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Failed Investment, Failed Policies Make Ventura Like Greece

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“Rebellion to tyrants is obedience to God”
—Motto on THOMAS JEFFERSON’S seal.

CALIFORNIA: AMERICAN GREECE

Tim Cavanaugh of an on-line news company called REASON has written a good analysis of the dilemma facing California. He writes:

“What do Europe’s most bankrupt state and America’s most bankrupt united state have in common, aside from being bankrupt?

In what is undoubtedly a coincidence , noticed only by free-market fundamentalists, it turns out that Greece, that sun-drenched paradise on the Aegean, and California, that sun-warmed El Dorado on the Pacific, are the worst places to do business in their respective economic zones.”

VENTURA’S VISIONARY?

[Investment In People Too High]

The city Manager recently announced that we are in a “war for jobs”.   He is right, but know this. We will be competing with every city in the nation for those same jobs.  The winner will be the public entity that realizes that the jobs we lost in the 2008 depression are not coming back. We have to create new opportunity and new jobs.

The city needs private enterprise now more than ever, so please City Council when a new project developer or businessman comes through the door give him a hug, and not a bill for all of the costs and fees that you have piled onto such projects.  A happy face and lower fees, as an incentive to come to Ventura, will work wonders.

The Ventura City Council says they are going to “Live Within Our Means” and stay within their budget, but they wince when it comes to the thought of layoffs. The closing of a fire station proposed by the City Manager, as expected, has heightened the emotions of several adjacent neighborhoods and the Fire Department folk.  These citizens and the firemen need to wake up and realize that this is not about saving a fire station, but the financial well being of the entire City.  We must keep in mind that  City government has been entrusted to provide  “basic governmental services” to its citizens within its means, but does not have an obligation to keeping individuals employed so that they can retire with life with lavish pensions and benefits.

Any business owner knows that to reduce services diminishes their value. They also know that the single highest AND controllable expense is labor. Maybe the theme of “Living Within Our Means” needs to be better defined. Reducing services and programs should only come after a reduction of staff levels reached the bear minimum.

Five years ago, the claim was “we have cut expenses to the bone and there is no where else to cut.” Today, the City has reduced the workforce by 16% AFTER they made that claim. Sounds like the story of the “boy who cried wolf”. Enough on the budget for now. All we know is the reduction of services has long been a ploy to get the citizens to sympathize with public employees.

WAS IT $10,000,000 or $20,000,000 LOST?

[Monetary Investment Too Risky]

In March and April 2009, VREG discussed the loss of $10,000,000 in Washington Mutual and Lehman Bros. investments.

The City  father’s took refuge [seemed proud?] that they only lost $10 million in investments in 2008, they defend their loss by comparing the loss to the average citizen’s 401K losses.   Hardly a realistic comparison given that the investment policy for a municipality is and should be much be more conservative and restrictive.  Some at the City make it sound as if it is heresy to suggest that they should not have lost anything.

The City Attorney on the other hand is crying “fraud” on the part of Lehman Brother and WaMu — a distraction at best.  The decision to invest in these financial institutions was made by a committee of four. None of the four members of the Investment Committee has investment licenses, nor the experience and qualifications to oversee a $200 million portfolio in this current financial market. Months before the Lehman and WaMu debacle, the City had a prior warning of problems due to a potential $10 million loss they had invested with Bear Stearns.  It turned out that the Bear Sterns was acquired by JP Morgan and thus avoided bankruptcy, however at this writing we do not know how much JP Morgan is willing to pay the City of Ventura on that investment.

How is the recovery of the loss of $20,000,000 by the City of Ventura with their investment in Bear Stearns, Washington Mutual and Lehman Brothers going? We do not know. Was anyone fired for losing $20 million?  Nope. And we predict no one will not be fired.  What the Council should do is appoint people who are qualified AND do not have a potential conflict of interest in making investment decisions to insure that income from the investments will be available to feed the general budget.

THIS FROM A READER OF THE LAST EDITION

[CalPERS Investment Underperforming]

It is interesting that when I attended the PERS conference in Los Angeles at the Convention Center in February, the strongest criticism of PERS [CALPERS] came from the representative of the Governor’s office, who had been a former member of the CalPERS Board. His critique was focused on two  things:

  1. That PERS consistently and incorrectly utilized a projected return of investment (7.75%) that was grossly overly optimistic of their likely actual long-term results
  2. That PERS was virtually impenetrable and as dark as a lead lined coffin when someone attempted to secure information from it.

I reported this critique to both the Compensation Task Force and to Council Members…I have also reported repeatedly on the losses that PERS has incurred in their investment portfolio, that they are the subject of criminal investigations over potential fraud and kick-backs form their relationships with placement agents (former Board members using their old connections to get rich), and that at least several current Board members have incurred serious fines because of their consistent failure to report publicly on their investment holdings and sources of income as required by law… Needless to say, our union representatives constantly run with the official PERS line that PERS is sound and in good health.”

