HomeMy WebLinkAboutMINUTES - 02152005 - C.29 CONTRA
TO: BOARD OF SUPERVISORS ,
COSTA
FROM: Supervisor Federal B. Glover COUNTY
CSAC Board of Directors Member T1 . =
DAVE: February 25, 2005
SUBJECT: CSAC Board of Directors Meeting,February 3,2005
SPECIFIC REQUEST(S) OR RECOMMENDATION(S)& BACKGROUND AND JUSTIFICATION
RECOMMENDATION
ACCEPT the report on the February 3, 2005, CSAC Board of Directors meeting.
BACKGROUND/REASON(S)FOR RECOMMENDATION(S):
The CSAC Board of Directors held its quarterly meeting on February 3, 2005. Among the various informational
reports, the Board took action on the following items:
Pension Reform — Reviewed the attached draft Guiding Principles for 2005-05 Pension Reform and adopted
the Guiding Principles (but not the reform proposals) with the addition of a principle regarding local control and
local flexibility. So that it was clear that no one Principle is more important than any other, the numbering of the
Principles was eliminated. In addition, staff was directed to put together a"best practices" document on pension
issues. As amended, the Guiding Principles are:
➢ Reduce and Contain Costs
➢ Increase Predictability of Costs and Benefits for Employee and Employer
➢ Eliminate Abuse
Provide for Equitable Sharing of Costs and Risks Between Employee and Employer
➢ Increase Pension System Accountability
➢ Provide for Local Control and Local Flexibility
All present approved the above with the exception of Marin Cour , whit aired.
CONTINUED ON ATTACHMENT: YES SIGNATURE-
RECOMMENDATION OF COUNTY ADMINISTRATOR RECO ENDATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATURE(S):
ACTION OF BOARD ON APPROVED AS RECOMMENDED
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A
UNANIMOUS(ABSENT ) TRUE AND CORRECT COPY OF AN
AYES: NOES: ACTION TAKEN AND ENTERED
ABSENT: ABSTAIN: ON MINUTES OF THE BOARD OF
SUPERVISORS ON THE DATE SHOWN.
Contact: Sara Hoffinan
ATTESTED25,14Z
cc: CAO JOHN SWVEE.T CLERK OF
THE BOARD OF SUPERVISORS
AND COUNTY ADMINISTRATOR
BY, DEPUTY
BACKGROUND/REASON(S)FOR RECOMMENDATION(S):
The Board's action was preceded by a presentation by Assemblyman Keith Richman who will be introducing
legislation on pension reform as well as the Firefighters Association. Assemblyman Richman spoke to the need
to reform the pension system, citing abuse and growing demands on county general funds to pay for retirement
costs. He cited Contra Costa County in his presentation (see. attachment). when asked about the response of
unions on this issue, he responded that the only response he had was offers to work to smooth out the"volatility
of the system." The Firefighters Association representative spore out against changes to defined benefit plans
beyond the volatility issue(see attachment).
2005 Legislative Priorities — The Board approved the 2005 State and Federal Legislative Priorities (attached),
In adopting the State Platform, the Board recognized that legislation is currently in flux and that the document
will likely need revision, to be considered at the March Board of Directors meeting.
2005 Realignment Principles - The Board also adopted principles regarding realignment, in case the State once
again advances realignment proposals during the budget process.
January 28, 2005
To: CSAC Board of Directors
From: Supervisor Kathy Long, Chair, CSAC Government Finance and Operations Policy
Committee
Steve Keit, CSAC Legislative Coordinator
Jean Kinney Hurst, CSAC Legislative Representative
Re: Draft Guiding Principles for 2005-06 Pension Reform
At your upcoming CSAC Board of Directors meeting, you wilt consider Agenda Item No. 7,
Pension Reform Principles. Prior to that discussion, you Witt hear a presentation by Assembly
Member Keith Richman, author of Assembly Constitutional Amendment 5 and a similar pending
initiative, each of which would mandate that public employees hired after June 30., 2007
participate in a defined contribution retirement plan, as opposed to the current defined
benefit plan. You will also hear from Christy Bouma, representing-the California Professional
Firefighters and a coalition of groups allied to preserve existing defined benefit retirement
plans. Following this discussion, we wilt present the following proposal.
In response to legislative, administrative, and initiative proposals early this year, CSAC staff
has worked with a technical advisory group to develop proposed principles to guide our
participation in discussions about reform of public pension systems.
The Government Finance and Operations Policy Committee met by telephone conference call
on Thursday, January 27, 2005 and submit the following recommendations to the CSAC Board of
Directors for approval at its February 3 meeting.
This document has been prepared with the understanding that this document be flexible in
order to accommodate CSAC's work to build coalitions. Staff will continue to modify and refine
this document as necessary, under the guidance of our technical advisors and the Government
Finance and Operations Policy Committee.
--------------------------------------w---------------------------------------------------w----------------
Public pension reform has garnered widespread interest and generated significant debate
among policy leaders about the appropriate remedy for perceived abuse, rising costs, and
accountability to taxpayers. CSAC welcomes this discussion and approaches the concept of
reform with the overarching goat of ensuring public trust in public pension systems, as well as
maintaining a retirement benefit sufficient to assure recruitment and retention of a competent
local government workforce. Proposed reforms should meet these broad goals, as well as
CSAC's five guiding principles.
The five guiding principles and reform proposals are listed below and are intended to apply to
new public employees hired after June 30, 2007 in both PERS and 1937 Act retirement systems.
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REDUCE AND CONTAIN COSTS
Public pension reform should provide for immediate and long-term cost relief for
government, public employees, and taxpayers.
��� �
INCREASE PREDICTABILITY OF COSTS AND BENEFITS FOR EMPLOYEE AND EMPLOY
Responsible financial planning requires predictability. Employers must be able to predict
their financial obligations in future years. Employees should have the security of an
appropriate and predictable level of income for their retirement after a career in public
service.
ELIMINATE ABUSE
Public pension systems provide an important public benefit by assisting public agencies to
recruit and retain quality employees. P raud and abuse must be eliminated to
ensure the public trust and preserve the overall public value of these systems.
PROVIDE FOR EQUITABLE SHARING OF COSTS AND PusKs BETWEEN EMPLOYEE AND EMPLOYER
Equitable sharing of pension costs and risks promotes shared responsibility for the financial
health of pension systems and reduces the incentive for either employees or employers to
advocate changes that result in disproportionate costs to the other party, white diminishing
the exclusive impact on employers for costs resulting from increases in unfunded liability.
INCREASE PENSION SYSTEM ACCOUNTABILITY
Public pension systems boards have a constitutional duty to (a) protect administration of
the system to ensure benefits are available to members and (b) minimize employer costs.
The constitutional provisions and state statutes governing such boards should promote
responsible financial management and discourage conflicts of interest.
11
The following proposals represent specific reforms that serve to promote the principles
outlined above. Proposals that directly affect employee benefits are intended to apply only
to employees hired after June 30, 2007.
1. Restrict public safety retirement eligibility to only those groups of employees who must
endanger their own physical safety to protect the public as a major component of their
employment.
2. Establish a formula cap for public safety at 2% at 50 and a formula cap of 2%at 60 for
miscellaneous employees. The cost of any defined benefit or defined contribution
retirement enhancements beyond the base pension formula* must be paid in full by the
employee for the duration of his/her employment unless the employer agrees to share not
more than 50%of the cost.
3. Require that "final compensation" be calculated using highest three-year average, as
opposed to a single highest year.
4. Amend the County Employees Retirement Act to eliminate the cost of the Ventura court
decision by removing factors outside direct salary in determining "'final compensation."
5. Limit application of pension formula increases to prospective service in order to avoid
unfunded liability resulting from extension of benefits retroactively.
6. Limit pension benefits to career employees by excluding from eligibility temporary
employees and contract employees.
7. Require that surplus excess earnings be used according to the following priorities: pay
down unfunded liability, offset employer cost for Pension Obligation Bond (POB) debt
service, and pay for benefits in effect as of January 1, 2006. Surplus excess earnings may
not be used to pay for enhanced pension benefits. *
8. Stabilize contribution rates and promote cost predictability; for example, by requiring use
of sound actuarial techniques for the multi-year "smoothing"of market gains and tosses. *
9. Upon agreement, permit employers and employees to share responsibility for all retirement
system costs, including unfunded liabilities.
10. Retirement boards and arbiters should not have the authority to grant pension formula
increases.
11. Clarify the two-fold responsibility of retirement boards to (a) protect retirement system
assets for the benefit of participants and (b) minimize employer contributions.
12. Reform Industrial Disability Retirement (IDR) (see attachment).
*Note: These items continue to be reviewed and will be further clarified by additional
discussion with our technical advisors under the direction of the GFO policy committee.
Attachment
rT ` r
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Richman ACA Would Start Fiscally Responsible Pensions
FOR IMMEDIATE RELEASE Contact: Daniel Pellissier
December 6,2004 Patrick Sullivan
916-319-2038
SACRAMENTO -- In order to restore some fiscal responsibility to the pension costs that
are ravaging government agency budgets throughout California, Assemblyman Keith Richman
today introduced Assembly Constitutional Amendment 5 that will put new public employees in
the same type of 401(k)pension system offered to most private sector employees.
"Every week we read more stories about state, local and school budgets being decimated
by defined benefit pension costs. The City of San Diego, Orange and Contra Costa Counties all
have pension deficits of more than $1 billion. CalPERS owes more than $1.9 billion than it has
on hand and just last week state teacher pension fund officials said they may cut benefits for
future retirees by$500 a month to eliminate their$23 billion deficit. ACA 5 will stop state
government and local public agencies from making expensive promises they can't keep and will
restore accountability to-public pensions,"Assemblyman Richman said.
During the last 20 years, most private sector companies have moved their retirement
programs from defined benefit plans that provide retirement benefits based upon a formula of
years employed and final salary to the 401(k)-type plans that match employee contributions to
their own accounts. For employers,these defined contribution plans eliminate the volatility in
contribution rates and prohibit passing along the cost of current benefits to future fiscal years.
For employees,defined contribution plans allow workers to take their money with them when
they change jobs and create individual assets they own and can be passed along to heirs. By
adopting ACA 5, California would follow a number of states that have shifted to some form of
defined contribution plan during the last decade, including Colorado, Florida,Michigan,
Montana and South Carolina.
