News

Pension costs cast a shadow over city budget

City Council committee kicks off review of 2018 budget

As budget season kicked off in Palo Alto this week, there was no talk of service reductions, staffing cuts or painful choices.

Rather, with tax revenues growing steadily and the budget reserves filled to healthy levels, the City Council's Finance Committee Tuesday evening began working its way through a balanced fiscal year 2018 budget that includes a hefty investment in infrastructure, funds for all existing services and devotes more resources to addressing the city's parking problems.

There is one colossal wild card spoiling the otherwise glowing outlook: pension obligations that today total more than $300 million and continue to rise every year.

"This is the most massive problem that we should be dealing with," Councilman Greg Tanaka said during the committee's discussion. "It should be Priority One, given the magnitude of the issue. It dwarfs everything else by a lot."

The pension problem is far from new and the council has already taken some steps to address it. In recent years, it has reached new agreements with all of its major labor groups, requiring them to make greater contributions toward pensions (in return, they get higher salaries). The council also established last year an irrevocable trust -- known as a Section 115 trust -- toward which it plans to make regular pension contributions. The budget proposes adding $1.4 million to the account in fiscal year 2018, which begins on July 1, supplementing the $2.1 million that was allocated in the current year.

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City Manager James Keene's proposed budget estimates that the city's unfunded pension liability amounts to $338.4 million, with the General Fund portion totaling $222.3 million. That number, however, hinges on the rate of return anticipated by CalPERS, the state agency that manages city's pensions. Last year, the agency agreed to lower its expected rate from 7.5 percent to 7 percent, an adjustment that will take effect in fiscal year 2019 and will be spread out over a three-year period, according to Administrative Services Department staff.

This year, pension costs are expected to increase by $2.43 million, or 11 percent, from the 2017 level of $21.2 million.

Given the projections and uncertainties, the Finance Committee agreed Tuesday that the pension problem will demand much more attention and discussion in the coming months. Committee Chair Eric Filseth shared Tanaka's concern about the magnitude of the problem. Filseth said that depending on what kind of assumptions one makes about the CalPERS rate of return, the city's pension obligations can balloon to $500 million to $800 million.

"We entered into contractual commitments to spend a lot more money than we were able to make through CalPERS," Filseth said.

Aside from its pension concerns, the committee was generally pleased with Keene's proposed budget, which the full City Council is expected to approve on June 19. On Tuesday night, the committee kicked off its month-long process of vetting the document by approving the budgets for the offices of the City Attorney, City Auditor and City Clerk, as well as for the Human Resources and Administrative Services departments.

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It stopped short, however, of approving the budget for the Office of the City Manager, which is set to undergo several changes in the next year. With Assistant City Manager Ed Shikada now serving as general manager of the Utilities Department and former Assistant City Manager Suzanne Mason departing last year to work for the City of San Francisco, Keene is proposing hiring two deputy city managers and two assistants to the city manager.

While the committee didn't oppose the new positions (the council had already approved the new deputy city manager positions last fall and Keene is in the midst of recruiting for these openings), Councilwoman Karen Holman suggested that Keene's office consider hiring someone who would focus on economic development and who could help bring coveted retailers and other amenities to town.

"This is one place where some expenditure will be well worth it," Holman said. "We are a built out community but at the same time we do have vacancies."

Keene was reluctant to devote a full position to economic development, saying that one of the new deputy city managers can partly fill that role.

"If there was an interest in really looking at how we support retail, I'd want us to do research about what really works there," Keene said. "I'm concerned that that feels good, but it is a marketplace issue more than anything else. .... The idea that property owners will even tell us what their numbers are to help us figure out how to go out and get someone to come in -- that can be a real challenge."

While the committee is expected to ultimately approve Keene's request, members agreed on Tuesday night to temporarily table the budget for his office and to revisit it later this month, when it wraps up the entire budget. The committee is scheduled to review the Public Works budget on Thursday night before moving on to Police, Fire, Planning department budgets on Tuesday, May 9.

On the whole, the budget includes only modest increases to staffing. Keene has proposed adding 3.9 full-time positions to a workforce, raising the staffing level to 1,058 positions (last year, the city added 10 positions). These include a communication manager in the Police Department -- a duty that heretofore has been performed by Capt. Zach Perron, who now heads the detective division.

The city also plans to add a senior technologist to the Information Technology department, a customer service representative to the Utilities Department and 1.5 positions for facility technicians to help maintain Palo Alto Airport.

Budget Director Kiely Nose said the budget team "really looked and challenged departments to look within (and) reprioritize what they already have."

"Instead of adding new bodies, let's look at better restructuring our existing staffing and our existing workforce," Nose said.

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Pension costs cast a shadow over city budget

City Council committee kicks off review of 2018 budget

by / Palo Alto Weekly

Uploaded: Thu, May 4, 2017, 9:40 am

As budget season kicked off in Palo Alto this week, there was no talk of service reductions, staffing cuts or painful choices.