—Neal Andrew

EDITORS’ COMMENT: 

We have previously reported on the failed investment policies of PERS.  This organization invests our pension dollars using failed economic models and fallacious investment return calculations. It is easier said than done, but the sooner we can distance our City from this organization the sooner we can be on the path to economic recovery.

Editors:

B. Alviani           S. Doll                 J. Tingstrom

K. Corse              B. McCord         T. Cook

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City Council Lacks Financial Literacy

City Council Lacks Expertise On Pension And Budget Matters

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Insanity: doing the same thing over and over again and expecting different results.
—Albert Einstein,

THE FIREFIGHERS PENSION INCREASE – A CONTRACT?

[ NOT!]

In previous editions we informed you that in 2008 the City Council, on a vote of 4 to 3, increased the Firefighters salary and retirement benefits.  They voted to increase those benefits from 2% to 3% even though they knew (were told) they did not have the money to fund it.  The vote resulted in an approval of a Memorandum of Understanding (MOU) with the union.

bad city council contract

City Council approves an 11% increase in firefighters’ pension.

The issue had to be revisited because of the failure of the City Council to obtain an actuarial report from CALPERS on what it would cost to increase these benefits.   To “try” to fix the problem the Council, at their regular meeting on April 26, 2010, was presented with a report from the CALPERS actuary, Bill Karch.  He informed the council that the “present value” of the cost of the increased benefits (in addition to what we are already obligated to pay) would be $5,047,760,  that the city would have to pay $548,271 this year, and a sum yearly thereafter to fund the $5.4 million increase.  He didn’t say how much we would have to pay beyond 2010.

An actuary is a specialized, mathematical expert trained to compute values for present and future events. Actuarial “present value” calculations convert future occurrences, such as retirement payments, to a present dollar value.   The “present value” of benefits represents the total dollars needed today at an estimated investment rate of return to fund future benefits for members of the pension plan.  The lower the rate of return (say 4.5%) the more you have to pay up front now to meet the future payment demands.  The higher the rate of return (say 7.75%) the less you have to pay now.

The CALPERS actuary used a rate of return of 7.75%.  Interesting choice given that CALPERS lost $55.2 billion (25% of its value) in 2008-09, and just billed the State of California f $600,000,000 this year to pay for unfunded pension liabilities, but we digress.  None of the Council members asked about the investment rate of return that was used to make his calculations and/or whether the 7.75% rate of return of interest was a reliable dollar estimate in today’s market, and/or whether we should use a lower rate of return, to predict how much our present pension obligations would have to be increased in order to fund and pay future pension obligations.

Subsequent to the Council meeting Mr. Karch was asked in an email from VREG if he could calculate what the present value of the increased obligation if 4.50% was used, and how much more Ventura would have to pay this year. That number was selected because actuaries today conservatively use 3% to 5% as the investment rate of return in making such calculations. Mr. Karch declined.  His response was that we could get that the data if VREG made a Freedom of Information Act request through formal channels; and, by-the-by send a large check to pay for the voluminous computerized report.  Well Bubba I guess we know who that fella works for!

So in a state of blissful ignorance Council members Fulton, Brennan, Monahan and Tracy voted yes.  Council members Andrews, Morehouse and Weir voted no.  The deciding vote was that of Deputy Mayor Tracy, who in casting his yes vote stated:

“…what is clear tonight is that we are not deciding on whether or not we give our firefighters an enhanced retirement program.  That decision was made two years ago.  We have received (a) very competent legal opinion that frankly we have no choice but to honor that contract…”

Bad city council contract

City Council negotiates questionable contract with Ventura firefighters.

What the Deputy Mayor was referring to was a letter from a law firm named Liebert Cassidy Whitmore of San Francisco, attached to the Administrative report for Agenda item #8, which concluded – “Once approved by the City Council, the memoranda of understanding (MOU) between the City and the Association (firefighters) became a binding and legally enforceable agreement…”.

Just prior to the vote the City Manger, Rick Cole, advised the Council that the reason for the public hearing on the actuarial valuation was to let the public know about the cost of the increase, referring everyone to Government Code section 7507.  Connect this reference with the Deputy Mayor Tracy’s statement and we arrive at the crux of the problem — was there a valid contract?

Read Government Code § 7507 and you decide.  That code provides:

“The legislature and local legislative bodies shall secure the services of an enrolled actuary to provide a statement of the actuarial impact upon future annual costs before authorizing increases in public retirement plan benefits…”

The future annual costs as determined by the actuary shall be made public at a public meeting at least two weeks prior to the adoption of any increases in public retirement plan benefits”.

The letter written by the San Francisco attorneys, LIEBERT, CASSIDY WHITMORE does not address this error. For reasons that are not apparent, these high priced legal types did not even discuss this issue.

A mutual mistake of law and/or fact is always a good defense to breach of contract action.  If both parties to a contract operate under a mutual mistake of fact that there has been compliance with the law, and in fact there has been no compliance with the law, there is no contract

Questions for our readers:

  • Why a letter, bearing the legend “CONFIDENTIAL—ATTORNEY CLIENT PRIVILEGED”, which does not discuss a critical legal defense, would be attached to a public document?
  • Why not a single firefighter asked to speak in support of the measure when the room was packed with the fire folk, who were straining at the bit to get more benefits?