"Retirement costs for state employees alone have grown from$200 million in 2000 to
$2.6 billion this year, heading to $3.5 billion in 2009. ACA 5 will begin to stabilize and reduce
these retirement costs as the Legislature and Governor Schwarzenegger struggle to eliminate
California's $10 billion structural budget deficit. While current employees and retirees will see
no change.in their retirement plans,new public employees will be offered the same type of plan
offered to most private sector employees and currently offered to state workers without an
employer match,"Richman said.
1
Securing California's Fiscal Future
J
Assemblyman Keith Richman,M.D.
ACA 5 recognizes the shorter career spans of sworn police officers and full-time
firefighters through an enhanced matching fund formula designed to equalize their pension
earning opportunities. It would also eliminate the connection between defined benefit plans and
. .
disability compensation that has been fertile ground for abuses such as"chief s disease"where
employees routinely file questionable disability claims in their final years of service.
"California's public pension system has generated federal criminal investigations,grand
jury reports and many billions in unfunded liabilities that will take decades to pay down. It is
time to stop making expensive commitments that crowd out the investments in schools,roads,
health care and public safety that we need to make to improve California's declining future,"
Richman concluded.
More information about California's pension crisis can be found at
-vvwwT.assembly.ca.gov/r.ichman or by calling 916-319-2038.
Dr. Keith Richman is a Republican California State Assemblyman representing the 38th
District, covering the Northwest San Fernando Valley, Simi valley and Santa Clarita.
-30-
2
Securing California's Fiscal Future
Assemblyman Keith Richman, M.D.
California's Fiscal Outlook
Legislative Analyst's Office
Projected General Fund Spending
2003-04 Through 2008-09
RETIREMENT-RELATED PAYMENTS
(Dollars in millions):
2003-04 Estimated $1,083
2004-05 Estimated $1,901
2005-06 Forecast $2,360
2006-07 Forecast $2,574
2007-08 Forecast $2,869
2008-09 Forecast $3,157
.2009-10 Forecast $3,424
Average Annual Growth From 2005-06: 9.8%
3
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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Source: PERS and other data collected independently by the Legislative Analyst's Office.
10 PERS Counties 10 Independent Counties
with Greatest Unfunded Liabilities with Greatest Unfunded Liabilities .
(Valuations as of June 30, 2002) (Valuations as of June 30, 2003)
County Unfunded Liability Funded County Unfunded Liability Funded
Riverside $215,9769588 92% Los Angeles $3,910,000,000 87%
Solano 661467,679 89% San Diego 1304359,0009000 76%
Santa Clara 343,5375,990 99% Orange 978,079,531 93%
Butte 19,9849007 93% San Bernardino 552,838,000 87%
El Dorado 16,0611500 95% Alameda 5083286,000 87%
Colusa 892205051 87% Fresno 4193,500,000 79%
Santa Cruz 690169465 99% Contra Costa 380,888,000 90%
Glenn 6,01610434 91% Kern 328,8005000 83%
Trinity 43,686,574 90% Sacramento 243,8949000 94%
Humboldt 4502659841 98% Ventura 1453P0009000 93%
Independent Counties
Below 90 Percent Funded Status
PERS Counties (Valuations as of June 30, 2003)
Below 90 Percent Funded Status County Unfunded Liability Funded
(Valuations as of June 30, 2002) San Diego $154359000,000 76%
County Unfunded Liability Funded San Luis Obispo 125,9709000 77%
Colusa $8,2209051 87% Fresno 4199500,000 79%
Orange 978,079,531 83%
All other PERS counties at least 90%funded. Kern 328,800,000 83%
Los Angeles 3,910,000,000 87%
San Bernardino 552,838,000 87%
Alameda 508,2869000 87%
Sonoma 113,225,000 89%
All other non-PERS counties at least 90%
funded.
4 _
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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Source: PERS and other data collected independently by the Legislative Analyst's Office.
25 CITIES WITH 15 CITIES WITH LOWEST PERCENT FUNDED
GREATEST UNFUNDED LIABILITIES SAFETY PLANS
(Valuations as of June 30,2002) Over$1 million in Unfunded Liability
(Valuations as of June 30, 2002)
Unfunded Percent
City Liability Funded
Unfunded Percent Ojai 1 138 690 22/o
0
City Liability Funded Pittsburg 99271 f646 53%
Corning 127155925 59%
San Diego $ 7203,7132000 77% Seal Beach 3,2163,173 60%
Oakland 414,6799,366 83% Pasadena 691123,151 65%
Stockton 735,603,590 90% Oakland-PERs 189,9351709 66%
Torrance 6650152998 84% Brentwood 32805,629 67%
Santa Rosa 47,6901632 88% Calistoga 13,356,698 68%
Santa Clara 471,4739702 91% Hercules 196589424 69%
Sacramento 453,3669361 95% Orland 13,0405388 69%
Richmond 453,2603,454 90% Oakland-NonPERS 2752663,000 69%
Fremont 43,4753,077 90% Santa Cruz 93,829,886 71%
Huntington Park 1527002667 71%
Murrieta
Riverside 43,363,234 95% o
2 041 71/o
Pasadena 40,353,874 95% port Hueneme 3�619009�320 72%
Alameda 36,2?0,882 88%
Berkeley 5,992,298 94% 190 Safety plans are below 90%fi nded status
3
Vallejo 349055,329 89% 15 CITIES WITH LOWEST PERCENT FUNDED
Santa Barbara 333,9489717 91% NON-SAFETY PLANS
Roseville 323,3079066 83% Over$1 million in Unfunded Liability
San Jose 27,885,000 99% (Valuations as of June 30, 2002)
Hayward 27,856,133 93% Unfunded Percent
Ci Liabili Funded
Bakersfield 271,7385146 94%
Pittsburg 10,351,613 27%
Santa Cruz 27,251,564 87% Brentwood 43,973,961 70%
Costa Mesa 2696629532 90% Shafter 1,8369873 74%
San Mateo 262433,611 90% Folsom 810821,442 80%
Santa Monica 2517539288 85% Rosemead 15,2613,264 81%
South SF 232975,610 89% Roseville 22,257,548 82%
SLO 2193289874 84% Mission Viejo 23,244,830 83%
Wasco 19,221,697 84%
Susanville 19119,444 84%
San Fernando 229809775 85%
Cerritos 10,564,588 85%
Capitola 1,3353,502 86%
San Luis Obispo 891545,576 87%
Piedmont 121233,307 87%
Palmdale 4,961,403 87%
38 cities are below 90%funded status
5
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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Source: PERS and other data collected independently by the Legislative Analyst's Office.
15 CITIES WITH HIGHEST CONTRIBUTION RATE 15 COUNTIES WITH HIGHEST CONTRIBUTION RATE
SAFETY PLANS SAFETY PLANS
(Valuations as of June 30, 2002) (Valuations as of June 30,2002)
City Contribution Rate PERS-Counties Contribution Rate
Huntington Beach 49.767% Glenn 33.239%
Fillmore 46.875% Monterey 33.029%
Compton 45.989% Modoc 30.837%
Santa Cruz 44.014% Tuolumne 30.707%
Pomona 43.705% Siskiyou 30.561%
Torrance 43.338% Calaveras 30.430%
San Diego 43.070% El Dorado 28.965%
Seal Beach 42.445% Colusa 28.663%
E1 Centro 41.028% Placer 28.001%
South Gate 40.076% Mono 27.989%
Berkeley 39.971%
Stockton 39.512% Independent Counties Valuations from June 30,2003
Maywood 39.115% Orange 39.39%
Alameda 38.916% San Diego 34.99%
Redondo Beach 38.807% Contra Costa 32.67%
Mendocino 32.23%
Sacramento 31.40%
15 CITIES WITH HIGHEST CONTRIBUTION RATE
NON-SAFETY PLANS 15 COUNTIES WITH HIGHEST CONTRIBUTION RATE
(Valuations as of June 30, 2002) NON-SAFETY PLANS
(Valuations as of June 30, 2002)
City Contribution Rate
Canyon Lake 22.389% City Contribution Rate
San Diego 22.070% Sierra 18.617%
Chico 19.992% Colusa 17.546%
Susanville 19.027% Solano 16.442%
Cerritos 18.719% Riverside 15.354%
San Fernando 18.572% Mariposa 13.332%
Sutter Creek 18.434% Trinity 12.450%
Pittsburg 18.188% Glenn 12.267%
Daly.City 17.828% Alpine 10.133%
Industry 17.776% El Dorado 10.071%
Chula Vista 17:428% Butte 9.904%
Parlier 17.414%
Westlake Village 17.313% Independent Counties valuations from June 30,2003
Palm Springs 17.193% San Diego 25.59%
Ukiah 16.342% Alameda 22.25%
Mendocino 20.11%
Los Angeles 20.02%
Contra Costa 18.35%
6
Securing California's Fiscal Future
Assemblyman Keith Richman, M.D.
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Source: California State Treasurer's Office.
PENSION OBLIGATION BoNDs ISSUED SINCE 1994,
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:._. a onds.Isued
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a .19 3 $2 285 270,233 $2
$ 12855270,233
X995 9 $251431353fi2l $532 785 000
1996 4 $786 663 512 $46%4803326
1997 5 $6803P 12 740
$136,923.9081
1998 3 $206 465 000 $206 081 087
> ,
1999 3 $201290, 000 $163�070�000
2x00 1
$21113503POO
$2113350,000
2001 3 $377,6411449 $202625 591
ZQ02 10
$15279,1 85 000 $597 715,360
.2.0..3 9 $1 295 077 111 $9201085,253
:20.04* 22
$2,280,542,928 $644,038.975
TOT:!
A ,S 72 $11 746 851 594 $63036931424,906
*Though October 13,2004
NOTE: Annual payments on a $1 billion 20-year bond at 4% is 73 million.
7
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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CONTRA COSTA: PENSION IMPACT ON GENERAL FUND
Fiscal Year - Retirement Expense Asa % of
General Fund (millions) General Fund
1994-95 $ 29e4 5.78
1998-99 41.6 7.39
2001-02 53.8 6.73 %
2003-04 80.6 9.32
2004-OS 103.9 12.26
2005-06 ??? ???
