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Ventura's bad economic policy

Economic Illiteracy, Indifference And Denial Plague Ventura Finances

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IF SOMETHING CANNOT GO ON FOREVER IT WILL STOP
—Herb Stein, Economics Professor

DETROIT – A HAUNTING SPECTRE

[The Consequences of Ignoring Economic Reality]

Most people are now well aware of the economic news. The City of Detroit filed bankruptcy under a cloud of $18 billion in debt. Crippling problems with corruption, unfunded benefits and pension liabilities, nepotism, and cozy political relationships between public unions and elected officials served to bring about their demise.

Detroit's bad economic policy

Detroit’s bad economic policy led to bankruptcy

These problems were enormous, but it was allowed to happen because of an attitude of denial.  Elected officials and citizens continued year after year to look the other way despite mounting evidence that their City was rushing towards bankruptcy – the debt continued to mount and the income continued to dwindle.    The official cause of death – no money.

How would you feel if you learned that someone you know was spending more than he was earning and having to dip into savings to keep going?  You might think at first blush that it’s because of the Great Recession.  But, what if you then learned that in the 4 years since the Great Recession the same person had not changed his spending habits as well as not earning enough income to support their profligate spending?  To explain this as being due to anything other than bad judgment, or reckless fiscal mismanagement, is to engage in the same type of denial that led the citizens of Detroit into bankruptcy.

California Cities In Bankruptcy. Will Ventura Follow?

San Bernardino went bankrupt because of bad economic practices

This news follows the similar fate of cities closer to home like Stockton, Vallejo and San Bernardino.  The City Council in San Bernardino decided to file a Chapter 9 municipal bankruptcy.  That city was running a $5 million deficit on a $130 million budget and did not have enough cash to pay its vendors, workers and retirees.  In the last 4 years the tide has gone out and were are now finding out who was swimming naked.

So, good reader you ask – “What do the financial problems in Detroit or these other California Cities have to do with Ventura?”  The answer lies in the fact that over the last 4 years City Government has used “budget gimmickry” to make it appear as if the City Council had balanced our budget each year.  Solvency was the stuff of fiction for our then City Manager, Rick Cole and Mayor Bill Fulton.  They are gone and we are left with economic reality – not enough money to pay our obligations, an economy that is not recovering and unfunded public pension obligations that have doubled.

CANARY IN THE COAL MINE

[Bad Economic Policy In Practice]

On June 17, 2013, our new City Manager presented a Budget for 2013-14 to the City Council for approval.    The budget is not balanced.  In the last 4 years revenue decreased from $94.1 million to $82.4.  The Council was presented with the following historical and projected income and expense comparisons (numbers in millions of dollars):

Fiscal Year Income

(millions)

 Expenses

(millions)

 Shortfall/Gap

(millions)
2008-09 $94.1 $94.1 0
2009-10 $85.1  $96.5 $11.4
2010-11 $88.1 $80.4 $7.7
2011-12 $ 81.0 $81.5 $0.5
2012-13 $82.4 $84.4 $2.0
2013-14 $86.7

(est.)

 $88.3

(est.)

 $1.6 

(est.)

 

Our new City Manager outlined, in a kindly manner, the efforts that had been made in the past to try to “balance the budget”, which had not been successful:

“In the past 5 years the City of Ventura has experience a decrease in general fund revenues of $16 million dollars.  During the same period, budget and service cutbacks have eliminated more than 100 positions, increased employee contributions of both medical costs and retirement costs, reduced landscape  maintenance and park service levels, reduced street repairs and resurfacing, discontinued the Crime Prevention Program, and reduced the Police Department Gang Unit, eliminated the Neighborhood Traffic Calming Program, temporarily closed Fire Station 4,  reduced sidewalk repair program, reduced hours at the Senior Centers…just to name a few.  While these efforts were extensive, they simply have not been enough to balance our budget.  This is evidenced by the continuing decline of our fund balances, which have been decreased by approximately $10 million dollars over the past 5 years.

“Utilizing fund balances, or living off your savings accounts, is not an uncommon practice for municipalities during times of economic challenge but it is only a short term solution that is undertaken with the optimistic view that economic conditions will soon change for the better.”
—Mark D. Watkins, new City Manager

Too Much Data, Not Enough Information Muddles Economic Policy

This 569 page budget provides detailed expenses of $89.5 million dollars, but it totally lacks any information on how this year’s revenue of $82.4 million dollars can be increased to meet our projected expenses of 88.3 million dollars in 2013-14.  Where will that additional $7,100,000 be generated?   If true we are asked to accept that our City will increase our income by 8.6% next year, more than twice the U.S. Gross Domestic Product of 2.5%.  What makes our City officials believe our rate of growth will be more than twice the national average?