Rather, with tax revenues growing steadily and the budget reserves filled to healthy levels, the City Council's Finance Committee Tuesday evening began working its way through a balanced fiscal year 2018 budget that includes a hefty investment in infrastructure, funds for all existing services and devotes more resources to addressing the city's parking problems.

There is one colossal wild card spoiling the otherwise glowing outlook: pension obligations that today total more than $300 million and continue to rise every year.

"This is the most massive problem that we should be dealing with," Councilman Greg Tanaka said during the committee's discussion. "It should be Priority One, given the magnitude of the issue. It dwarfs everything else by a lot."

The pension problem is far from new and the council has already taken some steps to address it. In recent years, it has reached new agreements with all of its major labor groups, requiring them to make greater contributions toward pensions (in return, they get higher salaries). The council also established last year an irrevocable trust -- known as a Section 115 trust -- toward which it plans to make regular pension contributions. The budget proposes adding $1.4 million to the account in fiscal year 2018, which begins on July 1, supplementing the $2.1 million that was allocated in the current year.

City Manager James Keene's proposed budget estimates that the city's unfunded pension liability amounts to $338.4 million, with the General Fund portion totaling $222.3 million. That number, however, hinges on the rate of return anticipated by CalPERS, the state agency that manages city's pensions. Last year, the agency agreed to lower its expected rate from 7.5 percent to 7 percent, an adjustment that will take effect in fiscal year 2019 and will be spread out over a three-year period, according to Administrative Services Department staff.

This year, pension costs are expected to increase by $2.43 million, or 11 percent, from the 2017 level of $21.2 million.

Given the projections and uncertainties, the Finance Committee agreed Tuesday that the pension problem will demand much more attention and discussion in the coming months. Committee Chair Eric Filseth shared Tanaka's concern about the magnitude of the problem. Filseth said that depending on what kind of assumptions one makes about the CalPERS rate of return, the city's pension obligations can balloon to $500 million to $800 million.

"We entered into contractual commitments to spend a lot more money than we were able to make through CalPERS," Filseth said.

Aside from its pension concerns, the committee was generally pleased with Keene's proposed budget, which the full City Council is expected to approve on June 19. On Tuesday night, the committee kicked off its month-long process of vetting the document by approving the budgets for the offices of the City Attorney, City Auditor and City Clerk, as well as for the Human Resources and Administrative Services departments.

It stopped short, however, of approving the budget for the Office of the City Manager, which is set to undergo several changes in the next year. With Assistant City Manager Ed Shikada now serving as general manager of the Utilities Department and former Assistant City Manager Suzanne Mason departing last year to work for the City of San Francisco, Keene is proposing hiring two deputy city managers and two assistants to the city manager.

While the committee didn't oppose the new positions (the council had already approved the new deputy city manager positions last fall and Keene is in the midst of recruiting for these openings), Councilwoman Karen Holman suggested that Keene's office consider hiring someone who would focus on economic development and who could help bring coveted retailers and other amenities to town.

"This is one place where some expenditure will be well worth it," Holman said. "We are a built out community but at the same time we do have vacancies."

Keene was reluctant to devote a full position to economic development, saying that one of the new deputy city managers can partly fill that role.

"If there was an interest in really looking at how we support retail, I'd want us to do research about what really works there," Keene said. "I'm concerned that that feels good, but it is a marketplace issue more than anything else. .... The idea that property owners will even tell us what their numbers are to help us figure out how to go out and get someone to come in -- that can be a real challenge."

While the committee is expected to ultimately approve Keene's request, members agreed on Tuesday night to temporarily table the budget for his office and to revisit it later this month, when it wraps up the entire budget. The committee is scheduled to review the Public Works budget on Thursday night before moving on to Police, Fire, Planning department budgets on Tuesday, May 9.

On the whole, the budget includes only modest increases to staffing. Keene has proposed adding 3.9 full-time positions to a workforce, raising the staffing level to 1,058 positions (last year, the city added 10 positions). These include a communication manager in the Police Department -- a duty that heretofore has been performed by Capt. Zach Perron, who now heads the detective division.

The city also plans to add a senior technologist to the Information Technology department, a customer service representative to the Utilities Department and 1.5 positions for facility technicians to help maintain Palo Alto Airport.

Budget Director Kiely Nose said the budget team "really looked and challenged departments to look within (and) reprioritize what they already have."

"Instead of adding new bodies, let's look at better restructuring our existing staffing and our existing workforce," Nose said.

Comments

Pay No Attention to the Deficit Behind the Curtain
Crescent Park
on May 4, 2017 at 10:03 am
Pay No Attention to the Deficit Behind the Curtain, Crescent Park
on May 4, 2017 at 10:03 am

As of February 2017, it appears CapPers actually only expects to get a 5.8% return rather than 7%. See

Web Link

From that article:

"It requires a rosy view of the future to assume a long-run return of 7 percent while expecting to earn only 5.8 percent in the first 10 years," said Don Boyd, fiscal studies director at the Rockefeller Institute of Government.