■ With an additional Unfunded Liability of$1.2 Billion
■ Not including Unfunded Retiree Health Costs
13
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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LOCAL GOVERNMENTS IN CRISIS
Contra Costa County:
Source: Contra Costa County Grand Jury Report No.0409 entitled"Budget Woes and Layoffs:The Contributions of Pension Improvements,"
and the Contra Costa County Supervisors response to the report.
■ Significant cost increase to County: In fiscal year 2003-2004 retirement expenses to the
General Fund were $80.6 million dollars or 9.32%of the General Fund and in fiscal year
2004-2005 costs jumped to $103.9 million or 12.26%of their General Fund.
■ Over$1 billion in outstanding liability for past pension costs: As of 12/31/03 the County's
total outstanding liability for past pension costs was $1.06 billion. This included$587
million in outstanding pension obligation bonds.
■ Pension costs more than 12 % of General Fund: In fiscal year 1994-1995 retirement
expenses consumed 5.78 %of the General Fund or$29.4 million. The 2004-2005 costs
ballooned to 12.26 %of the General Fund or$103 million.
City of San Diego:
Source: Final Report of the City of San Diego Pension Reform Committee.
■ Unfunded liability exceeds$1 billion: By January 1, 2004,the City's pension Unfunded
Actuarial Accrued Liability(UAAL)had increased to $1.167 billion. In comparison San
Diego's 2002-2003 General fund including Special fund dollars was $1.951 billion.
Employment Costs were nearly $850 million.
■ Funding status is below 70%: On January 1,2004 the system was only 68.7 %funded.
■ Benefit improvements identified as main reason for under-funded problem: Committee
identifies Investment Performance as 6%of the problem,Under-funding by the city as 10%,
Use of Plan earnings for contingent benefits as 12%of the problem, and Net Actuarial Losses
as 31%of the problem, and Benefit Improvements as 41%of the problem.
Oran-ee County:
■ Unfunded liability exceeds$1 billion: The County's unfunded accrued pension liability is
now about$1.3 billion for the cost of covering benefits for retired and current county
employees.Source:LA Times November 13,2004 article"O.C.Looks to Fill Pension Gaps"
■ Recent August 2004 benefit increase raise liability by $300 million: Because the contract is
retroactive to cover all existing employees, it will add nearly $300 million in liabilities to a
14
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
f
system that already is about$1 billion forecasted retirement demands. Source:OC Register August 15,
2004 article"Bankruptcy,Part IIP"
■ Benefit increases approved as services are cut:In December 2002, supervisors approved a
$75-million package of employee perks and bonuses at the same time layoffs and service
cutbacks were being considered,triggering criticism by an Orange County Grand Jury.Source:
LA Times November 13,2004 article V. Looks to Fill Pension Gaps"
Riverside County:
Source:Report of the Pension Advisory Review Committee
■ Board of Supervisors seeks bonds to reduce$470 million pension deficit: On November 5,
2004 the Board of Supervisors approved in concept the issuance of Pension Obligation
Bonds to deal with the projected June 2005 unfunded actuarial liability of $470 million.
■ Pension fund level plummeted over past 6 years: "The projected June 30,2005 unfunded
actuarial liability is $96.6 million for the Safety Plan and$374.4 million for the
Miscellaneous. This is a dramatic swing from June 30, 2000 when the.County's
Miscellaneous Plan was "super-funded"by $439.9 million and the Safety Plan was super-
funded by $90.7 million."
■ Increased benefit level again impact funding status: "The decline in funding status for both
plans is attributable to market losses, a new benefit structure for Safety employees(3%@
50)and Miscellaneous employees (3%@ 60), as well as payroll growth and other actuarial
factors."
Santa Clara County:
Source:Santa Clara County Civil Grand Jury Report—May 2004
■ Benefit costs rise at alarming rates: "As a percent of salaries paid,the contributions have
increased from 8%to 9.3%from fiscal year 2001-2002 to the present. The County's cost for
funding retirement plans has increased almost 50%, from $66 million to a projected$95
million over the same period."
■ Budget shortfall made worse by increased contributions: "Current County and San Jose
budget shortfalls are made worse by required increases in contributions to the retirement
systems,but potentially more serious problems loom in the future that may burden local
government with very high fixed costs, requiring increased revenue or reduced services."
■ Employees continue to seek higher benefits which could cost an additional$235 million:
Mercer Human Resource Consulting prepared an actuarial valuation for San Jose should they
choose to enhance the public safety personnel pensions to mirror the Ca1PERS 3%-per-year-
at-age-50 model. Enhancing the pension benefit from an 85%maximum to 90%would cost
$235 million for vested liabilities. Amortized over the next 14 years,this would add$24
million to a current budget line of$50 million.
15
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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SERVICES SOUEUPEIED AS PENSION COSTS SWELL
■ Contra Costa County: Retirement costs will supplant other city services such as
"infrastructure repair, law enforcement,social welfare and health:""Retirement costs
continue to increase as a percentage of the General Fund,critical services such as
infrastructure repair, law enforcement, social welfare and health will be reduced. Many of
these recommendations will fall upon those that can least afford to lose these services."
Contra Costa Grand Jury Report-June 2004.
■ San Joaquin County:Pension cost increases are S times more than the budget for parks
and recreation. The County will spend$17.8 million more annually to pay a record increase
in pension costs. County administrators were uncertain how the county would pay for the
increase,an amount which exceeds the county's entire budget for contingencies and is more
than five times what is to be spent on parks and recreation for this fiscal year. Stockton
Record-December 1, 2004
■ City of Salinas: Closing Library to deal with additional costs: Administrative manager Jan
Neal,blamed the closing on a combination of state raids on local budgets; a poor economy;
dramatic increases in contractual benefits and payments to the state public employee
retirements stem; and a county government.San Jose MercuryNews—November 21 2004
,
■ City of Oakland.Retirement Costs will impact services `from filling potholes to
recreational programs:"Oakland is estimating a budget shortfall of$27.7 million and $15.5
million in additional retirement costs over the next two years is largely to blame. City
Administrator Deborah Edgerly has proposed a range of ways to close the deficit, including a
3 percent across-the-board cut,which would include police and fire departments. That would
mean lessened services to residents, from filling potholes to recreational programs, according
to an article in the Oakland Tribune. Oakland Tribune—November 21, 2004.
■ LA County Fire overworks Firefighters because New Hire Benefits Are so Excessive:
e
Benefits for L.A. County firefighters are such that it is now cheaper to pay massive amounts
of overtime than to hire more firefighters. Fire Chief P. Michael Freeman: "As ridiculous as
it sounds, it's more cost-effective to bring in a firefighter from home and pay them time and a
half because we don't have to pay more benefits for them."Los Angeles Dail News Jul 4,
200 y — y
4
• City of Richmond:Firefighters losing jobs: The city has laid off 18 firefighters since
January,bringing the department down to 60. LISA Today—November 29, 2004
Riverside County: "We should not be priding ourselves on avoiding service cuts. We ought
to be expanding services:" Riverside County Supervisor Bob Buster said the problem is not
only that there is not enough money to pay benefits, it is that the additional obligation
16
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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THY' CALIFORNIA PUBLIC EMPLOYEE DEFINED CONTRIBUTION PLAN
Plan Structure:
■ Prohibit defined benefit plans for state, local government and special
districts and establishes a framework for new fiscally responsible defined
contribution plans.
Elizibility:
■ After July 1, 2007, all new state, local government and school employees
may y onl enroll in a defined contribution pension plan.
■ Current employees may voluntarily convert their existing Defined Benefit
pension plan to the new defined contribution program during a one-time
open enrollment period.
Design:
■ Establish a maximum employer contribution.
■ Provide for enhanced public safety classifications.
■ Allow the use of private fund administrators.
■ Establish a vesting period.
■ Provide retirement education to employees
■ Encourage employee enrollment.
18
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
ID I
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BENEFITS OF A DEFINED CONTRIBUTION RETIREMENT PLAN
Eliminates Risk of Unfunded Liability:
■ Defined contribution plans are fully funded.
■ In contrast, defined benefit plank expose taxpayers to future liabilities.
Retirement Benefits are Portable:
■ Most employees have multiple jobs in his/her lifetime.
■ Benefits from a defined contribution plan can be consolidated into an IRA or
other qualified plan.
■ Benefits can easily be passed on to heirs.
Quicker VestingPeriod:
■ Defined benefit plans generally require more than five years of service
before an employee is vested.
■ Alternatively, defined contribution plans vest in employer contributions
more quickly and immediate vesting is possible.
Control Over Retirement Earning Options:
■ There are no limits to the benefits an employee may earn in a defined
contribution plan.
■ Short-term employees benefit from investment based plans. These workers
typically get substantially reduced benefits because defined benefit formulas
reward greater tenure.
■ Encourages workers to actively participate in their retirement planning.
Improved Employee Recruiting
■ Short vesting schedules and portable retirement benefits make defined
contribution plans attractive to younger, well-qualified employees.
■ Puts government sector on equal footing with private sector competitors.
Greater Flexibility for Women:
■ Women are more likely to have interrupted work schedules because of
family responsibilities.
■ Quicker vesting and portable benefits give women greater options.
19
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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BASIC PLAN DEFINITIONS
DEFINED CONTRIBUTION PLANS
A Defined Contribution (DC) plan is a retirement savings plan where employers
and employees make tax-deferred contributions to individually-owned accounts.
These contributions are invested and the employees get the investment earnings
and principle when they retire or leave the system.
A DC does not specify the retirement benefit to be received by the employee.
Rather, it specifies a contribution, typically expressed as a percentage of
compensation, which is deposited into an individual account for each participant.
The actual benefit for the participant is based solely on the amount contributed to
the account by the employer and participant, and the investment earnings
attributable to that account.
DEFINED BENEFIT PLANS
With the notable exception of the 20 county systems organized under the 1937
County Employees Retirement Act, PERS and SIRS provide retirement benefits to
most of California's public employees.
The plans offered by these systems are Defined Benefit (DB)plans, where
employees receive a predetermined benefit upon retirement. In a DB plan, the
benefit is determined by a formula that includes the number of years of service, the
employee's "final compensation," and a factor to be applied to equation based on
the employees age at retirement.