On the liability side the facts frightfully demonstrate that we are on a financial cliff.  Not only are we facing a deficit of at least $1.6 million or more in our General Fund Budget, there are the off the books debts.  First, there is the matter of the unfunded pension obligations to City employees, policemen and firemen.  In 2008 those obligations totaled $48 million.  In our August, 2008, edition we argued that the Council should take steps to change the pension structure because those benefits were not sustainable.  Today those obligations total a minimum of $96 million upward of $350 million, depending on the assumed rate of investment from CALPERS.

“If we do not find a way to restore these funds in the next 5 years we will have serious financial difficulty.”

In spite of these looming long term commitments and with an urging that the City Council not increase the Firefighters pension entitlements to 3% at age 55, the Council did it anyway.  Nobody on the City council could identity where the funds would come from to pay for this increase.

Second, there is the $12 million in reserve that we have had since 1992.  Not only was the income from this reserve used by the City Council as a source of income for the General Budget over the last 20 years, but we learned in March, 2013, from our interim City Manager, Johnny Johnson that $7.5 million dollars in the Public Liability Fund, Workers’ Compensation Fund and Information Technology Fund had been moved to other areas in the budget to make it appear as if our budget was balanced.  In his words, “if we do not find a way to restore these funds in the next 5 years we will have serious financial difficulty.”

POST SCRIPT
INCLUSIONARY HOUSING ORDINANCE

Inclusionary housing bad economic practice

Inclusionary housing continues Ventura’s bad economic practices

In our last issue we reported that the City Council, on July 15, 2013, would consider a request from the Community Development Director to cancel the Ventura ordinance requiring builders and developers to donate a percentage of their development to low income people. His reasons were clear, there is no housing being built in the City of Ventura.  His view was shared by the State Department of Housing and Community Development, which had concluded that such ordinances “are a constraint to the development of housing”.

The Council room was flooded with the homeless, low income folks and their children, all prepared to tell their story and urge denial of the request to cancel the ordinance.  This was orchestrated by CAUSE. Their organizers were in the hallway handing out bottles of water and signs that read ‘HOMES FOR EVERYONE”.  A group organizer actively moved in an out of the group with clip board in hand.

Councilman Andrews quickly presented a motion to defer a decision on the measure and for the appointment of a Blue Ribbon Committee to study the matter further.  Councilman Brennan, joined by Councilman Morehouse, pointed out that when they came up with this idea for this ordinance in 2006 “we knew we were going to have to massage it because we did not know where it was going.  We expected we would have to come back and look at alternatives”.   The three of them voted to table the matter and appoint a special committee of “experts” to make recommendations.

“This 2006 ordinance was a half baked idea”

Councilwoman Weir painted a more candid view of this ordinance.  In her words “this 2006 ordinance was a half baked idea”, and that “it was no surprise to anyone it is not working”.  She also observed that a lot of those people in the audience who spoke against cancellation were homeless and would never qualify under the program anyway.  Ms. Weir favored an “in-lieu” fee to help the homeless transition.  Mayor Tracy and Councilman Monahan joined her in urging an “in-lieu” fee.  They voted against the motion by Councilman Andrews to postpone and appoint a committee.

Deputy Mayor Heitmann provided the decisive vote to table and appoint a Blue Ribbon Committee.  She seemed somewhat confused by the discussion, did not profess to have any knowledge on the subject thus voted to table the matter because there were “a lot of unanswered questions”.  A perplexing comment given that the Council and been provided with a lengthy and detailed report from the Director of Community Development explaining why this ordinance had failed.

Nobody knows who will be on the Blue Ribbon Committee.

Editors’ Comments

Economic illiteracy is not recommended as a qualification for the Ventura City Council. We urge you to choose your Council Members wisely come next November.