That's a polite way of saying it. With a lower return, our pension deficit will be larger. That's very bad -- but worse is that we're hiding how big it will be.


PT Barnum
Green Acres
on May 4, 2017 at 10:51 am
PT Barnum, Green Acres
on May 4, 2017 at 10:51 am

Why would the city talk about "painful choices" when it can keep inventing new ways to charge us, raising fees and utility rates etc and shift the burden of US, the taxpayers.

Maybe Mr. Keene could think about cutting benefits like the one described when Ms. Mason was hired in 2015. FYI, the new police public relations appointment comes with a $115,000 salary but total comp totals about $191,000 -- that's a big benefit package.

Web Link

In addition to a salary of $220,000, Mason will receive an unusual perk: a monthly stipend of $2,500 for rent expenses. In a report to the City Council, Keene acknowledged that rental-housing assistance "is not a customary benefit" that the city has provided in recent years, yet recommends that it be approved in this case.


Samuel
Midtown
on May 4, 2017 at 12:12 pm
Samuel, Midtown
on May 4, 2017 at 12:12 pm

"This is the most massive problem that we should be dealing with," Councilman Greg Tanaka said during the committee's discussion. "It should be Priority One, given the magnitude of the issue. It dwarfs everything else by a lot."

That is a true concern, but it will not be dealt with in Palo Alto, because PA never like to consider painful things. The current estimate of the CalPers return is 5.8%, and that is way too optimistic (unless the Trump restructuring kicks in). Palo Alto council needs to inform all of us what the line item is for pensions, based on a 5.8% CalPers return,or less, not an absurd 7.0%.


Joe
Another Palo Alto neighborhood
on May 4, 2017 at 12:17 pm
Joe, Another Palo Alto neighborhood
on May 4, 2017 at 12:17 pm

The pension system in California is a deal with the devil. It seems to be unsustainable by any decent model of revenues and payouts into the future. While the public has contracted with its employees to pay them a deferred salary of $82,000 for every $100,000 in salary drawn at the time of retirement, and this yearly payout increased by at least a 2 percent COLA, it’s not that long before retirees are making more in retirement than they were earning on the job.

Palo Alto could contribute $30,000,000 into its retirement fund for the next 10 to 15 years in order to fully fund its obligations. Clearly, a contribution of this magnitude would dent the budget and indivisible way. On the other hand, the city, representing the residents, would have done the right thing upholding its obligations.

Alternatively, all of the municipalities in California could join together to argue that existing law, even at the Constitutional level, must be changed to allow for the reduction in pensions for high earners whose payouts are strangling the current and future generations whose taxes are paying people not to work, rather than funding necessary services in each of these municipalities.

No doubt this would be a very controversial thing to do, and would be fought tooth-and-nail by the labor unions. But given the untenable nature of paying off the former employees, something drastic has to be proposed and eventually implemented.

The elected officials who granted these contracts with the employees of their municipalities are now long gone, some even now passed away. We can not hold them accountable. But we must hold our current, and future politicians more accountable than we have in the past.

Government pensions as are currently implemented can not be allowed to continue in the future. We have to rethink this idea, and see it for the toxic potion that it is.


Peter Carpenter
Registered user
Atherton
on May 4, 2017 at 12:28 pm
Peter Carpenter, Atherton
Registered user
on May 4, 2017 at 12:28 pm

The only way that a local agency can deal with this issue is by reducing its total payroll costs.

Local agencies have zero ability to change the CapPERS prescribed pension plans and leaving CalPERS would cost almost 3 times the current pension liabilities because of the bizarre way in which CalPERS calculates the withdrawal cost.


Joe
Another Palo Alto neighborhood
on May 4, 2017 at 12:48 pm
Joe, Another Palo Alto neighborhood
on May 4, 2017 at 12:48 pm

> ..leaving CalPERS would cost almost 3 times the current pension liabilities
> because of the bizarre way in which CalPERS calculates the withdrawal cost.

This is one of the things that municipalities should be able to force CalPERS to change via legislation so that exit conditions are transparent and rational.

Lowering total labor costs makes sense until municipalities and agencies sit down at the bargaining table with their labor unions. It's hard to see that there are any examples of governments/agencies actually seeing lower labor costs, year after year.

For example, AB1250, a bill promoted by labor unions,

Web Link

will restrict counties and cities the freedom to outsource as they wish.

This is obviously a controversial bill which is being opposed by the California League of Cities. It is, however, an example of how difficult it is for governmental agencies to intelligently manage public funds for the benefit of the general public.


resident
Midtown
on May 4, 2017 at 12:51 pm
resident, Midtown
on May 4, 2017 at 12:51 pm

The articles states "In recent years, it has reached new agreements with all of its major labor groups, requiring them to make greater contributions toward pensions (in return, they get higher salaries)."

It is illogical to give salary increases to employees so that they can make bigger contributions to their retirement fund. A higher salary means increased pension liability because it means the person retiring gets a higher monthly pension; the additional money the "employee" contributes to the retirement fund does not offset the increased pension liability, especially when the rate of return is going to drop.