While the benefit is specified in advance for the employee, the actual cost to the
employer is based on actuarial analyses of accrued assets as they are applied to
accrued liabilities, incorporating projections for future earnings, wage inflation and
other factors outside of the employer's control.
20
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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■ Employer bears investment risk. Employees choose and self direct their
■ The retirement benefit is predictable investments from professionally managed
and known, based on the various investment products and have access to
benefit formula of retirement plans. investment information.
■ For employees with many years of Employees have an opportunity to for
service,the defined benefit formula. increased retirement income based on
may provide a larger benefit. their investment decisions.
■ An employee cannot outlive his or Shorter vesting periods.
her benefits Younger employees have many years to
■ Benefit increase with each year invest their account balances.
worked. Employees can transfer balances to other
■ A disability annuity is generally qualified plans or and Individual
provided. Retirement Account(IRA) upon
■ If an employee has five years of distribution.
earned service, the employee may Portability features provide a potential for
augment its service years and more retirement income for employees
purchase up to five years of non- who have several changes during their
qualified service to enhance future careers.
benefits. Flexible benefit options may include
■ Cost-of-living adjustments are lump-sum distribution,partial
generally guaranteed and designed to distributions, or withdraws.
mitigate impact of inflation on retiree. Immediate survivor benefit based on an
■ Survivor annuity protects significant employee's account balance(including
others. employer contributions and earnings).
21
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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leave their job before retirement might therefore they must actively monitor
not earn a large benefit or even qualify their investments. Poor investment
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investment decisions. years before retirement to accumulate a
large account balance.
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retirement income cash flow and
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and gets a refund,the employee
receives his or her contributions and Death and disability benefits include
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contribution. additional death or disability benefits
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balance may be insufficient for
members with shorter service.
22
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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program.
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that:
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in the financial markets. of their retirement money.
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employer for many years. career with a covered PERS
employer and benefit from the
✓ Prefer the state to make investment portable plans.
decisions.
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at various times for family or other
personal reasons.
23
Securing California's Fiscal Future
Assemblyman Keith Richman, M.D.
o k.
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44
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24
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
s
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AVERAGE WEEKLY WAGE DIFFERENCES
Source:EDD-Employment data from Current Employment Statistics Program;and wage data from the
Quarterly Census of Employment and Wages Program
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Local oernm�ent $850 1
State Government $966 471 600
F:::: deral
$1043 2
Government:
Total government $893 2426
5
25
Securing California's Fiscal Future
Assemblyman Keith Richman, M.D.
•
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a
PUBLIC VS. PRIVATE SALARY COMPARISON,
Source:Department of Personnel Administration's December 2003
Report on Salaries for Occupations Comparable to Selected State Civil Services Classifications
Office and Administration Average State Average Private Government
Salary Salary Salary Range
Accountant-Journey 49750 42928 32110-69220
Accountant-Entry/Sub-Journey 3,305 31802 22743-52592
Administrative Analyst-Journey 41780 53,274 3,759-630995
Administrative Analyst-Entry/Sub-Journey 3,720 43,240 2,471-59592
Attorney-Senior Journey 91328 102417 59643-15,205
Attorney-Journey 71,696 71,665 42742-10,879
Attorney-Entry/Sub-Journey 5,126 6,079 3,382-79788
Clerk/Clerk Typist-Senior Journey 2,945 29503 1,831-4,258
Clerk/Clerk Typist-Journey 21506 2,330 19646-3,564
Clerk/Clerk Typist-Entry/Sub-Journey 23,181 2,042 12466-3,194
Data Processing Analyst-Journey 5,009 5,394 39480-8,192
Data Processing Analyst-Entry/Sub-Journey 33%927 4,545 29320-6,767
Librarian-Journey 4,594 33,922 3,092-91062
Engineering and Allied
Civil Engineer/Civil Engineer Registered- 62457 79342 45,458-91687
Supervisory Level
Civil Engineer/Civil Engineer Registered- 53,710 65,116 31692-7,633
Registered Journey
Civil Engineer/Civil Engineer Registered- 4,660 59149 35042-6,367
Registered Journey
Drafter 39769 3,691 29389-41942
Engineering Technician-Journey 4,239 3,704 2,604-5,472
Crafts and Trades
Electrician-Journey 3,902 49,298 29756-65,608
Janitor/Custodian 29,315 22093 1,156-32629
Stationary Engineer-Journey 41606 4,727 32259-59352
Medicine and Rehabilitation
Licensed Vocational Nurse-Journey 2,862 3,862 29053-49844
Registered Nurse-Journey 4,443 5,599 31,303-6,637
Pharmacist-Journey 59748 7,760 51008-9,363
Staff Psychologist(PhD) 59570 6,605 39768-9,062
Social Worker(MSW) 39839 59,361 22657-51592
26
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
a
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ae
31
y.
WEN I
Scathing Report Cites San Diego's Poor Management: An investigation by lawyers hired by
the city produced a scathing report citing dysfunctional management of the city of San Diego
over generous pension deals with public employee unions and in financial dealings with Wall
Street.
As reported September 17 in the San Diego Union-Tribune and Los Angeles Times,the report
found no evidence of criminal activity, although it and related documents have been turned over
to federal investigators looking into possible violations of securities laws. The city understated
its fiscal problems, stemming from enormous pension debt, in sewage treatment bond papers
filed with the Securities and Exchange Commission.
The report was released by Vinson&Elkins, a Washington,D.C. law firm, and it opened by
saying San Diego's "image as a model of fiscal responsibility has been seriously tarnished."
Failure to disclose to investors the city's retirement deficit($1.17 billion,plus$1 billion in
unfunded health costs)was noted in the report. It also included a handwritten memo from the
city's treasurer,Mary Vattimo, of March_13, 2003 saying that unfunded liability was projected to
soar to $5 billion by 2021.
The Times reported that top officials were"willfully ignorant of key financial details and elected
officials lacked the background or inclination to understand the city's complex pension plan,
considered one of the most generous in the country."The Times noted that,according to the
report, the City Council,to placate"politically powerful" labor unions, increased pension
benefits and planned to pay for them with future stock market earnings,not the city general fund.
But the stock market declined, and the.council compounded its mistake by refusing to increase
general fund contributions to the system, allowing the deficit to grow.
As scathing as the report is, it was described as a"whitewash"by Diann Shipione,a pension
trustee who has been sounding alarms about the pension mess for two years. "As damning as this
report is, it's an expensive and successful whitewash,"the whistleblower told the Union-Tribune.
"It assumes that everybody getting in line for millions of dollars of unfunded benefits was just
too stupid to notice that something might be wrong. That is a real stretch. There is a premise that
people in city government did not know the consequences of their actions,which they clearly
did."
The Wall Street Journal, in a September 16 column, cited untenable pension obligations as it
compared San Diego to the beleaguered United Airlines and US Airways.
Pensions Blamed in Berkeley: The city is falling further into debt,reported the Berkeley Daily
Planet(September 14), and Budget Director Tracy Vesely blamed higher pension and health care
costs. She said higher-than-expected employer contribution rates,required by the California
.Public Employees' Retirement System,will cost the city an extra$1 million next year.
27
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
Contra Costa Pension Costs Soar: Costs of public employee pensions are expected to increase
by $30 million next year in Contra Costa County. That, according to the Contra Costa Times
(September 9), is 10 times what the county's administrator forecast last spring. The paper noted
that the labor-dominated retirement board three years ago used unrealistic assumptions,which
were changed last July.
County Treasurer Bill Pollacek,who also serves on the retirement board, said, "Today in Contra
Costa the chickens have come home to roost.Now we all know how much the benefits really
cost."Taxpayers must bail out the Contra Costa County Employees' Retirement Association,
whose fund is $911 million out of balance through 2006, even though this has been a good year
for investment returns. The annual financial report noted the county's pension deficit is $1.2
billion for the same period, a debt that includes pension bonds issued in 1994 and 2003 to
refinance the county's share of the shortfall.
The actuary's presentation confirms the feared consequences of action by the county Board of
Supervisors two years ago that increased pay and benefits, including boosting public safety
pensions by as much as 50 percent,The Times reported.
Pension Concerns Raised on Orange County: Orange County Treasurer John M.W.Moorlach
has expressed strong concern about a pension deal brewing in his county,warning county
supervisors about a tentative three-year contract to allow 17,000 employees retire sooner with
bigger pensions.
Mr.Moorlach was the loudest voice warning of the impending bankruptcy of the county in 1994,
which occurred. He later became the treasurer of the county, and now,reported the Los Angeles
Times and Orange County Register,he is again sounding an alarm.
The proposal,which supervisors are to vote upon on August 24 (note: the Item was approved),
calls for employees to pay for the increased retirement pay—assuming the$5 billion pension
fund's investments return 7.5 percent on average over the next 30 years. If not, the county's
taxpayers have to make up the difference.
"Somebody is going to have to guarantee it,and it's going to be the taxpayers,"Mr. Moorlach
was quoted in The Times(August 16). "For a county that was so badly burned to get this close to
that kind of fire again is a little unnerving to me."
He asked whether the county was being forced to be so generous,when it might be better to
allow employees to start earning increased benefits now,rather than to grant them immediately
to all current employees. At least 800 employees would retire right away,the paper said, citing
one estimate.
The Register(August 15)noted that Mr.Moorlach has warned of what the newspaper has called
the"pension tsunami"that is impacting local budgets around the state. Mr. Moorlach: "It's a
political problem. We have electeds who seem to believe the line that it doesn't cost anything.
But now we have cities up north that are sucking air. They've increased benefits so much,and
now they can't afford to pay them. They are looking at layoffs,tax increases, and all the stuff we
had to do after the bankruptcy."
28
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
Employees would forego pay raises for three years as part of the deal, but, said Mr. Moorlach,
"It's always an up escalator;there's no down escalator. After three years, employees will come
and complain that they haven't had a raise for three years."
Reed Royalty,president of the Orange County Taxpayers Association, said in a letter to
supervisors: "Taxpayers in the private sector are deferring retirement—sometimes into their 70s
—to support themselves and to pay the taxes that enable government employees to retire at age
50 or 55 with inflation-adjusted pensions that approach 100 percent of salary in the highest-paid
year of service."
LA Media Exposes Excessive Public Pensions: Two major newspapers covering the Los
Angeles metropolitan area had major features 7 days exposing excessive public pension benefits.