Editors:

R. Alviani      K. Corse      T. Cook
J. Tingstrom  R. McCord   S. Doll

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

Recession challenges Ventura budget

Budget and Pension Crises Throughout California Inflict Harm

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“If there must be trouble, let it be in my day, that my child may have peace”—THOMAS JEFFERSON

CALIFORNIA – A FAILED STATE

[THE “TERRITORY OF CALIFORNIA”]

You can watch the stock market successes, listen to the pundits braying out messages like “we have turned the corner”, but the  reality is that the State of California and the municipalities nationwide, including  the City Ventura, are in trouble.

Recession creates budget crises

The recession caused budget and pension crises throughout California.

The fortunes of the State of California are grim.  The S&P and Fitch Investors lowered the debt rating on General Obligation bonds to BBB. This rating  means that California bonds now are “speculative with major risk exposure”.   It is projected that the rating will be lowered to B (junk bond), which means “adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal”.

During a VREG  forum at the Ventura Beach Marriott on February 24, 2010, the guest speaker, Chriss Street, of Orange County whistle blower fame, currently  serving as the Orange County Treasurer and Tax Collector,  put the State of California  with the debt problems of Greece, which imploded because of their governments “credit default swap” ventures.  They and the State of California are broke, but our state does not have a Eurozone to bail us out.  It is so bad that the Governor’s office is looking at bankruptcy.   By law, a state cannot file bankruptcy, but state government has been advised that bankruptcy is an option if they convert to a “territory”.

Mr. Street also was of the opinion that between July 21 and July 24 of 2010 the State of California will be in the position of being unable to obtain any financing to continue operations. Is he right?  We do not know but we have marked it on our calendars.

VENTURA’S CUPBOARD –ALMOST BARE?

[IN THEN JUST OUT OF THE  PICKLE BARREL]

The economic failure of the State will have a direct effect on municipalities including the City of Ventura.  Recall, that last year our state government, pursuant to Proposition 1A decided to “borrow” [take] our real property tax money. They can do that for two years with a promise to pay it back.  This served as a major argument by Mayor Weir, Councilman Fulton and the “TAX ‘EM” bunch to convince Venturans to raise the sales tax.  Didn’t work the first time in 2006 and it cost the citizens a bunch of money again in 2009.

budget crises created by recession

California withholds property tax revenue from Ventura to close budget gap.

Then, after the November election we learned that the City did get the real property tax money through a concept of “securitization”. Here is a hopefully simple explanation.  As part of the 2009-2010 budget, the California Legislature suspended the local agency protections of Proposition 1A and passed a provision to withhold more than $2 billion of property tax revenue from cities, counties and special districts.  Ventura’s share of that was $2,718,041.  So, in a plan equivalent to a “forced loan”, the State exercised the right to hold those funds to close the budget gap, with the intent to repay the money in three years. As an alternative, the legislature also permitted the establishment of a third-party securitization program for cities to use to avoid the loss of revenue.  A group called the California Communities Development Authority (aka California Communities) was appointed as the exclusive authority to offer a program to purchase the receivables due to local government agencies from the State.  They did that, $2 billion in bonds were sold in the market place and the property tax money due to each municipality was paid with all interest and costs paid by the State. View the amount taken from each city/county here.

The City of Ventura again faces the specter of losing this same amount of money in the 2010-11 budget. Given the deplorable condition of the State finances one wonders who would again loan the State another $2 billion.  On a positive note the City of Ventura has joined with the California League of Cities in signing a referendum petition to prevent the State of California from taking the real property tax money in the future.  Our city is sitting on the edge of the proverbial pickle barrel.

THE $11 MILLION PROJECTED BUDGET LOSS

employees largest budget item in Ventura

City employees are the largest budget expense in Ventura.

On March 15, 2010 Mayor Fulton invited community leaders to attend a BUDGET WORKSHOP to help decide where to make cuts in the 2010-11 budget to compensate for an $11,000,000 PROJECTED LOSS.    Liberally attended by policemen and fireman, due to invitations extended, by our Chiefs of Police and Fire, to “Friends of the Fire Department” and “Friends of the Police Department”, the participants came up with a variety of proposals.  The giddy report from Mayor Fulton was that it was a resounding success, with proposed solutions like – “muddle through”, “strategic layoffs”, “use of volunteers”, “delay projects” and “shift funds”.

One participant reported that during this conference the major budget item that needed to be addressed was all but ignored, which is the cost of people.  At least 80% of our expected income of $85 million will be spent for people and pension costs. Police and fire consume 56% of the total budget cost.

