We’ve written about Eureka’s financial problems before, especially in regards to long term pension debt. The Examiner is supportive of competitive and fair pay for those who retire from public service. However, those pension costs need to be assessed and taxpayers should be getting the best possible service from their government. They shouldn’t be funding the “pension spiking” and other types of “legal” tricks that many public officials so commonly use. Back in August we wrote:
“Just last month, 2 newly promoted captains from the Eureka Police Department retired (only to be rehired and thereby “double dip” in David Tyson fashion). And now, over the next 6 months, 9 long term employees will be retiring. 8 employees will be getting an additional 2 years of retirement service credit paid for by the city for a total cost of $408,920; John Fitzhugh – Senior Building Inspector, Tom Coyle – Parks and Maintenance Manager, Rusty Goodlive – Assistant Fire Chief, Susan Hutchison – Administrative Technician, Eric Lermo-Senior Equipment Mechanic, Lisa Shikany – Pricipal Planner, Frank Mathes – Public Works Operation Manager and Gary Boughton – Deputy City Engineer. In addition to the 8 mentioned above, Assistant City Manager Mike Knight will be leaving with 2 years of paid health insurance at a cost of $28,601.
Obviously, these long term employees know that it’s time to get out while the “gettin’s good”. We don’t like it but we suspect that Fred Mangels is correct when he states that pensions may have a part in bankrupting the city. The Examiner staff went through the line item budget for 2014-15 and found that the city’s PERS (retirement) expenditures were projected to be around 4.9 million dollars this year! The largest chunk of that came from Public Safety, to the tune of over 3 million dollars.”
Well, true to form and several months later, the Times-Standard reported on the state of Eureka’s pension obligations. According to their article:
“A recent statewide survey has placed Eureka as No. 10 on a list of 459 California cities with the highest percentage of revenue earmarked for pension funds. For Eureka, that means 11.3 percent of the city’s expected revenue will go toward paying off pension costs, which study author Marc Joffe of the California Policy Center said impacts city services…..
Eureka Finance Director Wendy Howard said that in the past, the city did not need to contribute to the fund as its plan was completely covered by CalPERS. “When things were great back in the ’90s or 2000s, our rate was zero. We didn’t have to pay anything,” she said. “Their investments covered everything.”
There you are. 10-15 years ago, Eureka didn’t have to pay anything toward “unfunded liabilities”. Now, the City looks to pay $5.1 million dollars this year. That’s quite a jump, and should be concerning. But what wasn’t mentioned in the article, or in the study putting Eureka at #10 on the list, was Eureka’s Pension Bond expenditures. As many may or may not remember, Eureka sold about $8.2 million worth of bonds to pay off it’s debt in unfunded liability to CalPers in 2013. (which local watchdog the late Bill Holmes tried to alert us all to) It doesn’t appear that those numbers are reflected in the 2014 accounting of Eureka’s pension liability, so Eureka could even be higher on the list of Cities that owe big. Paul Rodriquez wrote in 2012:
“In June of 2003, the CalPERS Board implemented a requirement that all plans with less than 100 active members be assigned to a risk-sharing pool with all other agencies in the State with similar benefit packages. The purpose of establishing these risk pools was to establish consistent, less volatile employer contribution rates for smaller agencies like Eureka within the collective pool. Prior to this time the City of Eureka had a stand-alone plans for its “police safety”, “fire safety”, as well as for its “miscellaneous” plan employees. As the City has less than 100 employees within each of the safety plans, it was placed in the 3 percent at 50 benefit pool with other communities.
CalPERS required that all participating agencies in the risk pool have fully funded pension liabilities; each contracting agency was given the option of contributing the unfunded liability with a single lump-sum payment or repaying the unfunded liability as a loan on an installment basis, at a 7.75 percent (equal to the CalPERS long-term investment rate of return). These side fund “loans” are paid off over time by adding the amortization to the employer’s contribution rate.
The amortized amount for these side funds in 2012-13 equates to nearly 13 percent of safety payrolls. Combined with the risk pool’s normal cost, payment on pooled amortization items and a small surcharge, the total rate assigned is nearly 40 percent of safety payrolls. By paying down these side funds the City will lower its contribution rates, which will result in a annual net savings to the City.”
“The total rate assigned (for paying pension obligations) is nearly 40 percent of safety payrolls.” That’s a pretty big chunk of payroll for sure. However, when you look to the root of the problem the majority chunk really comes down to the downturn in the economy. There isn’t much a City like Eureka can do to ward off rising costs of “defined benefit” investment during an economic downturn. However, the City could have, and should have taken some steps. For instance, looking into lowering future costs by not allowing “pension spiking” or asking for larger contributions from employees could have helped.
But Eureka didn’t do those things. Why? Because of the negligence, incompetence, or corruptness of former Eureka City Manager David Tyson. Although it would be nice to just say that Tyson was that stupid, that wouldn’t be honest. In fact, given his history in Eureka’s Finance Department he was probably one of the first to realize the mounting crisis. Did he try and save the day through cost cutting measures and the closing of loopholes? Nope. Instead he figured out the best way for he and his cronys to “get theirs” and then get the hell out. The can was kicked to the next two City Managers and Finance Directors to figure out.
Tyson’s probably feeling pretty guilty though. Especially when he’s counting all the money he’s amassed from his “public service”. His pension was pretty reasonable though. In his first year of retirement he apparently made $137,000 from CalPers and $162,000 from the City of Eureka for “Other Pay”.