There’s a frighteningly large (and mostly secret) debt that you will have to pay to live in Pacific Grove due to years of horrible politics. This article about how it happened is researched and written by a Pacific Grove resident, a highly respected lawyer, and verified by one of the smartest people to ever serve Pacific Grove: Councilman Daniel Davis.
It is a story about how local government employees gigantically inflated their pensions by deception and bullying enough elected officials to get this approved – however illegally it was done. Before you buy a home in Pacific Grove, you might ask your realtor to officially disclose to you – “how much will this cost me over the next 10 years?”
What realtors are not required to tell you is how the City Council has been cutting everything else to the bone to pay these outrageous costs: Cutting Library services, Recreation, Planning, etc. One Council led by Mayor Cort even gave away our beloved Museum.
Every Pacific Grove resident owes thanks to John Moore for painstakingly following this issue and trying hard to fix it.
“Genesis of Pacific Grove’s Excessive pension costs and debt“
by John Moore
This is a brief out-line of how Pacific Grove arrived at its ruinous pension cost/pension debt condition: according to its latest financial report, it now spends about a quarter of its budget ($5Million per year) for pensions (including pension bonds and payment to Monterey as part of the fire service contract).
At a market estimate of earnings for the plan, the current estimate of pension debt is about $120Million and growing. The recent ten year plan pretends to deal with the pension cost/debt by raising revenues (taxes and development), but zero pension reform.
1. In 2001, the stock market crashed and all pension plans took a big hit, along with Pacific Grove.
2. In 2002, Pacific Grove adopted a 50% pension increase(1) for safety staff (despite 1, above), like many other cities. Del Rey Oaks is the only local city that did not.
3. In 2004, Pacific Grove could not pay its CaLPERS (State run pension fund) bill and negotiated an expensive settlement with CaLPERS.
4. In 2006, Pacific Grove owed CaLPERS $19Million (because of 1 and 2 above) at an interest cost of 7.5% per year. It issued pension bonds at a slightly lower interest rate. Principal and interest were $38.2M at an annual cost of about $1.8M per year thru 2028. (2)
5. In 2007, the council granted the police unions a 30% raise over three years, a huge case of “pension spiking” and a material cause of Pacific Grove’s unusual pension costs and debt;
6. The pension bonds eliminated the city pension deficit with CaLPERS, in exchange for that debt, In 2008, the city began the process of leaving CaLPERS and installing a 401K plan by formally notifying CaLPERS of the city decision to leave CaLPERS. CaLPERS responded that if the city left, it was entitled to about $5M.
The City Manager that started this, Ross Hubbard, left the state and went into hiding. So the Council issued an RFQ (Request for Quote/Bid) for a new city manager to lead the city’s out of CaLPERS. Tom Frutchy was hired in desperation as City Manager. However, he, Bill Kampe, City Attorney Laredo and the unions defeated the decision to leave CaLPERS.
7. In 2008, the city agreed to contract fire services with the city of Monterey. The stock market crashed and the pension plan lost 28.6% of the value of the assets in the pension plan and failed to earn 7.5% of its liability to pay pensions(a total loss of about 35%).
When the Fire dept. moved to Monterey, it left behind the fire employee’s share of the pension debt and new deficit from the crash and this was/is a major component of the size of the city’s present huge annual pension cost and debt.
8. In 2010, citizens and the council adopted pension reform that limited the city cost for pensions to 10% of salary for work not yet performed AND for new hires.
The police unions sued. City Attorney Laredo and his selected outside law firm excluded the sponsors of the reform from defending the lawsuit and intentionally lost the suit.
Even then, the reforms clearly were legal as to new hires, but the city did not and has not implemented them for new hires.
9. In 2012, the council formed a Council Pension committee to hold public hearings of the evidence to determine whether the 2002 50% pension increase was illegal or not. The committee held several hearings and produced a report that the increase had clearly been adopted illegally and recommended that the council adopt that finding and inform CaLPERS so that it could take corrective action.
City Manager Tom Frutchy, Mayor Bill Kampe and city attorney David Laredo defrauded the council into not adopting and forwarding the decision to CaLPERS because they knew that CaLPERS would void that increase for the past three years and going forward, saving PG tens of millions of dollars.
10. In 2012-13 citizens attempted to place an ordinance on the ballot that set aside the 2002 50% increase for safety. The judge entered an unsupportable decision that prevented placement of the reform ordinance on the ballot.
