City of Richmond Faces Pension Stress

Pick a city in California. Pick a county in California. Odds are, they could be the topic of this analysis instead of Richmond. But Richmond is the focus of a recent analysis published in Reason entitled “Richmond, California’s Finances Remain Shaky,” and that work provides solid data from which to take a deeper look at what’s truly driving their financial challenges: compensation and pensions.

To summarize the Reason analysis, their most recent financial statements include the following excerpt from the auditor’s comments: “If deficit spending continues in the funds that continue to borrow from the General Fund and other funds, it reduces the likelihood that the City will be able to continue as a going concern.”

In plain English, what the auditor is saying is that the City of Richmond is spending more than they’re taking in, and they’re at risk of running out of cash. Reason’s senior policy analyst and the author of the report, Marc Joffe, writes: “Richmond’s unrestricted general fund balance of $18 million is small relative to general fund expenditures of $157 million. The ratio of 9% compares unfavorably to the 17% level recommended by the Government Finance Officers’ Association.”

Where is the money going? Compensation and pensions. Using raw data readily available from the California Office of the State Controller, in 2018 Richmond paid $121 million in base pay, overtime, other wages, health benefits and pension fund contributions. This represents 77 percent of their general fund expenditures.

When that percentage of a city’s budget is going towards pay and benefits, there are only a few ways to recover from deficits. One is to cut positions, which is what Richmond’s outgoing city manager, Carlos Martinez, suggested in a proposal that cost him his job.

According to John Geluardi, writing for the East Bay Express, “The firing was driven by the city’s five unions, which were angry with Martinez over negotiations and alleged labor law violations. In the past two or three weeks, union leaders put heavy pressure on councilmembers to oust the city manager. But Martinez was facing a $7 million budget deficit, which he inherited.”

To cover that deficit, as reported in the East Bay Times, Martinez had “identified a $7.6 million shortfall in fiscal year 2019-20, and identified 12 positions to be cut in order to make up for it. Martinez said they were upper management positions, not rank and file.”

The Times article also quoted Detective Ben Therriault, head of the Richmond Police Officers Association, saying that “The labor relations in the city have come to a collapse. For the past 10 months, labor has been worse than it has been in the past 10 years.” But how will the City of Richmond pay the bills?

Raising taxes is always the favored option of California’s local governments. In November 2018, 259 local agencies put tax increases onto the ballot in California and over 70 percent of them were approved by voters. Maybe new taxes will rescue Richmond’s finances. But do Richmond residents deserve to pay higher local taxes – sales tax, parcel tax, business licence tax, transient occupancy tax, utility user tax, gross receipts tax, etc.?

Richmond is not a wealthy city. The average per capita income in 2016 was $26,238; the average household income was $61,814. The average pay and benefits for a full time employee in the City of Richmond in 2018 was $181,444. These figures were arrived at using raw payroll data submitted by the City of Richmond to the California Office of the State Controller. Readers are welcome to download the spreadsheet showing the calculations. Perhaps there are errors, and if so, contact CPC and we will publish a retraction. Because these figures are literally unbelievable.

Unlike most cities and counties in California, moreover, there doesn’t appear to be a significant difference in compensation between public safety employees and the city bureaucrats. The average total pay and benefits for the 223 city bureaucrats identified as full time employees in 2018 was $182,772. For the police, $168,576, and for the firefighters, an astonishing $212,219.

Something that has always been inexplicable is why police get less in compensation than firefighters. This disparity is evident in most California cities and counties, and is in conflict with market realities as well as common sense. It is always difficult to recruit police officers, whereas when firefighting positions open there are always hundreds, if not thousands of applicants. And common sense, backed up by national statistics, shows that while police work and firefighting are both dangerous professions, they carry roughly equal risk.

The solution to this disparity, however, is not for police officers to make more. It is for firefighters to make less. If the 97 firefighters identified in 2018 as working full time for Richmond were paid $168,576 per year – equal to what Richmond’s police were paid, it would save the city $4.2 million per year, which would go a long way towards solving their budget deficit. Perhaps then Martinez would have only had to cut a half-dozen high ranking bureaucrat positions to balance the budget.

We may dream on. But some solution that remains within the realm of fantasy today will become hard reality tomorrow. Because Richmond’s financial problems are just beginning. Using projections provided by CalPERS for the City of Richmond, that city’s pension contribution is going to rise from $31 million in the fiscal year just ended to over $49 million by 2024. And that’s the low number. If the market “corrects,” Richmond will have to throw even more money into CalPERS’s insatiable maw.

While it may be harsh to suggest firefighters take pay cuts, it’s also necessary to explain that restoring parity to police and firefighter pay cannot possibly be afforded via increasing police pay. The money is not there. If equitable parity is to exist between these two noble professions, unfortunately, firefighter pay will have to come down.

It is impossible to overstate the appreciation most people feel for public safety professionals, certainly including firefighters. The same cannot be said for the leadership of the firefighters union. Over the past 20 years or longer, why didn’t the firefighters union leadership help stand up to the extreme environmentalist lobby, so legislation could have been passed allowing public agencies and private landowners to thin the forests? Why didn’t they fight for better wildland management, allowing for more controlled burns?

Instead, earlier this year, Harold Schaitberger, head of the International Association of Firefighters, marched in the streets with the United Teachers of Los Angeles – a radical leftist mob bent on destroying life as we know it. Perhaps it’s time for a long overdue grassroots insurgency by the center-right membership of public safety unions, so they can overthrow their “comrades” in charge.

Meanwhile, unions and management need to sit down in Richmond, and elsewhere, and talk about how to lower the cost of living for everyone, instead of always pushing for more, more, more.