Curious that , but we leave “that” to your speculation.

Editors Comments:  

An actuary report was NOT presented prior to the decision to increase benefits in August and October of 2009, thus was not enacted as required by the California Government Code. The attempt to finesse this critical error, by pretending it could be presented after the fact, on April 26, 2010,  ignores the underlying issue – THE RIGHT OF THE CITIZENS OF THIS CITY TO KNOW IN ADVANCE WHAT AN INCREASED PENSION BENEFIT WILL COST BEFORE THE CITY COUNCIL MAKES A DECISION.   The firefighters’ will of course dismiss this as a mere formality.   This contract should be rescinded and an accurate and reliable actuarial report provided to the citizens of this community.

 

FROM READERS OF THE MARCH EDITION OF RES PUBLICA

[THE PIPER WOULD PLAY A FAR DIFFERENT TUNE IF THREATENED WITH THE LOSS OF HIS PIPE]

This regarding the Pension Reform Committee appointed by the Ventura City Council:

“Very interesting news letter this time as always.  Only one public member appointed to the “ad hoc” committee. All the rest have a vested interested in the system. What would happen if the no guts council just plain and simple told the unions that from now on the fire and police will have to pay at least 1/2 of their contribution. Would the fire and police walk off?  If so I am sure they can replace the lot.  The problem as I see it is that all the cities have to ban together so that there will be a closed door to bouncing around of personnel.”

—K. Weber

THE COUNCIL ACCEPTS VENTURA’S NEW BUDGET

[A SORRY EXCUSE, AT BEST]

            Another letter concerning the current budget format mandated by the City Manger for use in 2009-2001 (called a Budget Book).  We mentioned in our last issue that the current “Budget Book” looked useless and appealed to you for help.

“Regarding the City’s budgeting process and the budget document itself, I spent some time looking at it after reading your latest publication and you hit the nail right on the head.  It is most assuredly not a decipherable budget document.  It lacks clarity and the detail required for the average lay person to begin to understand it, much less a person with a financial background.  I’m not even sure that it meets the minimum legal requirements, as promulgated by the State Controller’s Office.

I am a C.P.A., have a Masters degree in Public Administration, and have worked in government finance and budgeting for the past 29 years and, without a doubt, this is the most sorry excuse for a budget document that I have seen in my life.

In Santa Barbara County, we have developed a true program/performance-based budget that actually links dollar amounts with stated goals and performance measures.  Not only can you clearly and easily see the amount of money, staffing, and other resources allocated to each program area within each department of the County, but you can also see the performance and outcome measures associated with each individual program area.  In other words, as a taxpayer, you can actually see what you’re getting for your dollars.

The firefighter pension increase is just another example of the arrogance and disconnect with reality coming out of City Hall these days.  I certainly hope we can make some changes in the next election.  We definitely cannot continue down this path or bankruptcy becomes an inevitability”

—M. Gibson, CPA and 2009 candidate for Ventura City Council

 

EDITORS’ CORRECTION

Last month we reported that the Firefighters pension increase was 50% (2% to 3%). The City Manager corrected us and pointed out that it was ONLY 11%. .  After his response we received the CALPERS actuary report and confirmed that our report was in error. Under the current pension plan it is a 20% increase if the Firefighter retires at age 50, and an 11% increase if the Firefighter retires at 55.  That aside, this correction does not excuse the ridiculous statement by former Councilmember Ed Summers that it was only a 1% increase. It is still hard to believe he wants to be the County Treasurer.

 

EDITORIAL

The City Council is called upon to make many difficult and complex decisions concerning the financial welfare of this community, but one of the greatest decisions they will have to make concern the pension contracts with the public employee unions now and in the future.   Except for members of the public employee unions there is not a single informed individual in this society that would disagree with the conclusion that our pension system is bankrupt and unsustainable. The collective decisions of our City Council are costing the citizen’s of Ventura for decades in the future. Not to ask the hard questions, when asked to approve a new liability of $5.4 million dollars, such as the interest rate used for the assumptions of a pension increase, or to discuss if the right questions were asked and answered in a legal opinion statement, borders on malfeasance. It is not enough to say, “the report was too lengthy” or “we didn’t have enough time”. If decisions need to be delayed and other opinions sought, the City Council needs to control that process and remember the admonition of Jean-Jacques Rousseau to ”keep your experts on tap and not on top”.