EDITORS’ COMMENTS: 

The original budget was based on a prediction that the City would have income of $97 million to cover their expenses.  It was a bad bit of guess work.   Realistically, the City could never have expected  more than $85 million in the first place, however now they want the citizens of the community to believe they have an $11 million shortfall.  Not true.  What they have is long-term expenses of $11 million more than their income.

THE PENSION DEBACLE

A few months before the November 3rd  election the City Council proudly announced that the City Council, in an effort to address serious budget woes, had appointed  a special committee to investigate potential reform of the salary and benefits paid to the City public employees, and particularly police and fire.   They did that and here are the folks appointed to come up with a recommendation:

Vern Alstot Fire Management
Neal Andrews Councilmember
Bart Bleuel Public Member
Eric Burton Code Enforcement officer
Benny Davis Fire Department
Ramon De La Rosa Maintenance Department
Quinn Fenwick Police Management
Randy Hinton Public Member
Sylvia Lopez City employee union representative
Frank Maxim City employee and supervisor
Ed McCombs Public Member (former City Manger)
Jim Monahan Councilmember
Richard Newsham Union representative
John Snowling Police officer
Mike Tracy Councilmember

This group did not come up with a recommendation. On Monday, March 22, 2009, they disbanded and submitted a report to the Ventura City Council. The report consists of a compilation of different views including position statements of the nine (9) union and employee representatives.

To their credit the City Council received the “report” then unanimously voted to adopt a  “policy” whereby in all future salary and benefit negotiations with the unions and employees the City Council would seek a two tier retirement  benefits system, plus ask the policemen, firemen and other employees to pay one-half of the pension contribution requirement.   Nothing was accomplished other than to state publicly that in future contract negotiations the City would seek to establish a two tier system.

THE  PUBLIC EMPOLYEE PENSION DEBACLE

[THREE CANARIES IN THE MINE]

 

A reporter named Ed Mendel wrote an article on January 25, 2010 for the San Diego Tribune. Here are few of his comments:

“A wave of higher pension costs is hitting California’s three major coastal cities, prompting proposals to shore up future budgets with ballot measures in Los Angeles and San Francisco and eroding progress in San Diego, once dubbed “Enron by the sea.”

The surge from an historic stock market crash, which punched big holes in pension investment funds, is creating concern that pension benefits approved in better economic times are not “sustainable” and need to be cut for new hires.

City council members in Los Angeles and San Diego have mentioned the possibility of “bankruptcy” in remarks to reporters this month, a path taken by the city of Vallejo two years ago when labor costs consumed most of its budget.

Labor unions, agreeing to benefit cuts in some cases, are trying to figure out whether current pension levels are unaffordable and should be reduced, or if city officials are overstating the problem to use the economic downturn as leverage for givebacks.”

bad budget management in Vallejo

Vallejo, CA delcares bankruptcy following bad budget management

The City of Vallejo filed bankruptcy because 70-80% of their general budget was devoted to paying police, fire and other public employee salaries and benefits.  When the old port city on the far side of San Francisco Bay filed a rare municipal bankruptcy in May 2008, there was speculation about whether bankruptcy would become a way for deficit-ridden cities to shed crushing retirement debts.  In a precedent setting ruling in the Vallejo case, U.S. Bankruptcy Judge Michael McManus in Sacramento decided that city labor contracts can be overturned in bankruptcy, and then dissolved the contract.

In the shadow of this decision the Vallejo firefighter union agreed to cut pensions for new hires to 2 percent of final pay for each year served at age 50, down from the current 3 percent at 50, a previous trend advanced by state legislation a decade ago.  They also agreed to a new two-year contract with no pay raise and increased their pension contribution to 13.4 percent of their pay, up from 9 percent..

EDITORS’ COMMENTS: 

Given the serious budget issues we hope the Ventura police, fire and public employee unions are paying attention, and do not continue to believe that they have found the golden goose. 

Editors:

B. Alviani        S. Doll           J. Tingstrom

K. Corse          B. McCord     T. Cook

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

Pension reform needed

Grand Jury Exposes City Pension Out of Control

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“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not” —Thomas Jefferson

THE FLEECING OF VENTURA

The Ventura County Star reports the Grand Jury finds Ventura’s Pension Out Of Control

On July 26th the Ventura County Star published an article about the deplorable conditions of the public pension plans in Ventura.   The Ventura Grand Jury labeled these city pension plans as headed for disaster — an out of control cost [They actually said “uncontrollable cost”].  To see how out of control the one in Ventura is see the October, 2008 issue of Res Publica, which  provided an in depth analysis of just how much unfunded debt exists because of the lavish pension plans given to public employees by the City Council.  We republish some of that article here as a reminder to our citizens when they go to the polls in November.