It's much more logical for the city to contribute directly to the pension fund or trust, and keep the employee's salary the same.


Gale Johnson
Adobe-Meadow
on May 4, 2017 at 1:44 pm
Gale Johnson, Adobe-Meadow
on May 4, 2017 at 1:44 pm

@Peter Carpenter

Thanks for your input, but will our city have the fortitude to make the cuts? I guess I should give kudos to councilman Tanaka for his observation, but is this the first time he became aware of the problem? Did he not know about it before he ran for council? And more importantly, what are his ideas on how to fix the problem. Big on ideas, but a little light/short on solutions. Glad to know councilman Filseth is chair of the committee. He's a thinker, analyzer, and a straight shooter, not a dreamer.

@Joe

Wow, how sweet a deal. Private companies/businesses could never offer that retirement package and survive. Making more money in retirement than when you were working? And their working salaries are not chump change either. There needs to be a major overhaul, and staff reductions, a moratorium on raises, and cuts in pay for some, should be part of it if our hands are tied by CalPERS. I, and I think other residents, would be okay with cuts in some services, to bring our budget in line with current expected revenues.

But, if we secede from the union and the state we can print our own money and that could be another solution, following in the federal government's footsteps of a way to handle budget deficits. lol!


Stew Pid
Community Center
on May 4, 2017 at 1:47 pm
Stew Pid, Community Center
on May 4, 2017 at 1:47 pm

Thank you Kamala Harris, for mischaracterizing Chuck Reed's ballot initiative on reforming California's pension system.

I guess it will only cost us a few tens of billions. While we pay for the massive public service employee benefits for the rest of their lives.


Samuel
Midtown
on May 4, 2017 at 1:55 pm
Samuel, Midtown
on May 4, 2017 at 1:55 pm

The majority of California cities are just kicking the pension can down the road, then relying on some sort of bailout, probably federal or inflation. In the end, it will result in reduced municipal services and politicians who will move on. We have only ourselves to blame, because we demand more than we can pay for.


Eric Filseth
Downtown North
on May 4, 2017 at 2:44 pm
Eric Filseth, Downtown North
on May 4, 2017 at 2:44 pm

The Unfunded Liability results from the City spending and committing to spend more money than it takes in.

To be really clear: the $300 million is City's official number for just its unfunded Pension liability. If you also include the City's unfunded Retiree Medical liability ("OPEB" - Other Post Employment Benefits, primarily healthcare), then the "official" number is just over $500 million. Pension and OPEB are the two main components of the total unfunded liability.

However, this $500 million number is quite sensitive to small changes in Pension Fund investment returns. The $500 million assumes CalPERS long-term investment returns of 7.5% per year. If you assume the CalPERS return will be only around 6%, then the liability approaches $800 million. This is where the $500M-$800M range comes from.

It's worth observing that the entire unfunded liability has developed really only in the last 15 years, and results primarily from contract structures initiated during the Gray Davis administration. Palo Alto Pension and OPEB were fully funded in 2001, which means that on average, the unfunded liability has grown roughly $30M to $50M per year. About two thirds of this unfunded liability is attributable to the General Fund, currently about $200M per year.


Annette
Registered user
College Terrace
on May 4, 2017 at 3:01 pm
Annette, College Terrace
Registered user
on May 4, 2017 at 3:01 pm

And yet people are demanding the opportunity to live here. Go figure. Maybe they like unfunded liabilities (aka debt). Or maybe they think Palo Alto will continue to essentially ignore the enormity of the problem it has created for itself.


SuperD
Community Center
on May 4, 2017 at 3:33 pm
SuperD, Community Center
on May 4, 2017 at 3:33 pm

Sounds like a familiar problem faced by the state as well; no need to kick the can down the road, let's address it now. Joe is correct: "Government pensions as are currently implemented can not be allowed to continue in the future."


Noel
Crescent Park
on May 4, 2017 at 4:10 pm
Noel, Crescent Park
on May 4, 2017 at 4:10 pm

We cannot afford these levels of pensions. City Council has to bite the bullet and renegotiate all future pension arrangements to affordable levels. No one in the private sector gets these kinds of pensions anymore and it is unreasonable that government empoyees receive them. We may not be able to significantly alter existing pension liabilities, but we can stop making the hole in our budget any bigger.


Peter Carpenter
Registered user
Atherton
on May 4, 2017 at 4:26 pm
Peter Carpenter, Atherton
Registered user
on May 4, 2017 at 4:26 pm

"City Council has to bite the bullet and renegotiate all future pension arrangements to affordable levels."

The City has NO ability to change these pension arrangements unless it opts out of CalPERS. It would cost the City THREE times its current pension liability to opt out of CalPERS.


The only thing that the City can do and which is entirely under its own control is to limit its total payroll but eliminating positions and reducing pay increases.


