How could Pacific Grove’s Pension payout improve if City files for Chapter 9 Municipal Bankruptcy ?
What follows is my analysis and opinion of the payout the City should request in its proposed Chapter 9 Plan (Municipal Bankruptcy under Federal law), for both current Pacific Grove retirees and for those who have worked for Pacific Grove and are not yet retired.
100 Million Needed
Pacific Grove’s Pension plan is supposed to have about 100 million dollars in it.
Only 42 Million Available
Based on the Calpers 2010 estimate, I believe the City’ Pension plan has a current deficit of about 40 million dollars.
In addition the City owes about $18 million in principal for the 2006 pension bonds, for a total deficit of $58 million, leaving a net of 42 million dollars to pay for 100 million dollars of pension promises.
So the City is in a position to pay 42 cents on the dollar to those drawing Pacific Grove pensions and for the pensions earned to date by those who have worked for Pacific Grove, but are not yet retired.
Court Could Halve Pacific Grove’s Pension Debt
Rhode Island’s Central Falls Chapter 9 Municipal Bankruptcy is reducing pensions for retirees and future retirees by more than 50%. So the rules have changed dramatically, and now it is easier to view the carnage that our past city managers and city attorneys have created.
If I was in charge of filing the Chap. 9, I would propose to the court that pensions be amended for both the 3@50 (retired at 50 years of age and getting 3% per year employed1) retirees and for future 3@50 retirees so the city only pays 42% based on a 2@50 formula. All pensions should also have a $ 90,000 limit for determining the 42%.
Pacific Grove’s Extraordinary Pension Not Legal
Pacific Grove’s 3@50 was never legally enacted and city employees earning less than $90,000 have suffered from the cost for 3@50 (which only benefits sworn safety employees). The $ 90,000 limit is necessary to bolster the pensions of the lesser paid, as reasonable.
I have prepared the evidence that indicates that in 2002,the attempt to enact the 50% increase in pensions for fire and police was done illegally. If that attempt is ruled void, there is a possibility that Pacific Grove retirees and employees could receive substantially all of the 2@50 and 2@55 pensions promised and earned by each of them. All that is required, is for the city council to authorize a competent law firm to petition the court to declare 3@50 void.
If the city begins paying off the deficits by the austerity measures I have recommended, the payouts would increase annually. If austerity measures are not put in place the 42% payout will decline annually; rapidly in my view.
By profession, training and experience, I am the ultimate realist. I do not have a personal selfish interest by publishing my opinions about Pacific Groves’ financial demise. I do it because the pension mess is so unfair to property owners and to Pacific Groves’ children.
And I remind all of you that Calpers and the government employee unions are trying to close the Chapter 9 door for California cities.
Notes:
1. “Chapter 9” is the section of the Bankruptcy laws that applies to cities.
2. “3@50” means An employee retired at 50 years of age gets 3% per year employed. If they were employed for 20 years they get 60 percent (3 times 20 = 60%) of their highest salary. “3@50” has a cap at 100 percent of their highest salary.
However, if a Pacific Grove employee had a 2@55 deal (former City Managers) there is no limit at 100 percent. Thus if they were employed for 40 years they could get 120 percent of their highest salary.
3. Calpers = California Public Employees’ Retirement System
(Editor’s note: This author, a retired attorney, is entirely responsible for the accuracy of the data presented here. While I do not necessarily agree with all of this article, I do welcome informed discussion of this topic.)
Pingback: Pacific Grove Council Begins Unwinding Pension Gifts Granted Illegally in 2002 | Deep Politics: Environment, Democracy, Health & Beyond
Pingback: Pacific Grove Illegal-Pension-Gift Signatures Turned In | Deep Politics: Environment, Democracy, Health & Beyond — and a Bit of Fun
PG already borrowed $19 million in 2006 to pay for pension debt.
As I remember it, in 2009, it seems that the PG city council asked the PG Economic Advisory Committee to investigate the possibility of solving our debt problem. The EAC unanimously voted to bring in a BK attorney to investigate.
When it went to the council for approval, then Mayor Cort, did not follow up? The can was kicked further down the road and soon after the mayor resigned.
Current Mayor Bill Kempe and the city council majority seem to have new ideas. Since PG’s unfunded CALPERS (pension) liability has grown to approximately $45 million (and no one will lend the city any more money) there is already talk of a PARCEL TAX to force property owners and renters to pay for these unreasonable pensions.
Please let me know if my memory is correct.
I can’t speak to the exact dates and amount, but they are in the ballpark.
There’s one idea which should be emphasized – Mayor Dan Cort refused to allow the Economic Advisory Committee’s unanimous decision to ever get on the City Council agenda. He actually had it taken off one agenda – so that the Council and the public could not formally discuss it.
I’m a CPA in Vallejo.
In 2009, Barry Dolowich, CPA, a member of the Economic Advisory Committee invited me to come down to meet with the Committee to share with them the reasons for Vallejo’s bankruptcy.
Barry also asked me to come to the City Council meeting that same evening to share my views on Pacific Grove’s then very precarious budget position. The Council was looking for additional budget cuts to cover budget deficits that were likely to continue growing into the future.
Many citizens who were there that evening may remember the simple line graph that I drew to illustrate how soon Pacific Grove would likely have to consider bankruptcy if they didn’t act to avert it. I recommended that the Council consider hiring a bankruptcy attorney not to prepare to file for bankruptcy but to explore possible strategies to avoid bankruptcy while continuing to provide the services that the taxpayers of Pacific Grove were paying taxes to receive.
As both Nancy and David point out above, Mayor Cort was adamant that there would be no discussion of bankruptcy while he was Mayor.
As Pacific Grove and Vallejo have discovered, you can’t pay for the unsustainable pensions that City employees expect and believe they have guaranteed to them without substantially increasing taxes every year and accepting significantly fewer City services.
A few years before I spoke to the City Council, Pacific Grove had cut the size of its City staff in half and entered into a contract with neighboring Monterey for fire protection services to balance their budget. Those actions only put off the ultimate consequences of these unsustainable pension costs.
Unless there is an agreement with the City employees of Pacific Grove, current City employees should not plan to retire with the pensions that they expect. Those pensions cannot be paid for while paying for the costs of the services that the taxpayers of Pacific Grove expect.