 

Editors:

B. Alviani       S. Doll           J. Tingstrom

K. Corse         B. McCord    T. Cook

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Ventura Budget Lacks Transparency

As Ventura’s Budget Losses Grow, Budget Transparency Is Questioned

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“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” —CICERO – 55 BC

VENTURA’S CUPBOARD –IS BARE

[THE $15 MILLION PROJECTED BUDGET LOSS]

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.   This statement was predicated on an estimate by the City Council that the City would face fixed expenses of $96 million with income of $85 million.  Well, it turns out that the income figures were wrong.  Revenues are below normal and the City will receive less than $81,000,000 for the fiscal year 2010-11 according to estimates provided by the Finance and Technology Department and the Deputy Mayor.

bad city council contract

City Council approves an 11% increase in firefighters’ pension.

Please recall good reader the words of Councilman Summers in the fall of 2008, when he, together with councilman Monahan, Brennan and Fulton voted to increase the fire department pensions from 2% to 3% at age 55, and stated “We are only increasing it by 1%”, and “we will only be paying 50% of our budget to the police and fire departments”.    An increase from 2% to 3% is really a 50% increase in retirement pay.

Here is a comparison of the 2008-09 adopted budget with the 2009-10 adopted budget as published.  Assuming we receive $81 million in revenue, which is improbable, 58.7% of the general fund revenue is spent on public safety, without factoring in the cost of the other employees.

2008-09 2009-10
Revenue $94,084,228 $85,489,560
Police Dept. Cost $31,478,979 $ 29,528,499
Fire Dept. Cost $19,259,971 $18,036,231

Editors note: 

Former Councilmember Summers lost his re-election bid to the City Council, and  now wants to be your County Treasurer?

MORE ON THE FIREFIGHERS PENSION INCREASE

[OOPS]

As mentioned above the City Council, on a vote of 4 to 3,  increased the fire fighters pension benefits from 2% to 3% even though they knew they did not have the money to fund it.  The vote resulted in an approval of a Memorandum of Understanding (MOU) with the union.  They received their increase, but nobody knew what it would cost.

city council bad conract

Firefighters receive a whopping increase in pension benefits from the City Council.

Then budget problems arose, negotiations began and the Firefighters agreed to postpone their increase for 15 months.  Of course, two of the Council members running for reelection (Monahan and Summers) acted as though pension increase had not been created, or did not exist, because it was not yet implemented.  Not implementing something is not the same as deferring it.   That deferral is up on July 1, 2010, at which time the increase will go into effect.

Now CALPERS steps into the picture.  They take the position that this MOU is not binding upon them, because there was no actuarial report on the cost of increasing the pension benefits when it was adopted by the City Council.  Somehow four Councilmen (Monahan, Fulton, Summers and Brennan) felt they could increase the benefits, which they knew were not funded, and push the cost of those benefits onto CALPERS without contributing any more money to the pension fund. Well, Duhhh!

This issue will be on the City Council Agenda on April 26, 2010, at which time it is expected that an actuarial cost report will be presented in order to meet the CALPERS requirements.  It is predictable that the City will have to increase their contributions significantly to meet the new cost of this increase, or figure how  to back out of the MOU with the firefighters.

EDITORS COMMENTS: 

Another fine mess you’ve gotten us into Ollie!  Are there ever any consequences when these costly errors happen?  Does anyone ever lose their job, or do the taxpayers just keep paying  the legal expenses to fix these problems ?

THE VENTURA BUDGET PROCESS

[CLEAR AS MUD]

            If you are a person interested in analyzing the budget for the City of Ventura you are in for a real experience in frustration.  Up until the fiscal year 2008-09 the budget prepared by Finance & Technology was in a classic format – a real income and expense statement – with supporting schedules and line item detail so that you could  make a reasonable determination of where we stood financially –  where our income was derived and where we spent the money.

Not anymore. The format for the fiscal years 2009-10 and 2010-11 is now different.   Starting with the Budgeting for Outcomes program, instigated by the City Manger, the Finance & Technology (F&T) department published a Budget Book which you can view on-line.  The format for that document, euphemistically called a “budget”, was a result of a directive to F&T to prepare an “All Funds Summary”.  Difficult now to determine what is in fact happening financially.  It is perplexing and confusing when the city mixes the general fund income and expenses with the enterprise funds and expenses.                 If you want to know the general fund income and expenses in detail for the current fiscal year, such as the specific costs of  public safety employees you cannot obtain that information. Perhaps our readers can help us interpret this “budget book”.

EDITORS’ COMMENTS:    

What happened to transparency?

Editors:

B. Alviani       S. Doll           J. Tingstrom

K. Corse         B. McCord    T. Cook

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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.

City Government Clueless About What Citizens Need

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“The characteristic complaint of our time seems to be not that government provides no reasons, but that its reasons seem remote from human beings who must live with the consequences”—William Brennan, U.S. Supreme Court Justice

THE END OF THE FIRST DECADE

It is the end of the first decade of the 21st century.  This first ten years have been marred by war, scandal, fraud, economic failure and government malfeasance at all levels. Venturans will also be happy to turn the page and try to rebuild.  The questions is whether local government can provide the insight and leadership to achieve prosperity, or will be mired in the failed policies and decisions of the past.

