San Bernardino went bankrupt due to pension liabilities. Simi Valley wanted to risk $147 million in Pension Obligation Bonds in the stock market—to finance it unfunded liabilities in pensions. Torrance and Covina sold bonds leasing public streets to get money for the pension liabilities. Slowly, pensions are crushing cities across California.
“Vacaville needs to overhaul its pension liability model and establish an “annual contribution schedule to retire the unfunded liabilities over a 10- to 15-year period.”
That was among six recommendations attached to five findings by the 2020-21 Solano County civil grand jury, which revisited the issue of Vacaville’s troubled unfunded pension liability issue after a critical report two years earlier.
A 2018-19 civil grand jury concluded that the city’s benefit package “indicates a benefit cost that is not sustainable” and that “failure to address this problem could result in loss of employees and corresponding loss of services to citizens.”
Why did it take a Grand Jury to admit publicly what the elected officials know? Because the elected officials are hoping the collapse happens AFTER they leave office.
Civil grand jury: Vacaville needs to address pension liability risk to city’s stability
By Todd R. Hansen, Daily Republic, 6/11/21
VACAVILLE — Vacaville needs to overhaul its pension liability model and establish an “annual contribution schedule to retire the unfunded liabilities over a 10- to 15-year period.”
That was among six recommendations attached to five findings by the 2020-21 Solano County civil grand jury, which revisited the issue of Vacaville’s troubled unfunded pension liability issue after a critical report two years earlier.
A 2018-19 civil grand jury concluded that the city’s benefit package “indicates a benefit cost that is not sustainable” and that “failure to address this problem could result in loss of employees and corresponding loss of services to citizens.”
“The city of Vacaville’s current employment benefits packages are unsustainable and offer benefits exceeding those provided by other California cities with similar population and home values,” one of the findings by the 2020-21 civil grand jury states.
The latest report also indicates that “while the City Council has taken steps to reduce the amount of unfunded liabilities, additional actions are required to maintain city services and fully fund future employee benefit obligations.“
The city has two pension plans through the California Public Employees’ Retirement System: an account for employees involved in public safety such as police and fire; and a miscellaneous account for the majority of remaining employees.
It also has an Other Post-Employment Benefits program, or OPEB. In this case, it is a lifetime health care benefit to current and retired employees, their spouses, and children up to the age of 26.
“The cost of CalPERS’ Family Premium health care rates rose an average of 8.5% per year from 1975 to 2020, with the current premium at $2,115 per month. The city has three employee benefit tiers and contributes up to 85% toward all active employees’ health care premiums and toward retiree health care premiums based on which tier they retire from,” the 2020-21 grand jury report states.
“Each tier is predicated on the date of hire and years of service,” the report adds.
As of June 30, 2019, according to the city’s Comprehensive Annual Financial Report, as cited by the grand jury, the combined unfunded pension and health care liabilities exceed $228 million.
That represents a $122.11 million unfunded liability in the public safety account and $87.75 million in the miscellaneous account. The OPEB liability is more than $80 million, the report states.
The total for all three, given those figures, is closer to $288.86 million.
Vacaville Mayor Ron Rowlett was not available for an interview due to a family matter. A call to the city manager’s office was not returned.
The city’s full liability amount is categorized as “high risk by the California State Auditor,” the grand jury reports.
The grand jury recommends, that the city “establish an annual contribution schedule to retire the unfunded liabilities over a 10- to 15-year period.”
It also recommends that the city “apply for American Rescue Plan Act funds to make additional contributions toward reducing pension and OPEB liabilities.”
The problem with the second of those recommendations is that the $12.67 million the city is expected to receive directly from the American Rescue Plan Act cannot be used to reduce unfunded pension liabilities, according to the Secretary of the Treasury guidelines.
“No recipient may use this funding to make a deposit to a pension fund,” according to a response from the Department of the Treasury to questions by the Daily Republic. “Treasury’s Interim Final Rule defines a ‘deposit’ as an extraordinary contribution to a pension fund for the purpose of reducing an accrued, unfunded liability.”
Whether or not funds can be used for the unfunded OPEB liability is more of a gray area, since health care retirement packages may be viewed differently than pension liabilities. The Department of Treasury was looking into the matter, its email response stated.
Moreover, those Rescue Plan funds are distributed directly to local jurisdictions, and uses of funds that might be available through an application are similarly restricted.
The civil grand jury also recommends “the city use an independent facilitator to negotiate all labor contracts” and that “all labor negotiations should address unfunded pension and (Other Post-Employment Benefits) liabilities.”
The grand jury further recommends that for Tier 1 and Tier 2 employees, the city “convert to a defined contribution health care benefits model.”
The city should re-establish the OPEB advisory committee “and act on the recommendations made by the prior committee,” the civil grand jury recommends. The report suggests the City Council simply dismissed the recommendations made by that committee.
Finally, the civil grand jury recommends the council “take actions to ensure that issues affecting pensions and OPEB liabilities continue to be reviewed regularly and publicly.”
If the city has made a formal response to the grand jury, as of Friday that response had not yet been posted on the Solano County Superior Court website.