(c) THE FIREFIGHTER PENSION

In a vote of 4 to 3 the council  approved the Memorandum of Agreement and the new pension contract with the firefighters of this city giving them a pension equal to 3% of their highest salary times the number of years in service plus all medical, dental, the same plan received by policemen.  The yeas were Councilmen Fulton, Brennan, Summers and Monahan.  The neighs were Mayor Weir, Councilmen Andrews and Morehouse who stated just before his “NO” vote — “I HAVE GRAVE CONCERNS TO COMMIT WHEN WE DON’T KNOW WHERE THE FUNDS WILL COME FROM”.

I have grave concerns to commit when we don’t know where the funds will come from.

In our August 2008 letter and postscript letter titled “IN THE SHADOW OF VALLEJO”. We posed a hypothetical retirement scenario — a fireman goes to work for the department at age 20, works 35 years and retires at the age of 55 earning a salary of $100,000 per year.  The adopted increase now provides that he/she will receive 3% of their salary in their last year of employment multiplied by the number of years of service.  So he/she will retire earning $105,000. [$100,000 x 3% = $3,000 x. 35 = $105,000].

ed summers pension blunder

Councilmember Ed Summers voted for pension increase because city employees only live 7 years past retirement.

Since that publication Councilman Summers, who is up for reelection in November, pointed out that we need to make some “minor corrections”.  We quote from his letter:

In the example it indicates that an employee has the ability to retire and receive 105% of their annual salary.  Regardless of the time of service and age at retirement, the program is capped at 90% of the eligible salary.  The example also includes add-back for accrued sick leave and vacation.  The City’s formula does not include any add backs, the formula uses only the base salary.  It is the County’s formula that includes add backs…(in addition)…unfortunately the assumption of a 30-year future obligation per employee is incorrect, the average life expectancy of a public safety employee is 7 years from retirement”. 

          We do not know what source Councilman Summers uses for this remarkable revelation that firefighters retiring at age 55 are projected to live only 7 years. His assertion is nonsense and not supported by any credible source.   Further, when he and the other profligate four argued that “the increase was only 1%, it in fact was an increase from 2% to 3%, which is a 33 1/3% increase in the retirement plan.   So what is the reality? We have less money now than we did in October, 2008.  This City Council has led us into a sea of red ink — $294,673,595 as of April, 2009, yet our Council and the public safety unions ask us to pretend that this not a problem.  Instead they want more money in the form of new taxes.  Here is an example of what we now have to pay just 15 retired folks yearly for the rest of their lives — $1,707,086.

Mike Tracy* $ 186,902
Gary McCaskill $140,602
Neil Gedney $129,856
Brian Gordon $132,548
Carl Handy $122,022
Douglas Aldridge $124,396
Bill Rigg $121,333
Robert Boehm $120,494
Donald Davis $112,735
Jim Walker $ 110,570
Everett Millais $105,245
Shelley Jones $105,013
Roger Nustad $101,836
Gail Bogner $100,515
* Retired Chief of Police. Running for City Council
Pat Miller pension out of control

Police Chief, Pat Miller

Mike Lavery pension out of control

Fire Chief Mike Lavery

More recently we learned that our present Chief of Police, Pat Miller and Fire Chief Mike Lavery would retire. Why did they push so hard for an increase in the retirement benefits in October, 2008 ?  Well  Duhh ! Thank you Councilmen  Fulton, Brennan, Summers and Monahan.

More recently Councilman Fulton announced that the City was going to appoint a committee to examine the public pension plan.  Let us hope against hope that they don’t pack it with FOCs like they did the Blue Ribbon Committee, and that they read the Res Publica analysis of April 2009, which concluded that the pension plan is headed on the same path as the City of Vallejo – Federal Bankruptcy.      

Councilman Neal Andrews has advocated for a change. in this area, and has published a lengthy memo on the subject:

“Immediately abandon the compensation formula that essentially forces us to mimic the weakest and most incompetent policymakers in other communities. Today we promise to compensate our employees at approximately the average level of other communities, though we sometimes count the highest paid three times as heavily as others. This is an artificial and arbitrary benchmark. We should instead adopt a clear policy of compensating at a level adequate to provide a sufficient workforce with the high level of competence we want in them.