THE NOVEMBER 3RD ELECTION – BEFORE AND AFTER

[THOSE WITH INTEGRITY AND THOSE WITHOUT]

We start with glimpse of the events leading to the last election. It was not pretty and hopefully is not an indicator of how the politics of city government will perform in the next ten years.

Police Association Smears Candidate Andrews

Prior to the last election the Ventura Police Association commissioned a telephone poll (push poll) for the specific purpose of trying to eliminate Councilman Neil Andrews.  A push pole is a seemingly unbiased telephone survey that is actually conducted by opponents of a particular candidate in order to smear or disseminate negative information about that candidate.

Police in city government

Police Association interjects itself into city government

Then immediately prior to the election came the mother of all polished and salacious brochures. You know, the one about Neal Andrews taking public money to the tune of $20,000.  None of it was true, but the policemen in charge didn’t care about that. They too have a right of free speech, even rotten speech and fraudulent utterances.

It didn’t work. The voters wisely returned Mr. Andrews to office.  He was elected to his third term of office, and was the next highest vote getter [9,246] next to our newbie retired chief Mike Tracy [9,777].

Councilman Andrews. of course, was punished for his position when the majority of the Council at their December meeting. The Council refused to elect him as the mayor of this fine city or even the position of Deputy Mayor.  Councilmen Andrews and Morehouse were in the minority.   The Ventura County Star published an editorial castigating the members of the council who condoned this miserable spectacle.

THE UNFUNDED PENSION PROBLEM PLAGUES GOVERNMENT

The unfunded pension liability of this city is the biggest problem facing this community, and will be the focus of VREG in the first quarter of 2010.

CalPERS increases unfunded pension liability costs to Ventura

Councilmember Andrews believes city government should bear all the cost of police and fire pensions.

Councilman Andrews is  the only elected official  who has not lost focus on this enormous issue.  His public position, and one that he has espoused for years, is that the benefits of the members of the public unions, particularly police and fire,  are excessive and must be changed from a defined benefit plan to a defined contribution plan.  That of course is not to the benefit of the union members because they want all they can get — FROM YOU.

This is real.  If you do not believe this City has a serious debt problem you are not paying attention.  Attached is a letter which VREG published in April 2009, titled “THE SPECTRE OF BANKRUPTCY”. The unfunded liability for the City of Ventura,  as of June, 2007, totaled  $294,673,595.  We believe the 2008 Comprehensive Annual Financial Report will reveal that the debt picture  has improved somewhat and will report on that analysis in our next issue. VREG will also sponsor a public forum and speaker on this issue in the first quarter of 2010.  We will announce the time and place.

A MESSAGE FROM A CITIZEN

[WHAT OUR CITIZENS WANT FROM GOVERNMENT— PAY ATTENTION CITY COUNCIL]

Just before Christmas the Ventura County Star published a letter from one of our citizens.  With his permission we publish that letter as a message to start the new year:

WHAT CITIZENS WANT

Re: Your Dec. 12 editorial, “Council’s Action a slight to voters”:

I concur with the editorial that called the selection of Mike Tracy as deputy mayor as a slight to voters.  I have no problem with Tracy and feel he will do a great job, but as a brand-new, untested councilman he hardly deserves to be appointed deputy mayor.

Skipping the popular, at least with the public,  not electing Neal Andrews [as Deputy Mayor] is truly an insult to the people who voted.  What the City Council and city manger do not understand is that there’s a reason no new tax measures have been passed.  The voters are unhappy with the way things are going.

I was particularly irked by Councilman Brian Brennan’s comments after Measure A failed.  He basically said the public wants more city services, but doesn’t want to pay for them.  I think he is wrong.  I believe the public wants basic services and is willing to pay for them.  Those services, in my opinion are:

  • Well-maintained streets and storm drainage.
  • Library services at the Helen Wright Library.
  • Adequate police and fire protection.
  • Safe neighborhood parks.
  • Being able to move about the city without harassment by professional bums.
  • A city that encourages a Walmart, which would provide tax revenue and jobs.
city government should stop wasting money

One reader wants city government to stop wasting money.

What I believe citizens do not want are:

  • Large, expensive sports complexes.
  • Expensive housing projects for “struggling artists”.
  • Worthless and expensive bus-stop art at the mall.
  • Exorbitant pensions.
  • City leadership that seems to enjoy punishing the public for not going along with their agenda.
  • And, finally, a city leadership that thinks residents who do not agree with them are just ignorant.

I feel better now.

—Ray Holzer

Editors’ comments:

          Thank you Mr. Holzer.  Could not have said it any better.

Editors:

B. Alviani        S. Doll           J. Tingstrom

K. Corse          B. McCord    T. Cook

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Ventura asks for more money in Measure A

Shameless Politicians Propose Measure A For More Money

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“No creature smarts so little as a fool. Destroy his fib, or sophistry – in vain! The creature’s at his dirty work again.”—Alexander Pope

911 TAX – POSTMORTEM

[THE GREAT BOONDOGLE. WHERE DID THE MONEY GO?]