Samuel
Midtown
on May 4, 2017 at 5:17 pm
Samuel, Midtown
on May 4, 2017 at 5:17 pm

@ Peter C.

"The only thing that the City can do and which is entirely under its own control is to limit its total payroll but eliminating positions and reducing pay increases."

I assume you know that no political city official will do that, right? There are so many other important issues to fund, like a cute bicycle bridge over Hwy 101 or useless Caltrain crossing guards. You might as well bark at the full moon!

I give credit to Eric Filseth for telling the truth about the numbers... a rare moment of a waterfall in the desert.


Online Name
Embarcadero Oaks/Leland
on May 4, 2017 at 6:40 pm
Online Name, Embarcadero Oaks/Leland
on May 4, 2017 at 6:40 pm

Many thanks to Eric for providing a substantive answer and dose of reality. And coming here to respond to our questions/concerns.

I wish we'd hear from our other CC members so we can be informed voters and pick CC members who can demonstrate an understanding of the issues and the consequences of their votes.

What the city CAN control is the salaries and the types of perks and benefits it awards. It's ludicrous that every single employee gets the maximum raises and no one is fired, demoted or refused the max raise for incompetence. Instead they get multi-million dollar consulting contracts!


Robert Smith
Duveneck/St. Francis
on May 4, 2017 at 7:48 pm
Robert Smith, Duveneck/St. Francis
on May 4, 2017 at 7:48 pm

I would like to explore converting the municipal pension system to something like a 401K. I understand that there is a suitable version of this for a city.

This could be done by having new employees in the 401K-like plan. Possibly old employees could switch over somehow.

The mathematics of this is that we are never going to catch up with the current system. Even if no benefits are declared, we will keep going into a hole.


Annette
College Terrace
on May 4, 2017 at 10:16 pm
Annette, College Terrace
on May 4, 2017 at 10:16 pm

It makes no sense that any Council would approve a budget that included additions to staff and future pension obligations. Instead, how about a moratorium on hiring? Painful, unpleasant, difficult. And arguably the least we should do until the existing retirement benefit is revamped. As is, the plan is unsustainable.

It is disturbing that our City Manager, who will soon be a retiree and pensioner himself, would even consider adding to our already robust staff. Why knowingly make a problem worse?


musical
Palo Verde
on May 4, 2017 at 10:44 pm
musical, Palo Verde
on May 4, 2017 at 10:44 pm

If $500M-$800M is un-funded, how much is "funded"? No perspective here without a given number of years over which this comes due. This $300M range is the difference between 6% and 7.5% return on what? Well, that range amounts to 1.5% of $20B. But our share of Calpers is not $20B. Maybe it's $500M, and we're looking at 40 years of return. (Calpers has $300B, and Palo Alto is 1/600th of the state's population.) Is this like a 40-year mortgage with $2M monthly payments, and we keep refinancing?

Bottom line, I can't make heads or tails whether our shortfalls are sustainable. Future wealth is always leveraged. The economy may be a perpetual motion machine, but only if people continue working.


s
Midtown
on May 4, 2017 at 11:13 pm
s, Midtown
on May 4, 2017 at 11:13 pm

"Keene is proposing hiring two deputy city managers and two assistants to the city manager." Why? To do what?


common sense
Midtown
on May 4, 2017 at 11:29 pm
common sense, Midtown
on May 4, 2017 at 11:29 pm

Eric Filseth - Much of the problem is based on a 2006 City Council decision lead by Larry Klein, to change the pension plan vesting to 2.7% per year employeed, from the 2% per year employed. This greatly increased the pension liability, and was one of the most financially irresponsible decision ever made by the City Council.


retired
Midtown
on May 4, 2017 at 11:50 pm
retired, Midtown
on May 4, 2017 at 11:50 pm

The government employees have a good deal. Their income and benefits rivals or better than private sector workers. You have heard of $100k-$200k-$300k-$400k range of salaries for city, county and state employees. On the top of that, they are entitled for a really generous lifetime pension based on their last year's salary. Having worked in the private sector, the private sector workers in any salary range can only rely on their 401k retirement accumulation. Only a few large companies contribute to their employee retirement account during their employment. After retirement, you take your 401k account and you are on your own. The company obligation ceases at that moment. But not for the government employees. We the tax payers are stuck with funding the government pension for the rest of our lives or their lives; not a bad deal!


musical
Palo Verde
on May 5, 2017 at 12:35 am
musical, Palo Verde
on May 5, 2017 at 12:35 am

Recent list I saw for City of Palo Alto had just 34 employees above $200K. More than half were below $100K. Counting overtime, vacation, and various allowances; but not counting health or retirement benefits.


Online Name
Embarcadero Oaks/Leland
on May 5, 2017 at 12:48 am
Online Name, Embarcadero Oaks/Leland
on May 5, 2017 at 12:48 am

Publicized salaries are only part of it. PA just hired a new police PR person whose salary was reported at $115,000 with a "cost" of $191,000.