Adopt a two-tier retirement system that provides a guaranteed contribution to the retirement plan for all new employees, instead of the current guaranteed benefit program. This would not change a thing for current employees, but over time it would significantly reduce the volatility of our budgets by stabilizing a major element of our financial liability. This is the same type of retirement program offered today by most of the private sector.”

—Neal Andrews

Editors’ Comments:   

Councilmembers FULTON and MONAHAN deflect any criticism and defend the retirement plan by saying the decision to raise pension benefits was deferred. When questioned,  they cannot recall when the motion or official action was made, do not recall who recommended delaying the firefighters retirement plan increase or just what happened.  They act as if this is a non-issue.  For your information councilmen, the pension increase which you approved in October 2008, has NOT been rescinded or modified.

Editors:

B. Alviani      S. Doll            J. Tingstrom

K. Corse        B. McCord     T. Cook

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

Tax & Spend California

Failed Tax Initiatives Force California To Look For Money Elsewhere

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“Reflect how you are to govern a people who think they ought to be free …Your scheme yields no revenue; it yields nothing but discontent, disorder, disobedience; and such is the state of America, that after wading up to your eyes in blood, you could only end just where you begun; that is, to tax where there is no revenue to be found…”
—Edmund Burke

THE FAILED TAX INITIATIVES

[WHAT IT MEANS FOR VENTURA]

California voters sent a message in the last election about a state government out of control, and out of touch. By rejecting the political establishment’s $16 billion in higher taxes, spending gimmickry and more borrowing, the voters got it right.  They are willing to accept the consequences of today’s economic realities notwithstanding the Governor’s threats of releasing criminals, firing teachers, firing public safety personnel, etc. The citizens have made it clear that it is time that our “elected officials” and the entrenched state bureaucracy faced the same spending limitations that this recession is imposing on everyone else.

Teachers unions, government funded business leaders, prison guards and everyone else, enjoying the good life at the public tax trough, outspent initiative opponents by six-to-one and LOST.  The voters decided that as painful as these cuts may be, the alternative of letting the state’s tax-and-spend machine continue was worse.

THE STATE SCRAMBLES TO FIND OTHER REVENUE

The response so far from Sacramento is typically short-sighted. To circumvent the apparent will of the voting public our good governor, legislators and public-worker unions are now pursuing plan B: a federal bailout or plan C: take real property taxes from the cities.   The Governor was seen scrounging in Washington a month ago, along side Mr. Gettelfinger of General Motors, sounding like a Detroit auto executive, declaring: “We need assistance.” in the form of  a federal guarantee on California’s next $6 billion bond offering.  Moreover, just who will repay the bonds Governor?

But a federal bailout is an injustice to the residents of other states, especially those that run their governments responsibly. Why should taxpayers in other states pay for California’s incompetence?  But even worse, we know that once the Federal Government gives you money they then feel they have the right to tell you what you can or cannot do.  It is not inconceivable to expect that the Obama Administration’s price of a bailout would be a demand that California remove its requirement for a two-thirds legislative majority to pass a tax increase; or, repeal of the Proposition 13 property tax limitations.  Once you make a pact with the devil you lose all freedom of choice.

Likewise, cities should not have to pay for the incompetence of state government or that of other cities.   Taking real property taxes from each City and County is an injustice to the residents of each community who pay those taxes for the benefit of their community.  It is disingenuous for the state legislature to “borrow” [steal is a more realistic term, albeit radical] each cities tax money, because the state “needs” the money to balance their budget, when they know that they will have no money to pay it back.

SOLUTIONS

Some want to throw all of the rascals out on their ear, some are leaving the state, some want a constitutional convention but most are just plain disgusted, not understanding what happens when that elected official gets Sacromentized.

Thirty years ago this November, the not so distant past, when California’s economy was in a similar rut, three-quarters of the voters approved the famous Gann Amendment. That limited the annual growth rate of state spending to population growth and inflation.  The result was that California’s annual average rate of spending growth after inflation fell to 2% through the 1980s from 9% in the 1970s. California’s state per-capita expenditures fell to 16th in the nation in 1990 from 7th in 1979. The economy soared, growing by 121% — 14% faster than the U.S. average.   This success however was just too good not to be tinkered with, thus in 1988 and 1990, through two separate initiatives the Gann limits were effectively neutered by two initiatives that exempted education and transportation from the cap.  Expenses soared.  This must be fixed, not the elimination of the Prop 13 Gann Amendment.