The City Council keeps saying they do not understand why the citizens of this community have such distrust for city government.  They are not likely to understand if they are not listening.

Refunded only part of the money

Ventura refunded only part of the money collected in the 911 Tax.

No need to again examine the history and the woof of the pathetic effort of the City Council to tax 911 calls, but it does serve to examine the aftermath.

This idea, spawned by our City Manger, Rick Cole, followed on the heals of the defeat of his Measure P6.  Of course he has no public exposure and can duck any critics’ comments because he was not elected to office, and did not vote for the tax.   Councilmen Monahan, Summers and Brennan, currently up for re-election, however were elected to office, and they did vote for the 911 tax.

Citizens protested, but did so in vain. Lawsuits followed, and only then did the Council take steps to set this all aside to avoid being tagged with a huge bill for attorneys’ fees if they lost.  Make no mistake, they were going to lose. It would then be logical, and reasonable, to assume that the money collected under this concocted scheme would be refunded to the people who were FORCED to pay into the program, right?  Au contraire!

Money from 911 tax never returned

Citizens left hanging for refund of over $1.2 million from 911 tax.

Our fine City government collected $1,220,005 during FY 08-09, representing 54.2% of the hoped for annual revenue of $2,250,000.   Once the law was cancelled you were then offered a refund, if you could prove you paid, only if you had “opted out”, and only then if you attached the necessary documents, and jumped through the required administrative hoops to get your money. Why only if you “opted out”?  Because the City Manager surmised that if you did not “opt out”, you must have chosen to “opt in”, meaning that you wanted the city to have this money, and it was your intention for the city to keep the funds all along.

Only $17,096 was refunded. The City kept over a million dollars, used $800,000 to balance the 2008-09 budget and  kept $402,909 in the general fund for use this year.  Having bilked the citizens of this community,  and having failed to refund the money to those who paid,  it would seem that at least the Council would have the decency to do the right thing and use the money for its declared purpose – fund the 911 system!  That did not happen. Instead the money was stuffed down the proverbial rabbit hole. [okay! used for other expenses like?]

Editors Comment:

Are we hoping in vain that this Council may exhibit some shame, and do the right thing?

THE NEW SALES TAX- “MEASURE A”

[COUNCIL ASKS VOTERS FOR MORE MONEY TO FINANCE FAILED POLICIES]

Masure A takes more money

Ventura politicians are shamelessly asking for more money with Measure A.

It has been clear, since Measure P-6 was defeated at the polls,  that this Council would attempt a new sales tax measure.  This new measure to raise the city sales tax by ½% was put on the ballot for November, 2009, on a vote of 6 to 1.  Councilman Neal Andrews opposed that measure.

In the process of approving Measure A the Council referred constantly to the fact that a “Blue Ribbon Committee”, appointed to consider this proposal, had recommended that a sales tax increase be put on the ballot for public approval, and that the tax be automatically cancelled after  4 years.    This was something to behold — that this Council would have our good citizens believe that the Council really needed a Blue Ribbon Committee’s approval in order to place a new tax measure on the November ballot.  Members of the Council appointed a majority of the blue committee because they were “friends of the Council” (FOC), so the result was always a foregone conclusion.  Former Mayors Jim Friedman and Sandy Smith were on that committee, and each was heard to smirk that they thought “the Council was just trying to seek political cover”.

Now the spinning and fact distortions begin anew.  As you are reading you will recall what happened when P6 was proposed.  The Council wanted a  1/4% special tax for police and fire.  That measure failed, as well as the lawsuit filed by “the City” ( Actually, it was filed by a political action committee headed by Assistant Police Chief Corney, to which each Council member contributed money) against citizens who opposed the tax.  They lost that too after paying their Santa Monica lawyers $30,000.

The Council and the City Manager vowed to come back at the citizenry with a new tax.  Thus Measure A was put on the ballot seeking double the amount of money sought by P6, but this time as a general tax, which only requires a 50%+1 voter approval.  Their hope is that since they received 61.95% of the vote on P6, ergo the voters will approve a ½% general tax increase.

So the rhetoric and distortion begins by the cabal controlling “the City”. To avoid the label of being a “special tax”, requiring a 2/3 vote, the Council decided to promise to spend any new sales taxes in certain ways, but without telling the voters at the same time that they were not obligated to do so [ one could almost see a sly grin and wink from the 6 Council members  as this statement was made]. Their promise of how they will spend this $10,000,000 in new sales tax money may prove to be their undoing.

If approved by the voters it will be interesting to see how Measure A survives a legal challenge, and it will be challenged under Proposition 218.  That state proposition requires a 2/3 voter approval for any tax devoted to

Police and Fire want more money

Police and Fire departments would receive 40% of the money collected from Measure A.

a special purpose as opposed to general tax, which is collected and placed in the general fund. The Council hopes to avoid this problem by saying the funds are “not required” to be used for any specific purpose, yet they announce that the funds will be used for a specific purpose as in inducement to get voters to approve the measure.