The $76,000 difference was pretty memorable, esp. since it's never clear what an employee's "total" compensation is. I know county employees whose accrued sick days "pay" for 20 years of no-cost health insurance and other benefits.


George
Old Palo Alto
on May 5, 2017 at 8:01 am
George, Old Palo Alto
on May 5, 2017 at 8:01 am

The first step needs to be full disclosure. The salary, pension and benefit system in Palo Alto and California government in general has been a growing problem for decades. Abuse, mismanagement, and for many employees who run up final year compensation or claim unjustified dissabilities on the way out is widespread and rarely punished. The full and detailed extent of commitments and actions should be disclosed on the web and progress updated monthly. This should include actual payout and retirement details and disibility claims for employees, without disclosing names.

PA needs to significantly reduce the size of it's workforce and re-negotiate contracts to bring compensation more in line with equivalent positions in the private sector. Now that the private sector has largely moved from pensions to 401k, there is no reason city workers should not do the same. PA also needs to stop wasting funds on consultancies, studies, dream projects, and non-essential services and put those funds into neglected infrastructure and unfunded liabilities.

Raising the tax burden even more on its citizens and businesses to cover accumulating costs of mismanagement, continuing to grow the number of employees, and continuing to plan based on unrealistic future gains won't end well.

People will leave, businesses will go elsewhere, and Palo Alto will go into decline.


Martha
Old Palo Alto
on May 5, 2017 at 6:34 pm
Martha, Old Palo Alto
on May 5, 2017 at 6:34 pm

Hello all,

Everyone ought to visit transparentcalifornia.com and see a list of salaries and benifits for PA City employees. One word: Unsustainable.

Here are a few (the first number is the base salary, second number all benefits combined with salary:

Name Job title Regular pay Total pay &
benefits
James Keene City Manager
Palo Alto, 2016 $296,597.60 $466,702.19
Molly Stump City Attorney
Palo Alto, 2016 $270,431.20 $403,680.04
Edward Shikada Asst City Manager/Util Ge
Palo Alto, 2016 $273,328.49 $380,652.94
Dennis Burns Police Chief-Adv
Palo Alto, 2016 $236,995.20 $376,358.98
Robert Beacom Assistant Police Chief
Palo Alto, 2016 $221,097.01 $357,382.41
John Parks Fire Inspector EMT
Palo Alto, 2016 $130,452.00 $353,891.08
Eric Nickel Fire Chief
Palo Alto, 2016 $233,056.00 $341,239.24
Everardo Perez Director Administrative S
Palo Alto, 2016 $232,939.21 $339,892.99
Ron Watson Assistant Police Chief
Palo Alto, 2016 $203,096.90 $338,162.89
Patricia Lum Police Captain-Adv
Palo Alto, 2016 $201,317.55 $331,673.18
Adrienne Moore Police Sgt/Adv
Palo Alto, 2016 $136,220.00 $329,746.48
Ryan Stoddard Battalion Chief - Shift/E
Palo Alto, 2016 $132,737.76 $327,475.28
Paul Schulz Fire Captain EMT
Palo Alto, 2016 $124,242.72 $325,082.90
James Sartor Director Public Works/Cit
Palo Alto, 2016 $214,302.40


Joe
Another Palo Alto neighborhood
on May 5, 2017 at 10:04 pm
Joe, Another Palo Alto neighborhood
on May 5, 2017 at 10:04 pm

It wasn't that long ago that the city manager was talking about our infrastructure backlog--with numbers running at about 550M. These numbers did not include the storm drain system, any money for San Francisco Creek mediation, or the begotten airport that few Palo Alto residents use.

If we add these numbers together, we find that the totals easily exceed a billion dollars and could even come close to two billion dollars, before any finance charges are added in.

Clearly, something needs to be done. For far too long, the council has listened to individuals, and groups, demanding "services", without the long-term obligations of the city to its infrastructure, and post-retirement obligations for employees being properly managed.

These issues need to be a part of our council election issues, rather than the touchy-feely themes that have resonated with the voters in the past.

While Palo Alto might not find itself "broke" and have to declare bankruptcy as other municipalities have in the past, we need to have better candidates for council than have been elected recently.


resident
Charleston Meadows
on May 6, 2017 at 9:48 am
resident, Charleston Meadows
on May 6, 2017 at 9:48 am

You can add to the problem that PA and the state allowed themselves to be swept up in the "Divestment of Fossil Fuels" led by the Inter-Faith Council. Our own congressional leader Marc Berman used that as a candidate "virtue" will running for office. As life and time progresses one of the church participants at their yearly meeting concluded that was a bad idea since their corporate headquarters are located in coal country and there was a loss of jobs. And participation by local employees - Chevron across the bay may have caused a rumble since they are one of the highest dividend payers in the top 20 stocks. So the city and state have allowed social protests to infringe on the financial status of the city/state - and assume that the leaders of these organizations at not government employees so have no resulting impact from Calper issues.
Bottom line is to run the state more like a business -which it is - and keep social issues out of state related programs called pensions which affect only government employees. Too late to but Chevron - it is going like gangbusters. Of course the resulting theory here is that all of the taxpayers in the state will be required to offset the Calpers losses even though those other citizens are paying into their own pension plans. It is called redistribution of wealth.


