Pension Hotspots: Ventura County pension initiative ruled illegal
By Josh Altic
- The Pension Hotspots Report is a monthly publication about local pensions and pension reform efforts.
A court ruling scraps the Ventura County pension reform initiative, with significant consequences for 19 other counties, and bankruptcy becomes a real possibility for Scranton, Pennsylvania. NYC, however, gets some good news about its pension system, while certain California cities are facing roadblocks in their attempts to escape from the CalPERS system.
As of August 29, 2014, nine pension related measures have been proposed. Three of these have been approved and one was defeated. Court decisions removed the initiatives in Pacific Grove, California, and Ventura County, California, from the ballot, leaving three measures scheduled for voter decisions.
Court decision removes Ventura County pension reform initiative from ballot and could preclude local pension reform in 19 other California counties:
Last month's Hotspots report featured the importance and widespread effects of the court case over the Ventura County pension reform initiative seeking to move new county employees over to a 401(k)-style, defined contribution retirement system. This month's report will cover the court's ruling in this case, which is relevant to the 19 other counties throughout California that adopted the same public pension system under the state's County Employees Retirement Law of 1937.
Ventura County Superior Court Judge Kent Kellegrew ruled in favor of the plaintiffs and affirmed that the county must cooperate with the state legislature to alter the pension system of the county and does not itself have sufficient authority to change it. Kellegrew also ruled that the initiative violated the single-subject rule because its provisions concerning a new pension plan and a cap on pensionable pay amounted to two separate issues. Anticipating an appeal by initiative supporters, Judge Kellegrew stayed enforcement of his ruling until August 14, 2014, allowing the measure to stay on the ballot until then. Supporters of the initiative, however, decided against appealing the decision, opting instead to focus their energy on possible statewide reform in 2016.
David Grau, chairman of the Ventura County Taxpayers Association, and Dick Thomson, president of the association, responded to the ruling:
People have the right to petition their government. It is a bedrock principle of our democracy, and this flawed ruling silences the voice of tens of thousands of Venturans who desired nothing more than the right to be heard.
It is appalling to be stripped of this opportunity. For the unions to sue to deny an election is troubling proof of their fear of public opinion. That a judge enabled it is even worse. While we will not pursue further litigation in Ventura, we plan to take our spirit of reform statewide. Nothing ends here.
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The City of Villa Park finds it difficult to escape from under CalPERS:
According to Villa Park Mayor Rick Barnett, "Getting out of CalPERS is like getting out of jail." This comment was made in frustration as the city council discussed the process of leaving the $300 billion mega-fund. The city, which has a population of only 5,800, has been increasingly burdened by pension payments as a tiny participant in the huge state system and faces possible hikes in CalPERS rates by 50 percent or more over the next seven years. The city council, hoping to get a better deal on its own, discussed the possibility of leaving CalPERS last week. The fee for leaving, however, was $3.6 million as of June 2012. This number represents the 17.5 percent of unfunded liabilities the city currently has on its books for its handful of retirees. Moreover, CalPERS insists on this entire sum upfront before it allows a city to leave the system. Daunted by this number, which is larger than the city's entire annual budget of $3.5 million, the city council postponed its final decision until next month. Mayor Barnett said the chance of actually escaping was low. He said, “The prospect that Villa Park is actually going to be able to extract itself from the CalPERS system, which I would seriously enjoy, is probably minimal at best." He also said, “I realistically don’t expect that Villa Park is going to be able to get out of this. From what I am hearing, it is going to be millions and millions of dollars and we’re not really in a position to do that.”
Cautiously optimistic observers warn good news for NYC's pension system should be taken with a grain of salt:
Residents of New York City got some good news last month about the value of the city's retirement fund. Comptroller Scott Stringer announced the city's pension assets jumped from a value of $137 billion in 2013 to $160.4 billion in 2014 due to strong investment returns. He also noted that this has been the fifth good year in a row for the city's finances. Stringer said, “Five years of positive returns are good news for the pension funds and for the City." This will likely result in decreases in the required employee contributions. Stringer estimated that, if investments continue to yield strong results, the city could save $17.8 billion over six years. Some, however, insist the city, which budgeted $8.2 billion for pension payments in 2014, up from $1.5 billion in 2001, still has a lot of work to do on its pension system. The boost in investment returns has only put a large dent in the city's unfunded liabilities, but has not put the city's pension system in the black.
Scranton, Pennsylvania, features a firefighters pension system with only 16.7 percent funding and could be looking at bankruptcy by 2019:
Stunned by the horrendous condition of the city's three retirement funds, state Auditor General Eugene DePasquale announced on August 27, 2014, that Scranton could be forced to file for bankruptcy in three to five years. DePasquale said that many cities throughout Pennsylvania feature woefully neglected pension funds owning, in some cases, less than 50 percent of the assets required to cover debts. Scranton, however, jumped out at him as the city in the worst condition. DePasquale found that the city's firefighters fund was only 16.7 percent funded and was the unhealthiest pension plan in the state, and he estimated the fund would be unable to pay benefits in as little as two and a half years. The auditor said, “I read that and said over and over again, is this a typo? Is it wrong? I couldn't believe it. In this job, little shocks you, but 16 percent is a shocking number.” Although in slightly better shape, he estimated the city's non-uniform retiree fund would be insolvent in 2.6 years and that, without reform, the police fund would be doomed in less than five years.
In 2008, the city made $3.3 million in pension payments. The planned 2015 contribution is $15.8 million. DePasquale insisted the city could not keep paying this much for the pensions of its employees and suggested that bankruptcy was “a clear possibility within five years.” He also said, “We don’t see any way this can be fixed by Scranton alone. I believe strongly that a statewide solution is needed.”
City Councilman Wayne Evans stated, “The auditor general said it well when he said this is a wake-up call. I hope everyone realizes you can’t kick the can down the road any more. This is our last chance to straighten out the pension system.”
List of 2014 local pension measures
- County Employees Retirement Law of 1937
- Morningstar, "Morningstar report analyzing public pension debt on a state level," September 16, 2013
- Pew Charitable Trust, "Cities Squeezed by Pension and Retiree Health Care Shortfalls," March, 2013
- Moody's website
- Standard and Poor's credit ratings website
- Governmental Accounting Standards Board website
- Pension Tsunami website
- Pew Charitable Trust, "A Widening Gap in Cities Shortfalls in Funding for Pensions and Retiree Health Care," January 16, 2013
- Pacific Coast Business Times, "After Ventura County court ballot, pension tensions endure," August 29, 2014
- Sacramento County Employees' Retirement System (SCERS) website, "SCERS Website Handbook: California Counties' Retirement Systems," accessed July 25, 2014
- KCLU, "Judge Rules Controversial Ventura County Pension Reform Proposal Must Be Removed From Ballot," August 4, 2014
- Calpensions, "Ventura pension vote blocked, summit this fall?" August 11, 2014
- City Journal, "Rebuked Again," August 25, 2014
- Heartland.org, "Judge Blocks Popular California Pension Reform Initiative," August 29, 2014
- Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
- Orange County Register, "Editorial: Villa Park deserves pension freedom," August 26, 2014
- Pension 360, "Will Villa Park Cut Ties With CalPERS?" August 26, 2014
- Reuters, "California city looks to quit Calpers, fears it can't afford to," August 26, 2014
- Metro, "NYC pension funds valued at $160b: Scott Stringer," July 28, 2014
- Daily News, "NYC’s coming pension crisis," December 19, 2013
- The Times-Tribune, "Scranton pension funds will be broke in 3 to 5 years," August 28, 2014