s situation is more the rule than the exception, with regard to CalPERS.

“Other cities are operating (in) functional insolvency, meaning they are bankrupt — they just don’t know it yet,” Hutchings said. “Our goal is to educate our membership. Many cities don’t understand their liability.”

Scott Dowell, Chico’s administrative services director, said the CEO of CalPERS suggested city representatives come to the board meetings and share their concerns and ideas during the public comment section, so he started attending in August.

Dowell was hoping CalPERS representatives would look into two ideas that would help lessen the blow for cities but those were shot down.

Dowell was hoping the pension fund representatives would do some research on the possibility of freezing cost-of-living adjustments, meaning retirees would receive a flat rate every year. They would no longer receive additional money — currently up to 2 percent of their annual salaries — to account for changing inflation.

The other concept was switching all employees onto the same kind of pension plan as employees who started after Jan. 1, 2013. The Public Employees’ Pension Reform Act went into effect then, offering fewer benefits to new employees. That could mean the difference between retiring at 55 and 62, Dowell said.

He doesn’t think Chico will need to file for bankruptcy, but the city’s obligation to pay $11 million to CalPERS this year, increasing to $18 million in the next five years, is daunting, he said.

“I’m sitting here as a finance person knowing we can’t increase revenues that rapidly so we have to decrease services or cut staff,” Dowell said. “Like Oroville, it’s hard to cut back when you’ve already cut so much.”

He thinks trying to work with CalPERS is the best approach.

“I was really happy because we had the city of Chico, Oroville, Chico’s Parks and Recreation District and Yuba City, so we had some entities from the north state,” he said. “We’re trying to — from a local standpoint — work together for solutions. We want to see changes happen now.”

It’s next to impossible for cities like Oroville to switch to another pension fund. Hypothetically, the city could get out of its contract — but it would have to pay a termination fee of $73.6 million.

If that fee went unpaid, current and former employees would take the burden in pension reductions, like it happened in the small town of Loyalton in Sierra County. Oroville employees would see about a 28 percent reduction in benefits, Wright said.

CalPERS could also slash benefits for retirees and employees if the city filed for bankruptcy. Wright said she wasn’t sure exactly what pension reductions would look like in that case.

 

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.