Interestingly one of the specific promises made by this Council, as an inducement to voters to approve the measure is that they will spend 40% of the new tax on police and fire — the exact sum they sought to raise in the failed P-6 measure.

Today it’s hard to know what the City is really doing, except that most of the individual Council members are campaigning hard to convince you that you should ignore the waste and spendthrift policies of the past and impose the new tax.  They do not want to address the underlying economic malady – overpaid public employee unions and the millions wasted in ill advised decisions like the plan to narrow Victoria, or the ill-fated 911 tax or increasing the fire department retirement programs by 50%.  Councilman Fulton, who is also campaigning hard for the incumbents advised one contender that he could not approve of their candidacy because they (the Council ) would lose “consensus”  – he really means control.  He also stated in a public meeting that we should forget the past and move on. So how, again, was the 911 tax money spent?

Editors’ comments: 

Only a fool does not learn from the mistakes of the past.

THE STATE STRIKES

It is now official.  Remember that money that you sent in for property taxes, and which is supposed to be returned, in part, to our community? Well our fine state government has decided that to correct their mismanagement and budget deficiencies by taking the money that is supposed to be returned to the cities. Thus our City will not receive $2,760,358 that would be normally  returned. We have been  forced to loan to a state government that has achieved junk bond status in the market place.

The money is not gone, just delayed in delivery.  Of course the State promises to pay this back in 3 years.  How about interest?  The answer we get is that this will be set by someone and sometime in the future — you know the line — “trust us”.

It gets worse.  In addition to the loss to the general fund, the Redevelopment agency has lost $1.2 million, and that will never be repaid.  It is gone.  Makes you wonder if Ventura had spent some more Redevelopment agency funds in the last 2-3 years, whether there would have been any funds to raid?

CITY COUNCIL USES A SMOKESCREEN

[NEVER LET A GOOD CRISIS GO TO WASTE]

This City Council again has to scramble to adjust their budget to allow for this loss.  The hyperbole and spin from City Hall, and the proponents of this tax is that we really need the new sales tax because they have adjusted the budget as much as they can, employees have taken a 5% pay reduction and our State Government has taken our money.  What is a poor City Council to do?  Long before the state did its most recent raid on City funds the die had been cast.  The ½% sales tax was already in the plan.  The City Council members are campaigning hard for the new tax as if the problem is all due to the State and they had some great insight – in short playing the fear game as a reason for the voters to approve the new tax.

Opponents point out that such a tax is regressive, that business has never prospered in such in an environment, that even though there is a 4-year sunset provision the Council proposes to use the new tax money to make long term commitments to police and fire (40% of the new tax money), and that when the 4-year period is up the Council will go back to the voters arguing that if we do not extend the tax there will be cuts in services — you know the old saw — crime, untimely emergency responses to medical emergencies, etc. The opponents also point to the spendthrift policies of this council over the last 6 years, for example $1,000,000 alone was spent to narrow Victoria Avenue.  That should be money in the bank, but instead is sitting in the pockets of City employees and Los Angeles consultants.  There are $13,000,000 of such expenditures, which should be in the bank, but is not  because of unrealistic planning and spending by a liberal out of touch Council.

Mayor Weir is campaigning for the new tax and has stated publicly “we will not spend any money we don’t have”.

Editors’ Comments: 

We hope each citizen will reflect on whether the past should matter in deciding how to vote.

Editors:

B. Alviani        S. Doll          J.Tingstrom

K. Corse          B.McCord    T. Cook

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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

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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

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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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Government tax burden

No New Tax Will Make Up for Lost Investments and Bad Management

/in /by

“A government big enough to give you everything you want, is big enough to take away everything you have.”   —Thomas Jefferson

THE VENTURA BUDGET CRUNCH

[SEND IN THE CLOWNS]

“Clowns to the Left of me, Jokers to the Right, here I am, stuck in the middle with you.”—Stealer’s Wheel (Joe Egan & Gerry Rafferty)

On January 24, 2009, at 8am the City of Ventura held a special meeting at the Police/ Fire Department community room with the full City Council to discuss the city budget.  This  “public hearing” was on a Saturday and was not televised. The usual coterie was present.  The other half of the room was occupied by City personnel.

Once the current budget figures were shared with the audience, reflecting a lower projected income  of $83 million. City Manager, Rick Cole stated, “if we must, we can run this government on $83 million.”.  The projected  deficit was $12,000,000.

THE GOVERNMENT THREE STEP

[Tea Party anyone?]

First, steps forth our fine State legislature, which seeks more tax money from the citizens, with a quadruple  whammy:

  1. Raising the Sales Tax by 1%
  2. Doubling DMV registration
  3. Reducing the dependent tax credits
  4. Increasing personal state income tax by  .125%.

If you want to follow the bouncing tax ball visit the calculator on The Sacramento Bee web site to see how much more you will have to pay, if all of the proposed tax increases pass.  Fill in a few figures and voila – your new tax burden.

Here is our projection of the impact on the citizens of Ventura.   Assume 70,000 Ventura Households, an average annual income of $75,000 and that our city projects tax revenue of $7,000,000 of every increase of ½% in tax.