The sponsors of the initiative knew they had a good appeal, but would not pay for an appeal because they knew that even with a successful appeal, Frutchy, Laredo and Kampe would not administer the favorable court decision without further litigation. The City Council and Staff had used citizen’s tax money to defeat citizen’s pension reform and the citizen’s justifiably refused to raise more money to prolong the fight on and on.
Here is a review of the flaws of defined benefit pension plans like the Pacific Grove plan with CaLPERS:
2.1 The size of the pensions granted are several times higher than the financial abilities of agencies (cities) to pay. Twice the maximum social security benefit should be the maximum for government workers;
2.2. Because of “volatility” in the stock market, huge losses (10-35% of assets in one year) happen to the plans and are impossible to rectify(pay for). In 2008-09, PG lost about $35Million in one year (equal to 30 years of the then annual payment);
2.3. Salaries are unlimited, even for pension purposes, and every raise is about double its nominal amount because of annual “step” salary increases. Raises create annual pension costs and debt exceeding the CaLPERS charge because of the increases. So raises always create new costs and debt.
That is why in spite of an eight year bull stock market, the greatest in history, pension costs and debt have sky rocketed.
2.4. Unions and staff demand salary parity with those of surrounding cities and not the employment market. It should be the other way around: salaries should be the variable that is reduced to allow for affordable annual pension costs and that do not create pension debt. The city council may legally reduce and freeze salaries, using its police power to continue vital public services. Salary control is the gold standard for pension reform;
2.5. Pacific Grove has avoided legal pension reform not just by granting excessive salaries, but it has always had the opportunity to switch all new hires to a 401K pension plan.
Unlike San Diego, which did that, the city staff, led by City Manager Tom Frutchy, City Attorney David Laredo and Mayor Bill Kampe made certain that did not happen. Why San Diego and not PG?
Because San Diego had an “elected” city atty. who was elected on that pension reform platform(new hires in a 401k) and who then defended the citizens ballot pension reform in court. Pacific Grove intentionally lost the pension reform law suit by the police unions. To date it has cost Pacific Grove over $100M.
2.5. Pension reform will only occur at the local level, because all state legislators and elected officials support the current unsustainable system. Most cities, with Pacific Grove in the fore-front, will attempt the ruinous task of development to generate revenues, in a hopeless attempt to pay for the crazy salaries and pensions;
2.6. The key pension reform component for Pacific Grove is money. The development actions of the Kampe/Laredo group are “in your face” illegal and easily challenged, but Pacific Grove needs a well off patron, willing to put up to $250,000 at risk to pursue and fight the city heretical view of local and state law.
Only when the staff and unions understand that they cannot flaunt the law, will PG become a true city for residential use, as set forth in its Charter and general plan.
2.7. The short term rental ordinance (STR) is but one example of the council knowingly adopting a commercial use in a residential zone, to raise revenue to pay salaries and pensions, regardless that STR in residential zones is clearly illegal according to the city general plan and state law. And with the blessing of the city attorney!
2.8. At next weeks council meeting, the council will grant city attorney Laredo a five year legal services contract as a reward for his numerous untruthful legal opinions as described in many public documents, including his actions related to defeating pension reform and his failure to propose legal pension reform, like San Diego. Also for breaching his fiduciary duty to advise the council of the illegality of STR.
Because of my advanced age, I produced this edited narrative of how this beautiful residential community is in the process of ruin because of absurd salaries, illegal pensions and corrupt players identified above. I didn’t want the story to die with me. It is important that citizens know.
Please distribute this widely. Other than Kampe, most of the council members who support him are simply frady-cats. There are plenty of able patriots in PG, but they dearly need real financing to save our city.
John M. Moore, ESQ. Citizen Corruption Reformer.
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About the Author: John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar and a member of the “Public Law” section of the State Bar. He is retired and no longer practices law, but has Lexis/Nexis for research. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring.
Notes (by David Dilworth):
- Pacific Grove’s Pension scandal was launched by City Manager Ross Hubbard who in 2002 placed it on a no-discussion (Consent) Council agenda. Hubbard then illegally failed to provide the Council with the Actuary Report showing the Pension increase would cost $800,000 per year. Knowing this, Hubbard then unashamedly lied to that City Council and the public saying it would only cost $50,000 per year. Hubbard later apparently committed perjury during a lawsuit by falsely claiming he had given the Actuary’s report to the Council. However, Councilman Dan Davis had already called everyone on the Council who unanimously agreed they had never seen or gotten a copy of the Actuary report or knew of its contents. Judge Wills wrongly ruled that all the Council members were unreliable witnesses – and believed Hubbard.
- In 2006 then City Manager Jim Colangelo created the Pension Bond idea.
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