Rob
Crescent Park
on May 6, 2017 at 10:23 am
Rob, Crescent Park
on May 6, 2017 at 10:23 am

Big problem with these pensions is that retirees are living longer. Even though a employee contributes to their pension, all of that is used up during the first 10 years of retirement. The city is responsible for the rest of the pension until the employee or their significant other passes. Example: employee retires in their mid 50's with 90 percent of their base pay for their yearly pension. After their contribution is exhausted in 10 years, the city is on the "hook" to pay the rest of the pension until they died. So retiring and living 20-30 years...you can see the problem. I just don't see how cities can afford this.


Mary
Old Palo Alto
on May 6, 2017 at 10:55 am
Mary, Old Palo Alto
on May 6, 2017 at 10:55 am

"I just don't see how cities can afford this."

The vast majority of cities in California can't afford the lavish pension benefits they have promised their employees. There will be bankruptcies. There will be higher taxes. There will be cuts in services. And some of the retirees are going to be in for a rude shock.

There is no way out of this: the state isn't in much better financial shape than the cities. And if you think other states are going to stand for any Federal bailout of California profligacy, you're dreaming.

Welcome to the California Dream - 21st Century Edition.


Stan
Esther Clark Park
on May 6, 2017 at 11:46 am
Stan, Esther Clark Park
on May 6, 2017 at 11:46 am

This is odd, typically the city hails some statistic rejoicing in unexpected revenues, promptly hands out overly generous raises, and before the ink dries on those large increases in spending, an announcement. Oh dear! We have pensions to pay for! Who knew? We didn't know, how could we, what can we cut that isn't pay raises to pay for this totally unexpected bill that we have had to pay for every single year? Thanks for the raise by the way.

Time to move away from defined benefit and move towards defined contribution pensions. The Federal Govt used to offer a pension similar to what states and cities offers now, remarkably saw the downward spiral it was in, and changed their pension formula from 2.x % per year to 1% per year in the 80's. The sun did come up the next day. I imagine in the years to come, that 1% will disappear too. Meanwhile state pension funds will become insolvent, without extra, excessive, and really unjustified taxpayer subsidies. Time for change.


Bill Ross
College Terrace
on May 6, 2017 at 3:56 pm
Bill Ross, College Terrace
on May 6, 2017 at 3:56 pm

Councilmember Filseth is right as to the source of the cause of the 336 million dollar unfunded liability (as of 20 months ago by PERS own records) but the real issue is how to address it now to reduce it. Every dollar spent on the ever increasing unfunded liability is a dollar that cannot be spent on (you pick it---affordable housing, more parks, better police protection) desired expenditures of the Council regardless of their political origin---from the five member majority or the four member minority you won't have the money because of payments to meet BOTH the ongoing present pension costs AND not even reducing the increasing unfunded liability. The Council did take the positive step of setting up an irrevocabgle trust to address unfunded liability two months ago but then took the negative action of not funding it adequately--slightly over a 2 million dollar transfer. The interest alone on the unfunded liability balance is almost seven times that amount. Council should at least double the initial contribution: exercise the "reopener" provision on all employee agreements and require all employees to pay a portion of their salary to the irrevocable trust AND accomplish an AB 1600 fee study to determine a proportional developer fee to further reduce the unfunded liability.

As a longtime taxpayer and resident I should not have to accept reduced services or facilities from the City because of its increasing obligation to address unfunded employee pension costs.


Online Name
Embarcadero Oaks/Leland
on May 6, 2017 at 4:18 pm
Online Name, Embarcadero Oaks/Leland
on May 6, 2017 at 4:18 pm

Thanks, Bill Ross. Totally agree.

And just this week the Council rejected the business tax that could have reduced the interest payments you mention. Shame on them.


Joe
Another Palo Alto neighborhood
on May 6, 2017 at 9:06 pm
Joe, Another Palo Alto neighborhood
on May 6, 2017 at 9:06 pm

 Who knew?

The questions should be: 1) “How much transparency was there at the budget and CAFR (Combined Annual Financial Reports) in the past, and 2) “who was paying attention?”

GASB Statement #67 and #68:
Web Link

It wasn’t until around 2012 that the Government Accounting Standard Board issued requirements for reporting unfunded pension liability as “debt” on a governmental agency’s financial statements. (See link above.) Until then, the City did not make the unfunded liability generally known. Attempts by myself prior to that time to obtain this information from the city were denied by the assistant city manager. Since that time, the unfunded liabilities have been made more public via consultant reports and better visibility in the city’s financial reports.

As to question (2) above, we have to ask: “who actually reads and comprehends the city financials?” The city council is supposed to be reading and monitoring the financials. The local papers (Weekly and Post) do pay attention, to some extent, but their influence is limited to a couple articles on the budget, and maybe an editorial, from time to time.