The next item is to fix California’s steeply progressive and anti-business tax code. California’s 10.55% income tax and 9% sales tax are driving businesses and high income taxpayers out of the state, depleting the tax base month after month.   Add the city sales taxes to this mix and the picture is worse.    When tax money flowed in times of plenty our good state and city governments were slurping up the public revenues, spending and enacting expensive new social programs like as if such revenue would flow forever. Those who urged cautions were labeled as doom and gloomers, or were dismissed as ranting eccentrics.  In the last 5 to 7 years those with money (you know, the ones who pay 75% of the income taxes) and business are leaving this state, and they will not return when a neighboring states imposes fewer taxes. A 5% to 6% tax rate on sales and income without deductions would halt the flight to low-tax neighboring states and invite newcomers who could start buying houses again, hire people, pay salaries, buy goods etc.

The state’s public-employee pensions also need to be overhauled. According to the California Foundation for Fiscal Responsibility, the state pension funds are more than $200 billion under funded. Public employees can retire after 30 years on the job in their early 50s, with lifetime retirement benefits at 90% of their final salary. Some retirees receive $200,000 a year or more in pensions. The cities are not too different.  The City of Ventura alone faces an unfunded liability of $ 294,673,595.   Just how state legislators or city council members can myopically ignore what happened to the airlines, Chrysler or GM, when faced with such unfunded union liabilities, seems perplexing to a logical person, until you recognize that these politicians depend on the votes of vested interest groups, such as public employee unions, to get into office.  A solution, short of firing a gaggle of public employees, is to follow Florida’s lead and require new workers to accept defined contribution pensions like the 401(k) plans now dominant in the private work force. Without such a reform, many California cities will fail just as the City of Vallejo failed.

Editors’ comments: 

Edmund Burke’s observations are as relevant today for all levels of government as they were in 1774.  You can expect government at all levels to impose taxes and fees to cure their malfeasance.  Truly, “No man’s life, liberty, or property is safe while the legislature is in session”.

 

Editors:

B. Alviani        S. Doll                J. Tingstrom

K. Corse          R. McCord         T. Cook

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

living dead because Ventura has no money

The Ghost of No Money Haunts Pensions and Cemetery Park

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‘Take some more tea,” the March Hare said to Alice, very earnestly. I’ve had nothing yet, “Alice replied in an offended tone: “so I can’t take more.” “You mean you can’t take less, “ said the Hatter: “it’s very easy to take more than nothing” —Lewis Carroll, Alice’s Adventures in Wonderland.

THE SPECTRE OF BANKRUPTCY

[T.E.A. PARTY ANYONE?]

In the August 2008 edition of this newsletter, we suggested that Ventura “may” be following the missteps of the City of Vallejo right into bankruptcy court. After you read this you will realize that our unfunded pension debt and contractual obligations are staggering.  We as a community owe $150,000,000 alone on the City’s pension debt, which is $1,500 per person in a community of 100,000.  Incredulous?   We’ll explain.

no money in the CAFR

The 2008 CAFR shows Ventura has no money to pay unfunded liabilities.

Start with the Comprehensive Annual Financial Report (CAFR), ending June 30, 2008.

Remember, the pension statistics are based on numbers as they existed on June 30, 2007, These CAFR reports are published 18 months after the fact. At page 15 it reflects that our long term debt, labeled “total non current liabilities” totals $135 million dollars ($134,984,820).

You might recall that the City financial types reported to the Blue Ribbon Tax Committee that we have $10,000,000 in our general operating fund — that’s our reserve, which has not changed since 1992.  All investment  income from that reserve was spent. They also reported that we have $145,000,000 in other investments (after marking down the $10,000,000 lost to WAMU and Lehman Bros. investments), but we can’t touch this money because the funds are committed due to previous contractual commitments of the City Council.  So we owe $135,000,000 and have $155,000,000 in investments, ignoring the contractual obligations for the moment. On the face of it we have $20 million more in assets than debts, so we are looking good right?

Wrong!