The Los Angeles Daily News reported on July 10 that 1,198 retired Los Angeles County
government employees receive pensions of more than $100,000 a year,with the top ten ranging
from $210,434 to$316,047.
According to the Los Angeles Times(July 12),the pension crisis was precipitated,beginning in
1999,when former governor Gray Davis signed a bevy of union-backed bills that allowed state
and local governments to sweeten retirement packages. "Improvements varied-at the state and
local level,but increases of 33 percent to 50 percent have been common. In most cases,the
increased benefits were made retroactive with employees paying little or none of the extra costs,"
the paper said.
For the state,the pension cost increased from$611 million in 2001 to$2.5 billion this year,the
paper said. And eight local governments so far have been granted a deferral of their contributions
to the Public Employee Retirement System this year,but will have to pay back the deferred
amount, beginning July 2007,plus 7.75 percent interest. The irresponsible eight: Santa Clara
County, Long Beach,Lemon Grove, Paradise, Pacific Grove,Richmond, South Gate and the
Sacramento Metropolitan Fire District.
Other government jurisdictions, including the state, are borrowing to pay for pension costs.
According to the San Diego Union-Tribune(July 8), San Diego Mayor Dick Murphy is
proposing to borrow$200 million to pay for pension benefits. The city's fiscally-challenged
pension fund has a$1.15 billion deficit and unfunded retiree health costs estimated to be between
$600 million and$938 million.
Carl DeMaio,president of the Performance Institute in San Diego, said, "Submitting an IOU is
not a payment. It is not actuarially sound.All you're doing is pushing back a crisis for two or
three years."
The Daily News obtained the data on Los Angeles County retiree benefits through a Public
Records Act request, but the county refused to provide the name or former position of the person
getting$316,047. What was done to cause what the Daily News calls"sugar-coating"of the
retirement benefits?The list is long and varied:
•First and foremost, basic retirements were increased to allow government employees to
retire earlier at a larger percentage of their salary per year(times number of years
worked). For some,this allows an employee to get 90 percent of salary at age 50.
29
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
• The definition of salary was broadened to include all kinds of things, including cash
payments for unused sick leave and annual leave,overtime, etc.
•Bonuses were included in salary. In Los Angeles County,there are more than 110
bonuses that are included in pensions, according to the Daily News, including one for
"vehicle allowance"to another,the "custodian floor waxing bonus."
• Cost-of-living adjustments were improved.
•A state two-tiered pension system, enacted during the Wilson Administration to save
costs,was repealed.
•More retirees were granted the more lucrative"public safety"pension benefits. Despite
a major campaign by the Sacramento Bee,the Democrats in the Legislature refused to
stop this law going into effect on July 1. An increased number of groups, such as
billboard inspectors and driver's license examiners,can now qualify for"public
safety"benefits,which are 25 percent better than those of the rank and file.
•The retirement benefit is computed based on the highest 12 month salary period of the
employee. This allows the practice of"pension spiking,"by allowing a padding of the
final one-year number.Earlier,the benefit was based on the salary averaged over a
number of years,the last three was fairly common.
What is missing from this list is the practice in a number of jurisdictions to provide even more
retirement benefits outside of the formal retirement system. For example, some jurisdictions
contract with a private group to provide supplementary retirement benefits. The Sacramento
School System set up a more lucrative pension system outside of the regular system for a few top
administrators. This is now under legal review. In the San Juan Unified School District, 50 top
administrators were provided with an additional annuity paid from by the district at a cost of
$700,000 a year as an"early"retirement incentive.
Expensive Firefighter Benefits in Los Angeles County Hinder Hiring More Firefighters:
According to a July 4 report in the Los Angeles Daily News,benefits for L.A. County
firefighters have been sweetened so much that it is now cheaper to pay massive amounts of
overtime than to hire more firefighters. County costs for benefits and pensions, along with
workers' compensation and health insurance, amount to 58.6 percent of base salaries, compared
to 42 percent in 1996, and 39 percent for county administrative employees,the paper reported.
Fire Chief P. Michael Freeman: "As ridiculous as it sounds, it's more cost-effective to bring in a
firefighter from home and pay them time and a half because we don't have to pay more benefits
for them." In 2003-04,more than 940 county firefighters used overtime to increase salaries by
more than 50 percent,with 15 more than doubling their base pay.A captain took home $217,036,
including$122,559 in overtime.The Daily News used the state Public Records Act to pry the
figures out of county government.
Bay Area "Retirement costs take toll." With that headline,the Palo Alto Daily News(June 13)
reported on a survey of pension costs showing dramatic increases since 2000 when a richer
formula for determining retirement income for public employees was adopted by most of the
30
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
cities and special districts.on the San Francisco Peninsula. In some cities,costs soared as much
as 500 percent over the past five years, according to the report that honed in on the 3 percent at
age 50 formula for police and firefighters,giving them 3 percent of highest pay for each year
with retirement eligibility beginning at age 50. Thus veteran cops and firefighters can retire with
90 percent of their current salary for the rest of their lives.
In San Mateo,the city's pension payouts went up 500 percent from$850,000 in 1999-2000 to
$5.5 million for 2004-05,based on a 3 percent at 50 deal negotiated in December 2002 that had
been 2 percent at 50 in the past.
The dot-com bust and its impact on pension fund investments, along with the sagging economy,
contributed to the problem,but CalPERS had advised its member agencies that they would be
able to afford the better pensions without increasing employers' (taxpayers')pension
contributions.
Statewide,four years after passage of SB 400(Ortiz),which triggered the bonanzas,the Daily
News reported that as of May some 249 agencies across the state adopted the formula,following
the lead of the California Highway Patrol.
Disability Status Boosts Pensions for Top CHP Officers: In a September 10, 2004 article The
Sacramento Bee, reported that the vast majority of retired high-ranking California Highway
Patrol officers—including the commissioner—have pursued workers' compensation claims.
Fifty-five of the 65 high-ranking officers who have retired since 2000 have sought workers'
comp settlements within two years of retiring, The Bee reported.These claims usually form the
basis for disability retirement.When they gain disability retirement status,they also don't have
to pay taxes on half their retirement pay, and pensions for many amount to at least 90 percent of
salary. It was noted that rank-and-file patrol officers complain that actions by chiefs and captains
set a bad example. They call it"chief s disease."
The Bee reported that the CHP has the highest rate of disability retirements in the state with
nearly 70 percent of retirees getting special tax and medical benefits. These benefits cost
taxpayers about$75 million in the 2002-03 fiscal year,the paper reported.
The Bee also reported that CHP officers,after retiring on disability,wind up in other jobs as a
result of their law enforcement backgrounds.A CHP officer who retired with stress disability,for
example,has been hired to head up security at a major airport, a job that many consider to be
extremely stressful in the wake of 9/11, The Bee reported.
Runaway Pension Reported: The Los Angeles Daily News(April 3)reported thousand of
retired public employees in the state are getting six-figure pensions and the number will be going
up in coming years. The paper said its survey of pension data found 427 retirees in the State
Teachers' Retirement System getting pensions in excess of$100,000 annually, including 67 who
once worked for the Los Angeles Unified School District. The paper said 80 retirees of the Los
Angeles City Employees' Retirement System, 84 former police and fire personnel in the city fire
and police pension system and 816 in the California Public Employees' Retirement System were
making at least$100,000 a year in retirement pay. It said Los Angeles County official refused to
31
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
provide data. The highest pension is being collected by the widow of former Los Angeles County
Sheriff(up to $270,000 a year),the paper reported. In an April 7 editorial,the Daily News called
for a change. "No one denies that public employees should be paid fairly for their service, but the
current pension system affords them benefits unheard of to most of the hard-working
Californians who pay the bills. And the purpose of government shouldn't be to enrich a lucky
few, but to benefit all."
Soaring Public Pay and Benefits Fuel Fiscal Crisis: Public payrolls have grown far more than
inflation in the last five years,reported the Los Angeles Daily News(March 13). In fact,the
newspaper's analysis found that costs of salaries and benefits for the financially troubled Los
Angeles Unified School District grew three times the 17 percent rate of inflation.
Steven Frates, senior fellow at the Rose Institute of State and Local Government at Claremont
McKenna College,told the Daily News: "At all levels of government,the rate of compensation
has gone up much more rapidly than it has in the private sector and,most importantly, faster than
the personal income of the people who pay for this."Personal income per capita in California
increased 24 percent over the five years through 2002-03. "There has been a wealth transfer. It
has gone from the citizens to the people in government."
The newspaper reported these statistics for the state, city of Los Angeles,Los Angeles County,
and the LAUSD (stats are over the past five years through 2002-03):
State of California—Costs of salaries and benefits, including pensions, soared 41
percent, from$13.3 billion to $18.7 billion. The number of full-time employees increased 10.5
percent,to 212,563.
City of Los Angeles—Pay and benefits, including pensions, increased 26 percent,from
$1.8 billion to $2.2 billion. The paper said average-pay for police officers grew 28 percent,
compared to 23 percent for civilian workers. Overtime costs increased by 61 percent, and
workers' compensation costs were up 81 percent.
Los Angeles County—Salaries and benefits jumped 39 percent, from$5 billion to $6.9
billion,while average county employee's pay increased 31 percent,to $49,343.
LAUSD -- Salaries and benefits grew 51 percent,from$3.6 billion to $5.4 billion,as the
average compensation package grew 27 percent,to$65,526. On March 10,the board approved
$427 million in budget reductions and gave the superintendent until April 9 to find$61 million
more to cut. The board eliminated 480 positions,mostly nurses, clerks and administrators.
32
Securing California's Fiscal Future
Assemblyman Keith Richman,M.D.
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Permit No. 1821
THE RiEA S ORYABOU A
PHONY REFORM
Thep of iticians and special interests behind the privatization campaign
make someret rand claims about their "'reform orm". Don't buy the hype:
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MYTH:"Benefit improvements are driving systems. 70% of the S&P 500 offer
ext
UPpension costs. traditional pension plans.
+1•.;.k'r5w
,r FACT: Pension casts for employers spiked
up for two years largely because o,f'one MYTH: "Other states are doing it."
event: the collap se of thefi nancial markets FACT: Other states are giving up an it.
between 2000 and 2002. .Nebraska recently ended 30 years under a
4
privatized system. Since the stock market
q 4 .. MYTH: "Employees will do better under a crash, no new states have signed on.
privatized system."