Cost to Ventura Citizens

State Sales Tax Increase (1%) $14,000,000
DMV 50% increase ($160 average x 2.5 cars per household x 70,000) $28,000,000
Additional Income tax ($140 per 70,000 households) $9,800,000
Loss in dependent tax credits (2 children per household) $29,400,000
Total $81,200,000
Cost per Ventura household (Total divided by 70,000 households) $1,160

Second, steps forth the City of Ventura with the local version of the sales tax.  A proposal to add ½% to raise our local rate to 7.75% from 7.25%. (Don’t’ forget the State has already added 1%, so it will be a  9.75% sales tax, if Ventura voters approve the local measure)

Ventura’s 1/2 percent sales tax $7,000,000

Now steps forth the Ventura Unified School, which is considering a real property Parcel Tax on City of Ventura residences and real property to cover their budget deficit.

Parcel Tax ($200 per parcel times 32,000 parcels $6,400,000
Recap of TOTAL PROPOSED NEW HOUSEHOLD TAXES $94,600,000
Cost per year per Ventura household in new taxes (State, City, VUSD) $1,351

A NEW TAX — THE PATH OF LEAST RESISTANCE

[The City Council with rose colored glasses]

The Ventura Unified School District (VUSD) has worked out alternative budgets that will get them through this financial crisis. With careful management, over the next two years, The VUSD can adjust and reduce expenditures by $20,108,500, making the need for a new property (parcel) tax unnecessary. Some members of the School Districts Budget Advisory Committee are thinking that it is just  easier to just get more funds from the general public in the form of a new property tax.

The City of Ventura is pursuing its own path to financial Armageddon.  Facing a $12,000,000 deficit, because income will only be $84,000,000 against expenses of $96,000,000 (they project and hope), the City manger is realistically seeking and trying to operate within the existing revenues by reducing staff and expenses.  An effort to be applauded, given the specter of five years of depression.

On the other hand the City Council has other ideas — save this fireman’s benefit, this policeman’s job, the library, the arts, the homeless etc. — programs unrelated to essential governmental functions, which they lavishly funded, and pay scales they generously promised to pay between 2003 and 2007, when our elected officials knew we did not have the money for such increases. ( See 2003 Budget Report, Donna Landeros, City Manger, Economic Overview)

The temptation to resort to the citizens and seek new taxes seems to be the politicians path of least resistance at all levels of government.  Ventura is no different.  What if instead those programs were eliminated and pay and benefits were modified , so as to allow the government to operate within their existing  tax income?   While workers in the private sector are cutting expenses, laying staff off, not funding 401K matches and eliminating raises, the public sector seem to feel they are immune from economic realities and seek more money from YOU.

Editors’ comments:

What say you, citizens of Ventura? At what point does living within our means and going back to the basics really take affect? If this is the worst economic crisis since the “Great Depression” or “World War II”, at what point does government start reducing programs and staff to only provide the necessities that only city government  should provide? Or, that only state government should provide? As long as there are economic constituencies (public employees) within government who define their own job description, bargain and politicize through unions their own pay and benefits, the citizenry will always be in danger.

CONTINUED PROBLEMS ADD TO FINANCIAL DEFICIT

While the City seems proud that it only lost $10 million in investments in 2008, they defend their loss by comparing the loss to the average citizen’s 401K losses.   Hardly a realistic comparison given that the investment policy for a municipality is  and should be much be more conservative and  restrictive.  Some at the City makes it sound as if it is heresy to suggest that they should not have lost anything.

The City Attorney on the other hand  is crying “fraud” on the part of Lehman Brother and WaMu — a distraction away from the real issue. None of the four members of the Investment Committee have investment licenses,  nor the experience and qualifications to oversee a $200 million portfolio in this current financial market. Months before the Lehman and WaMu  debacle,  the City had a prior warning of problems due to  a potential  $10 million loss they had invested with Bear Stearns.  It turned out that the Bear Sterns was acquired by JP Morgan and thus avoided bankruptcy, however at this writing we do not know how much JP Morgan is willing to pay the City of Ventura on that investment.

It is easy to raise taxes and bury our heads in the sand. It is difficult to make the tough decisions that will avoid a future disaster but we have reached the point of critical mass. The City is under funded in its pension plan by over $60 million as of 2007, which is exacerbated by the 52% drop in value of  the pension fund investments by CalPERS, the pension investment manger for Ventura. Over $362 million (Page 70 of the Comprehensive Annual Financial Report, page 102 of the PDF) is owed in future pensions and this amount is growing each year.

EDITORS’ COMMENTS

If we can’t sit back, inject humor and laugh in these hard economic times it has  truly become a” foul wind.” Hope you enjoy the humor of this.

In this current economic crisis, we had to reduce our staff. We had no laternative. RANDY HAS TO GO !

Editors:

B. Alviani         S. Doll           J. Tingstrom

K. Corse           R. McCord    T. Cook

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