Let us take a closer look at the City of Ventura’s Pension Plan. Turn to page 70 of the CAFR (page 102 of the PDF file) of the City’s 6-30-08 Comprehensive Annual Financial Report, which lists the “off the income statement” underfunded obligations — money we owe as of June 30, 2007, for which we have no money.  The total Actuarial Asset value for the City pension plan investments is stated as being $313,847,955, the actuarial accrued liability is $362,521,549.   The  unfunded accrued liability for regular employees is $5,176,721 and for Safety Employees (Police and Fire)  is $43,496,873, or a total of  $48,673,594.

This liability ($48.7 million) accrues interest at the rate of 7.75% per year on the amount that is owed as an “unfunded liability”. Remember again this was 18 months ago. Then move to the end of 2008 and add to this the fact that CALPERS devalued our actuarial asset value by 35%.  The result is that the actuarial asset value went down by $109,846,784 ( $110,000,000), thereby increasing our liability by the same amount thereby reducing the value of our pension assets to $204,001,171. —we lost the  money in the market. The following is the real financial picture right now:

True Financial Picture
(1)  June 20, 2007 unfunded debt $48,673,594
(2)  Interest 6-30-07 to 12-31-07 @7.5% $ 1,825,259
(3)  Interest 1-1-08 to 12-31-08 @7.5% $ 3,650,519
(4)  Loss of pension value 35% $110,000,000
Total Unfunded Liability of City $164,149,372*

Now go back and add in what IS shown on the Comprehensive Annual Financial Report(CAFR) for 2007 (page 15 of the document, page 33 of the PDF). This is what is owed by the Citizens of this community — right now, and getting worse each year!

(1) Long Term “noncurrent” Debt $135,000,000
(2) Unfunded pension benefits $ 164,149, 372
Total debt $294,673,595

How would you view our current financial posture?  We owe $294,673,595 and we have $10,000,000 in the bank.  Any suggestions for our City Manger or City Council?

Consider that the City of Vallejo decided to file bankruptcy when their obligations amounted to $730 per person. To further add to your perspective, Orange County, California filed the largest municipal bankruptcy in the history of the U.S. at a cost of  $600 per resident.  Ventura’s obligation is approximately $1,500 per person.

If you were in charge, what would you do?

THE CEMETERY PARK PROPOSAL

no money for Cemetery Park

Cemetery Park will remain a ghost town because Ventura has no money for a Memorial.

[FINDING THE MONEY IS A DEAD ISSUE]

The City has spent $40,000 for the architectural renditions of  a plan to create a memorial place at Cemetery Park..  This $4,000,000 Plan includes a memorial to commemorate those buried at the cemetery, memorial gardens, refurbished landscaping, veterans’ memorial walk and flagpole, and repairs to the historic WPA rock wall, 3,000 bronze grave site markers, and the retrieval and display of existing headstones. The City acknowledges there is no money, but assures the proponents that over time, with a combination of city funds and outside grants, perhaps they can find the $4,000,000 million dollars.

Then there are the opponents. One group, the restoration folks, want the park restored as a cemetery, and claim the City plan does not go far enough.   They want it like it was headstones and all.  Another group contends that the decision to make this into a park was made forty years ago when the City  was forced to do something because those responsible did not maintain the cemetery. The park has been serving the community as a passive park and a memorial since and is used daily by local residents. This is a 7-acre park serving the mid-town community.

As an interesting aside  the City code enforcement folks have stepped up a campaign to issue expensive citations to owners of dogs that are not on a leash in Cemetery Park.

Editors’ observation:

Perhaps the question we all should be asking instead is why our City Council  is so willing to spend $40,000 to placate a vocal minority by voting to pay for a study to formulate a plan to restore an old cemetery site when we have so many other pressing priorities.  How about – No!

THIS FROM A READER

We receive many emails from our readers which have been very positive. This concerning our March issue:

“Thank you so much for this current issue. One of the many things I  like about your report is that it stays on course and is not distracted by all the non-issues brought up by the City for dodging the bullet. The concept of public employee’s being exempt from the reality’s of this economy really, is the height of arrogance”.

—R.M.

EDITORS’ COMMENTS

 Until the Citizens of this community solve the systemic problem, by electing city leaders who are “qualified” to manage a municipal corporation, with a operating budge approaching $500,000,000, and in electing leaders who will make the hard (not political) decisions to solve the pension and unfunded debt issue, the taxpayers and citizens of this community will always be at risk and a target for more taxes and more fees.

 

Editors:

B. Alviani        S. Doll           J. Tingstrom

K. Corse          R. McCord    T. Cook

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