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FACT: Wall Street analyses show that MYTH: "Your benefits are too rich."
$` traditional pension systems do better than FACT: The average public employee
tt'
k
private investmentfunds in the nancial pension check is about$1,600 a monthp
markets. Statistics also show that the vast and for many that has to replace Social
majority o investors don' a enough Security. Public employee retirees are not
*u .� ty f p .�'
a.4a , fit attention to their 401(k)• Unless you have getting rich.
loads of time, are a•financial guru and have
an active lucky streak, you'll probably do MYTH: "Taxpayers are footing the bill
{ worse.Either way,there are no guarantees. for benefits."
If the market tanks, so does your future. FACT: You pay for your benefit increases.
.According to CaIPERS,employees actually
MYTH: "Privatizing pensions will save pay slightly more into the system than
money," employers overall. And most of you have
FACT: It will cost employers more to run to give up pay raises in order to,finance
the new system, more to keep running the a secure future for yourselves and your
old system and, eventually, lots more to families.
payfor those who didn't save the way they
should. Even the proponents admit their MYTH: "The governor's plan only affects
plan won't do anything to solve the budget new employees."
crisis, and won't produce any savings for FACT: Guess again. Chances are your
at least a decade. contribution rate will rise, your vested
benefits won-t grow, and your non-vested
MYTH: "The private sector is doing it." benefits will be cut. Every firefighter has
FACT: Five out of six Fortune 100 a stake in this fight
companies still offer traditional pension rZ"III�11
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PLEASE
1 PLEASE
P PLEASE
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A L I F 0 R N I A
4r,
PROFESSIONAL
FIREFIGHTERS
POLITICIANS IN SACRAMENTO SEEK TO "TERMINATE"YOUR PENSION
Dear Brothers and Sisters:
If you're like most of your brothers and sisters,you think about the future a lot...like every day.It's not just whether you'll live through your
next shift.It's also about how long you'll be able to work through the injuries to feed your family...what kind of life you and your family can
expect once you retire...what will happen to your family if you don't live to retirement.
As firefighters in California,we've always had an answer to those questions—a secure retirement system that recognizes the shortened careers,
shortened lives and heightened risk of our profession.
If the politicians in Sacramento have their way,your retirement security will be just another broken promise.
Under the guise of"reform",Governor Arnold Schwarzenegger has proposed eliminating the entire public pension system,which guarantees
you and your family a pension.Under the governor's plan,new employees are forced into a lower-tier privatized retirement system.All of your
retirement money would go into private,401(k)-style accounts.The governor's plan guarantees profits for Wall Street investment firms,but
offers no guarantees for you or your family.
AN END TO RETIREMENT SECURITY AS WE KNOW IT
Governor Schwarzenegger's plan to privatize pensions is even more extreme than national proposals to privatize Social Security.The governor calls
it"reform."We call it an attack on all public employees...especially those in public sa,fety.Under this system,your brothers and sisters will get:
■ No guaranteed pension:Your family's future is at the mercy of the financial markets.They lose....you lose.Even if the markets win,chances
are you'll lose. Your contribution rate is capped,and unless you're a certifiedfinancial guru with loads of extra time to spend day trading,
there's no way you 71 make as much as you'd get now.
■ No disability retirement:If you're permanently disabled after only a few years on the job,tough luck.
■ No cost-of-living adjustments:You're only as good as what you've saved...no allowance for inflation.
■ Reduced retirement health benefits:If of at all,retiree health benefits will likely be shifted to an HMO. You could wind tip wrestling
with health care bureaucrats on job-related injuries.
■ No special death benefits: If you die in the line of duty,your family loses an important safety net.
A THREAT TO ALL EMPLOYEES, NOT JUST NEWCOMERS
4
If you think you're safe because"I've got mine,"guess again.
■ Employee contribution rates will rise:State firefighters are already being asked to at least double their already-steep contribution to the
existing retirement system.That'pass-thru"will head your way if the Governor's proposal is enacted.
■ Existing funds will be at risk:Without new workers contributing to the existing system,the costs of maintaining your system will rise.That
means two things—higher contribution rates and no benefit enhancements.
■ Threat to non-vested benefits:As costs rise.for your existing system,it's only a matter of time before they come after health and death
benefits,and other non-vested benefits.
A CALL TO ARMS
As first responders,you risk your lives every day you go to work.We believe you shouldn't also have to risk your family's security.For your
future protection,and that of your family,this dangerous proposal must be defeated...but we need your help!
Get informed.Go to www.cpf.org.There you will find copies of the proposal,as well as a wealth of information about why it is the wrong
choice for you,your family,and your profession. You can also sign up at our web site to receive regular email updates.
Get Connected.Talk to your colleagues,your union reps and your local leadership.Make sure they understand the threat this poses.
Get Active.Attend your local union meetings.Volunteer for local outreach efforts.Write letters.Attend city council meetings.
If you have any questions,talk to your local union leadership.If they can't answer your questions,they will put you in touch with someone who
can.You can contact us to receive regular email updates—email us at info@epf.org or just go to our web site—www.cpforg.
Please join us in repelling this attack on our firefighter family.Working together,we will win this fight.
Fraternally yours,
Lou Paulson
President,California Professional Firefighters
03
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Protecting O Future
WhyLocal Government Must Oppose Privatizing Public Employee Pensions
Eve year,thousands of talented and dedicated Californians—firefighters, police officers,teachers, nurses
Every Y . .
—bringtheir unique talents to the service of taxpayers and citizens by choosing public service over better-
paying
etter-
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a in rivate sector jobs. Man have made this choice because the public sector holds out the promise of
P Y 9P Y
a secure and dignified retirement through a defined pension benefit.
ThisY ear, that choice is under attack, and once again, the attack is corning from Sacramento.
Legislation introduced at the Capitol (ACA 5)would mandate that every local government have two
retirement systems:the current system for existing employees and a lower tier, privatized system for
employees hired after 2007. Proponents say this new mandate is needed because a handful of public
retirement systems experienced were hit hard by the stock market collapse of 2000-2002.
Nobody questions the need for a serious, sober look at how to secure the retirement future of California
workers while avoiding the huge cost swings that have blindsided policy makers at all levels. But the
blanketP rivatization of California's retirement funds—which total in excess of$300 billion in assets—is a
dangerously costly and extreme prescription that strikes at the foundation of local control.
ANOTHER SACRAMENTO POWER GRAB
Thero osal to privatize public pensions may be the most significant intrusion on local control since the
P P
passage of Proposition 13. It's time to take a stand against Sacramento's interference.
Charter Cities and Home Rule—Charter cities are solely responsible for sefting compensation for their
employees. This principle lay at the heart of the home rule provisions of the California Constitution, as well
as of a century and a half of court precedent. Any proposal to mandate a privatized lower-tier system
violates this core constitutional provision.
The Principle of Local Control—Beyond its impact on charter cities, a state-mandated privatized system
strikes at the foundation of local control. Every local government should have the ability to make its own
choices about compensation through accountable, good faith negotiation. These decisions should be
made by those most accountable to the people—local government.
The Spirit of Proposition 1A—Labor and management carne together to protect local government funding
by backing Proposition 1A. Prop. 1A wasn't just about money—it was about curbing Sacramento's habit of
imposing its will on local government and local taxpayers. If local citizens, through their elected
officials, have decided to offer retirement security for their employees, Sacramento has no
business telling them they can't.
A COSTLY ANC} BURDENSOME MANDATE
Supporters and opponents agree—privatized retirement won't contribute a dime to closinthe deficit for
decades ... maybe longer. If there are any savings,they'll be swallowed by an avalanche of hidden costs.
Higher Pension Fund Costs—As the workforce tuns over, fewer and fewer employees will be paying into
the defined beneft system for existing employees. Since these systems depend upon a steady stream of
new employees to finance the system, a two-tiered approach virtually guarantees that pension fund costs
will continue to go up and up for decades before any potential cost saving is achieved
Higher Administrative Costs—A state-mandated privatized system will require every local govemment
HR director to wear yet another new hat—investment manager. Imposition of a large-scale privatized
retirement structure will impose substantial additional staffing and administrative costs. if this mandate is
enacted, local government will be in the investment business... whether it wants to be there or not
Higher Training Costs—One of the key advantages put forth by proponents of a privatized system is its
"portability". This "advantage"is an invitation for employees to switch jobs as the spirit moves them, and
makes it much easier for them to take the big bucks from the private sector. This volatility will drive up
training costs, especially in training-intensive professions such as public safety, health care and
education,
Higher Social Costs— The private sector's move away from traditional pension systems duting the "go go,"
1990s has created a disturbing new legacy—retirement savings gap between what retirees have socked
away and what they will need to live on. Every person who retires on an under-funded 401(k)is
another potential client for our already overtaxed social safety net.
WALL STREET'S DREAM .. AN EMPLOYER'S NIGHTMARE
Recruiting Public Servants Will Be Harder—Most public employees could probably maximize their
earning potential by working in the private sector. They choose public service, by and large, because the
benefits are better. Increasingly, a secure retirement has allowed the public sector to attract the best and
the brightest at salaries substantially below their"market value". Take away retirement security and you
remove the single most important factor in recruiting high-quality public servants.
Retaining High Caliber Employees Will Be Harder— The only thing good about a privatized system from
an employee's standpoint is that it is "portable."This "portability"invites the best and brightest to use public
service as their'raining ground.n The best young employees will bolt once they've gotten their"seasoning".
Public service becomes the private sector's "'farm system.11
Older, More ExEensive Workers Will HanOnLonaer— Workers under a 401(k)system work an
average of three years longer than those in a traditional pension system. So in addition to losing the best
and brightest of new employees, local governments will also see increased payroll costs because
older workers will be staying on longer.
r
Public Safe Becomes Less Attractive—Because of the danger, stress and enormous physical
demands of firefighting and law enforcement, local governments have chosen to provide additional
g
retirement benefits for these classes of employee. Our first responders retire before their skills
diminish to the point that they put themselves... and the taxpayers ... at risk.
A Morale Disaster—As far as the taxpayers are concerned, there should be no "second tier public
servants. But that's exactly what will exist. New employees will come in knowing their value is lower. More
em
experienced employees will suddenly find themselves "expendable."It's a combustible mix that will
p p
leave employees on both sides of the fence "burned up."
DOING RIGHT BY THOSE WHO SERVE OUR CITIZENS
Those who would mandate a privatized retirement system on local government have done their best to
drive a wedge between local government and the taxpayers they loyally serve. This desperately cynical and
9
divisive strategy trades on stereotypes that insult every public servant—management and labor.
Retirees Aren't Gettina Rich Off Their Pensions— The average public employee pension in California is
a little over$20,000 a year. That already slim pension must go even further for those public employees who
don'tp
artici ate in Social Security. Our retirees aren't"cleaning house"—they're too busy trying to
p
keep their houses.
Privatized Retirement Cheats Employees—Everyone knows someone whose 401(k) was hammered by
the stock crash. But a privatized system isn't just a bad deal in hard times—it's a bad deal anytime.
Nebraska had a privatized system for over 30 years, but dropped it after a sobering report unfavorably
compared their system with a traditional plan. The numbers don't lie—retirees with 401(k)s work
longer, and retire with less than those with traditional pensions.
MAKING THE RIGHT CHOICE IN PENSION REFORM
It is tempting to look for quick fixes to the rise in pension costs, but both the League of California Cities and
the California State Association of Counties warn against a knee-jerk reaction.
"Pension reform is a serious issue, but we urge all parties to take the time to understand the causes for
increasing costs, analyze alternative reforms, and to develop consensus on appropriate reforms. We look
forward to working with ...all concerned parties to help the state and local governments find ways to control
the costs of pension benefit programs that are fair and effective to both employees and taxpayers."
--Joint Statement—League of California Cities and CSAC.
The fact is that there a range of options for addressing the cost of the pension system that don't involve
imposing a privatized system mandated by Sacramento that will cost more than it saves for decades to
come.
The time has come to strike a blow for local control and against knee-jerk mandates from
Sacramento. Say NO to privatized retirement in California.
The Pension Protection Coalition
Member's& Supporters
2/01/05
Executive Members
American Federation of State, City, and Municipal Employees (AFSCM[E)
California Association of Highway Patrolmen
California Association of Professional Scientists
California Faculty Association
California Professional Firefighters
California School Employees Association
California State Council of Service Employees
SEIU Local 1000, CSEA
California Teachers Association
Peace Officers Research Association of California
Professional Engineers in California Government
California Association of Psychiatric Technicians
California Independent Public Employees Legislative Council
Orange County Employees Association
Retired Public Employees Association
SEIU International Union
Association for LA Deputy Sheriffs
LA County Probation Officers Union
CDF Firefighters
National Conference on Public Employee Retirement Systems
Anaheim Police Association
Association of Orange County Deputy Sheriffs Association
Sacramento Deputy Sheriffs Association
San Francisco Deputy Sheriffs Association
State Coalition of Probation Organizations
Coalition of County Unions
San Diego Deputy District Attorneys Association
California State University Employees Association
Supporters of the Coalition
Los Angeles Police Protective League(LAPPL)
Riverside Sheriffs Association
California Labor Federation,AFL-CIO
Faculty Association of California Community Colleges
Long Beach Police Officers Association
Santa Ana Police Officers Association
Fraternal Order of Police, California
Los Angeles County Professional Peace Officers Association
California Correctional Supervisors Organization
San Bernardino Public Employees Association
Organization of SMUD Employees
Santa Rosa City Employee Association
sb:02/05
30089-1 GOVREIJMISC
CSAC State Legislative Priorities in 2005
Revised and Approved By CSAC Executive Committee 1/14/05
Statewide Priorities: State Budget
In view of the ongoing budget challenges in 2005, CSAC"s primary priority is the 2005-06
state budget, which is of critical statewide interest and is expected to have a significant
impact upon and involve all CSAC policy units.
> Protect county interests during the state budget process to prevent loss of local
revenues, cost shifts to local governments, and reductions to county programs
without a corresponding change in service responsibilities. While the passage of
Proposition 1A confers significant constitutional protections for local revenues, counties
are mindful that changes in state/local partnership programs and 'Services could have
dramatic consequences at the local level.
> Advocate for program modifications that clearly reflect the state's priorities in
funding state/local partnership programs. Specific areas of immediate focus will
include, but are not limited to, the areas below*:
> Elimination of federal child support penalties.
> Protect existing statutory commitment for repayment of mandated cost
obligations to local governments.
> Continuation of Williamson Act subventions.
> Additional constitutional protection for Proposition 42 funds for transportation
purposes,
> Protection of revenues that support public safety and juvenile justice
intervention and prevention programs,
> Continuation of state flood control subvention program.
This list is not intended to be exhaustive and, in fact, is likely to change throughout the
budget process.
Statewide Priorities: California Performance Review
> Continue to actively monitor all potential avenues for implementation of
recommendations included in the California Performance Review, While the
forum for such implementation remains unclear at this date, counties will engage in
discussions at all levels to ensure appropriate execution of the CPR proposals.
Administration of Justice
> Continue to work on the Implementation of court facilities legislation (SB 1732,
2002), and, If necessary, seek technical amendments to facilitate
implementation. A great deal of work was undertaken in 2004 to implement SB 1732,
the Trial Court Facilities Act of 2002. Additional must be completed over the next
several months if the transfer of court facilities to the state is to be completed by July 1,
2007 as required by statute. Central to these efforts will be extensive negotiation with
-46-
the Administrative Office of the Courts and the Department of Finance. Further,
additional legislation may be required.
> Continue to work with the Administration and other interested parties on '
juvenile justice reform and potential realignment of responsibilities for juvenile
probation. In the early part of the 2004 legislative year, Governor Arnold
Schwarzenegger called together a group of state and local government representatives,
along with advocates and experts in the juvenile justice field, to discuss potential reform
concepts associated with the juvenile justice system in California. While no final
proposal has materialized, itis expected that local government interests may be asked
to consider a reform proposal, which may be included in the Governor's proposed 2005-
06 budget.
> seek resolution on a number of issues relating to court fees. At least two
separate measures will be introduced in 2005 that will deal with fees collected from
court users. Issues related to these fees are complex and involve competing interests
between courts and counties. The resolution of the issues will require extensive
discussion and negotiation regarding: (1) a proposal to enact a uniform civil filing fee;
(2) resolution of the undesignated fee dilemma; and (3) fee collection reform.
> Seek long-term resolution regarding booking fees and protect counties'
authority to collect these fees. CSAC has been a strong advocate for both the fiscal
and policy imperative associated with the booking fee since counties were given the
authority to levy the fee in 1990. SB 1102, the general government trailer bill to the
2004 budget package, contained provisions dealing with booking fees, which provide
that (1) counties' authority to charge a booking fee remains unchanged for the 2004-05
fiscal year; (2) for the 2004-05 year, booking fee rates are "locked in" at the level in
place on January 1, 2004; (3) beginning in 2005-06, counties will be permitted to
charge one-half of their actual administrative costs associated with booking and
processing of arrestees; and (4) the $38.2 million backfill to cities and special districts
will continue through 2004-05, but will lapse on July 1, 2005. CSAC will work closely
with the California State Sheriffs'Association in developing a long-term resolution and in
negotiating with cities and other interested parties.
Agriculture and Natural Resources
> Continue to support a constitutional amendment to exempt fees and charges
for storm water and urban runoff management from Proposition 218. During
the last legislative session, CSAC supported ACA 10 that would have provided storm
water and urban runoff management with the same exemption as that provided to
sewer, water, and refuse collection services under Proposition 218. Unfortunately, ACA
10 failed passage on the Assembly Floor. Supporters of ACA 10 plan to initiate
discussions with the Administration in order to obtain the Governor's support of a similar
measure, should one be introduced next session.
> Support legislation that would statutorily define Maximum Extent Practicable
(MEP) set forth in the federal Clean Water Act and a set of criteria that may be
used to determine if a given requirement imposed by a municipal storm water
permit meets the definition of MEP. The Federal Clean Water Act acknowledges
that, unlike point discharges, non point source and urban stormwater runoff
pollution are more complex and difficult to control and abate. Thus, programs (National
Pollutant Discharge Elimination System (NPDES) municipal and industries stormwater
permits) to control or reduce pollution in stormwater are to be achieved through Best
Management Practices (BMPs) and programs to "the maximum extent practical". The
State Water Resources Control Board (SWRCB) and the Regional Water Quality Control
Boards (RWQCBs) interpret MEP or include language in permits to require more stringent
-47-
#f
requirements or numerical effluent limits that do not meet the spirit of the definition of
MEP. A bill is needed to define MEP for consistency across the state in permits,
> Support legislation that would update the California Integrated Waste
Management Act's solid waste management hierarchy to promote development
of conversion technology facilities by providing full diversion credit towards the
State waste reduction mandates, Conversion Technologies are utilized to process,
through noncombustion thermal, chemical, or biological means (other than composting)
solid waste, including, but not limited to, organic materials such as paper, yard
trimmings, wood wastes, agricultural wastes,, and plastics. Under current law,, this
process of handling solid waste only receives partial diversion credit towards the solid
waste reduction mandate. Utilizing this type of technology, solid waste residuals could
be processed through some form of conversion creating end products such as electricity,
heat, ethanol, synthesis gas, soil amendment, animal feeds, etc.
> Continue to collaborate with other organizations on regulatory matters
affecting the implementation of the California Endangered Species Act.
> Collaborate with the State Resources Agency and other organizations regarding
the implementation of CSAV's and the League of California Cities' Wildland
Urban Interface (WUI) Fires Policy. The City, County, Schools Partnership (CCS) is
currently seeking grant funding to pay for the costs associated with hiring a staff person
to coordinate the WUI Policy implementation.
Economic Development
> "----Retain and expand business and reduce regulatory barriers in order to ensure
that jobs remain in California. CSAC continues to support reforms and other
suggestions to retain business,, as well as streamline government in order to have a
good business climate. CSAC supports many of the recommendations from the CPR that
help in this area.
> Advocate for the retention of all active, Guard, and Reserve military sites and
mission in California from closure due to the upcoming BRAC round in 2005. In
addition, advocate,, for the placement of any out-of-state realignments to
California. The Base Closure and Realignment Act (BRAC) Commission is slated to
begin work in 2005, In January, the Commission will be appointed to oversee the final
approval of base closures, and in May 2005 the list of base closures and realignments
will be released by the Department of Defense. In past years, California as suffered
significant impacts due to the large amount of base closures (20 military bases in the
last three rounds) and it is imperative that California speak with one voice on this issue.
> Advocate for reform to the economic development portion of the Community
Development Block Grant Program in order to provide for streamlining and
certainty in funding to rural counties. CSAC created the CDBG Task Force in
conjunction with the League of California Cities in June 2003. The Task Force made
recommendations to the Department of Housing and Community Development (HCD) for
reforms to the program in September 2003, Since that time, HCD has formed an
Economic Development Advisory Committee to discuss many of the reform issues. In
January,, HCD is planning on implementing the"continuum' program, which will allow
cities and counties to apply one time and allow for approvals for three consecutive years
once the first application is approved. This will address the major concern over certainty
in funds for rural cities and counties.
> Retain programs and resources related to economic development that currently
exist within the state government within existing resources. Since the
elimination of the Technology, Trade and Commerce Agency in 2003, programs and
other resources for economic development have been limited. In addition,, the
-48-
remaining programs exist in several different state agencies and departments, making it
difficult to find resources. CSAC supports retaining the existing resources and
consolidating them as much as possible to assist in the ease of use for counties.
Government Finance and Operations
> Continue to advocate for long-term fiscal and program reform. Building on the
successful passage of Proposition 1A, counties remain committed to ongoing reform,
including increased revenue flexibility for local governments, a comprehensive review of
local services and the level of government that provides them, and allocation of local
revenues.
> Advocate for appropriate allocation of the local sales and use tax, including place
of sale for orders processed electronically and use of incentive payments to private
business. Both the Legislature and the State Board of Equalization are considering
modifications to statute and regulation to address these issues.
> Work with stakeholders to reform the state-mandate reimbursement (S13 90)
process. For two years, CSAC has participated with numerous stakeholders in both
private discussions and public hearings before the Assembly Special Committee on State
Mandates to seek improvements in the procedures to reimburse local agencies for state-
mandated costs. It is expected that those discussions will lead to an overhaul of the
state-mandate reimbursement procedures during the 2005 legislative session. Major
county concerns include: increased legislative analysis of bills with fiscal impact on local
governments; streamlined claiming and reimbursement procedures; assurance of
reimbursement for actual and reasonable expenses; a fair and objective hearing
process; and timely reimbursement for deferred mandates.
> Participate in ongoing discussions regarding reform of public retirement
systems. Pension reform will be discussed in at least two forums: proposals for reform
of industrial disability retirement (IDR) and a proposed constitutional amendment to
replace public employee defined benefit retirement plans with defined contribution plans
with employer contribution caps for those employees hired after its effective date. Each
effort will involve considerable media attention and comes at a time of escalating
retirement system costs. CSAC is currently working with a group of county experts to
develop informational materials and proposed positions for counties. CSAC will likely
join other municipal and labor organizations in opposing mandatory elimination of
defined benefit retirement plans, but will also join other municipal employers and the
Administration in proposing reforms to IDR and existing defined benefit retirement
plans.
> Monitor the Secretary of State's Office and other efforts on the certification of
voting systems to ensure that counties are protected and provided a consistent
and reliable process to purchase and implement voting systems.
Health and Human Services
> Prevent health and human services cost and program shifts to counties,
including elimination of state services that will result in cost shifts to counties.
The 2005-06 state budget will likely propose program eliminations and reductions in the
area of health and human services that will adversely impact counties.
> Actively represent county interests in the implementation of Proposition 63,
the Mental Health Act of 2004. CSAC will work to prevent the state from shifting
mental health costs to the state.
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I %
> Advocate that Medi-Cal reform efforts preserve the viability of the safety net
and not shift costs to the county safety net. Expansion of Medi-Cal managed care
must not adversely affect the safety net and must be tailored to each county's needs.
Reform efforts must also preserve access to medically necessary mental health care,
drug treatment services, and California Children's Services, The state should pursue all
possible options for securing additional federal funds. In addition, reform efforts must
simplify Medi-Cal eligibility requirements without jeopardizing eligibility. Finally, reform
should not add to the complexity of the Medi-Cal program.
> Continue to advocate for full funding of AS 3632,, Mental Health Services for
Special Education students. CSAC will support legislation to expedite the mandate
reimbursement process,
Housing, Land Use, and Transportation
> Support ongoing implementation of Proposition 42 and additional
constitutional protections for those revenues in order to provide funding stability
and certainty for the delivery of transportation projects - both preservation and
expansion alike - throughout California,
> Continue advocacy efforts for objectives outlined in the February 2003 CSAC
Indian Gaming Policy and November 2004 policy additions in relation to continued
negotiations of tribal gaming compacts: fee lands into trust, reservation shopping, and
additional types of development outside of tribal lands.
> Monitor and participate in the development of legislation related to housing
elementTeform to improve availability of affordable housing in California.
Pursue legislative alternatives that provide accountability without imposing punitive and
inequitable approaches that intrude upon county legislative authority,
> Participate In discussions and respond to legislation that provides linkages
between housing., land use, and transportation. Significant legislation is expected
in this area as the Administration continues their focus on the state's economic recovery
and due to the Senate's decision to merge the Housing and Transportation policy
committees.
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CSAC Federal Legislative Priorities in 2005
Revised and Approved By CSAC Executive Committee 1/14/05
Advocacy
• Tribal Authority in Relation to Gaming
■ State Criminal Alien Assistance Program (SCRAP)
■ Reauthorization of Temporary Assistance to Needy Families (TANF)
■ Reauthorization of TEA-21
Medicaid
Monitor/Report
■ Social Security Reform
= Remote Sales Tax
■ Base Realignment and Closure (BRAC)
CSAC Internal Mon itoring/Reporting
■ Homeland Security
■ Child Support Enforcement
■ Endangered Species Act (ESA)
■ Payment-in-lieu-of-taxes (PILT)
■ Workforce Investment Act (WIA) Reauthorization
■ Local Law Enforcement Block Grant (LLEBG)
■ Clean Water Act Income Restrictions
■ Funding for Elections Reform
■ Title IV-E
■ Reauthorization of Forest Receipts Program
■ Implementation of the Federal Government Roadless Rule
■ Monitor potential reductions to Community Development Block Grant (CDBG)
Program
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1
(alifornia State Association of Counties
MEMORANDUM
TO: CSAC Board of Directors
1100 K Street
Suite 101 FROM: Helen Thomson, Chair, and Members, CSAC Health and Human
Sacramento Services Policy Committee
C° mid Kelly Brooks CSAC Legislative Representative
WOM Re: California Performance Review: Realignment Principles 2005
916.327-7500
fog ACTION ITEM
916.441.5501
RECOMMENDATION: Approve the CSAC Realignment Principles 2005.
Background
On September 16, 2004, the Health and Human Services Policy Committee requested that
the Realignment Committee, formed by CSAC in 2003 to discuss then-Govemor Davis's
realignment proposal, reconvene before the 2004 CSAC Annual Meeting. The Realignment
Committee reviewed the principles crafted in 2003 to see if they needed updating.
The Realignment Work Croup met on October 28 and recommended a number of changes
to the principles. The 2405 principles were updated to reflect Proposition 1A. Additionally, a
new bullet was added to address concerns about a realignment in which counties would
transfer realigned programs back to the state; when the principles were crafted in 2003 such
a scenario was not envisioned. The policy committee approved the principles on November
17, 2004.
Staff Comments
The policy committee crafted these realignment principles in anticipation of any realignment
discussions with the Administration and/or the Legislature in 2005. Although it remains
unclear whether there will be policy discussions this year on realignment, it will be important
to have policy in place.
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CMAC gnment Principles 2005Reali
With thepassage of Proposition 1A, the state and counties have entered into a new
relationship whereby local property taxes, sales and use taxes,, and Vehicle License Fees
are constitutionally dedicated to local governments. Proposition 1A also provides that the
Legislature must fund state-mandated programs;if not, the Legislature must suspend
those state-mandated programs. Any effort to realign additional programs must occur in
-the context of these constitutional provisions.
Counties have agreed that any proposed realignment of programs should be subject to
the following principles:
1. Revenue Adequacy. The revenues provided in the base year for each program
must be at least asgreat as the expenditures for each program transferred and as
great as expenditures would have been absent Realignment. Revenues in the base
Y
and future years must cover both direct and indirect costs. A hold harmless
P
rotection must be included to ensure that a county's share of costs must not exceed
the amount of realigned and federal revenue that it receives for the program. The
state shall bear the financial responsibility for any costs in excess of realigned and
federal revenues. There must be a mechanism to protect against entitlement
program costs consuming non-entitlement program funding.
2, Revenue Source, The designated revenue sources provided for program transfers
must be levied statewide and allocated on the basis of programs transferred; the
designated revenue source(s) should not require a local vote. The state must not
divert any federal revenue that it currently allocates to realigned programs.
3. Transfer of Existing Realigned Programs to the State. Any proposed swap of
programs must be revenue neutral. If the state takes responsibility for a realigned
program, the revenues transferred cannot be more than the counties received for that
P
rogram or service in the last year for which the program was a county responsibility.
4. Mandate Reimbursement. -Counties, the Administration, and the Legislature must
work together to improve the process by which mandates are reviewed by the
Legislature and its fiscal committees, claims made by local governments, and costs
reimbursed by the State. -Counties believe a more accurate and timely process is
necessary for efficient provision of programs and services at the local level.
5. Local Control and Flexibility. For discretionary programs, counties must have the
maximum flexibility to manage the realigned programs within the revenue base made
available, including flexibility to transfer funds between programs. For entitlement
programs, counties must have maximum flexibility over the design of service delivery
and administration, to the extent allowable under federal law. Again, there must be a
mechanism to protect against entitlement program costs consuming non-entitlement
program funding.
6. Federal Maintenance of Effort. Federal maintenance of effort requirements (the
amount of funds the state puts up to receive federal funds, such as IV-E and TANF),
as well as federal penalties and sanctions, must remain the responsibility of the state,
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