We don’t have a citizens’ financial oversight commission, like we do for bicycles and parks. There are only a few “council watchers” who might pop up from time-to-time to try to provide an institutional history of the city’s spending, and debt. Unfortunately, these people are either ignored, demeaned, or both.

If we look back at the last election, land use issues were about all that anyone could talk about. Not that these were not important issues, but all of these budget issues were wiped off the table into the dust bin.

During each campaign cycle, there are a few meet-the-candidates get-togethers, but each candidate gets about 3-5 minutes to answer 3-5 questions—most of which involve the typical non-answer. There has been a lot of post-election handwringing about who donated to the candidates who won—and certainly it comes as no surprise that property developers and real estate agents contributed a lot to the winners, although there was a lot of money contributed to residentialist candidates this last cycle.

In the not-too-distant future, we will be reducing the council size to seven members—which means that there will be more expected of those future members. Given the ever growing complexity of governing our city, it’s difficult that the kinds of candidates that have found their way onto today’s council will be doing the job necessary to deal with difficult problems such as the combined unfunded liabilities and the unfunded infrastructure demands.

Some jurisdictions have elected to impose property-based taxes to increase revenues to pay for retirement benefits. Assuming that there are about 20,000 parcels in Palo Alto, a $500/parcel tax would generate about $10M/year. Over the next forty years, this tax would generate at least $400M—which would make a dent in the unfunded retirement liabilities of our employees. Given the expectation that future city revenues will increase, money from the general fund could augment the effort to fully fund our unfunded obligations, at least. That leaves a large unfunded infrastructure requirement, however.

Clearly, Palo Alto has a lot of “debt” to deal with in its future. Kicking the can down the road seems to be the preferred solution for this town. But sooner, or later, we will run into the future, and we will not be prepared if we continue managing our financial affairs as we have in the past.


Stretch
another community
on May 6, 2017 at 9:31 pm
Stretch, another community
on May 6, 2017 at 9:31 pm

I agree that something needs to be done to check the rampant growth of this unfunded liability. Don't that the final retirement amount is not just based on salary, but also on years served. There's a graph used for that. Also, the City took over PERS contributions in lieu of a raise one year, I believe. Can it be reversed by using a simple 401K plan? Do any changes have to be negotiated by the unions? Or the courts? Oregon is going through this right now.


Joseph E. Davis
Woodside
on May 7, 2017 at 8:54 pm
Joseph E. Davis, Woodside
on May 7, 2017 at 8:54 pm

California government comprehensively demonstrates that politicians and bureaucrats are incapable of responsible fiscal management of pensions. The only solution is to move completely to defined contribution pensions instead of defined benefit pensions.


resident
Charleston Meadows
on May 8, 2017 at 9:01 am
resident, Charleston Meadows
on May 8, 2017 at 9:01 am

The SJM has an opinion today concerning the salaries of the government employees of cities. The information compiled by city is not apples to apples and all have different criteria as to how they report salary - with pension and without pension. The "Transparent California" website makes no distinction in how the salaries are reported which needs to be corrected. This Opinion was to correct an error that San Jose was suppose to have the highest salaries. Apples to apples Sunnyvale has the highest followed by Santa Clara, Mountain View and Palo Alto.

Follow that up with a SFC continuing siege on the UC system for their uncontrolled budget control which includes letting in out-of-state students which have a lower GPA than our local CA students so they get more tuition money. Side note - they all belong to the same organizations which promotes floating out-of-state resident students from state to state so they all collectively can charge more money. And of course the outrageous salaries of the administrators which is approved by the Board of Regents which includes Jerry Brown, Gavin Newsome, and Feinstein's husband Richard Blum. The UC debacle will continue until the state gets some control over the way the UC is managed.
Yes - that is very important to the taxpayers of CA - that is your child that is getting shifted around despite all of the hard work by everyone to get these PA students into the schools they want.


Myron
Old Palo Alto
on May 9, 2017 at 8:21 pm
Myron, Old Palo Alto
on May 9, 2017 at 8:21 pm

How do I find out the ratio of retirees to current employees. I bet there are more retirees collecting pensions than they are current Palo Alto employees working. If true, I'm sure this number goes up every year. When does the citizens of Palo Alto say enough?!


Joe
Another Palo Alto neighborhood
on May 9, 2017 at 9:50 pm
Joe, Another Palo Alto neighborhood
on May 9, 2017 at 9:50 pm

> How do I find out the ratio of retirees to current employees.

You can make a public records request via the City Clerk's Office.


[email protected]
Registered user
Another Palo Alto neighborhood
on May 10, 2017 at 12:37 am
[email protected], Another Palo Alto neighborhood
Registered user
on May 10, 2017 at 12:37 am

Seems like people should vote in people with the gumption and intelligence to properly run this city.


Still_Retired
Mayfield
on May 10, 2017 at 11:36 pm
Still_Retired, Mayfield
on May 10, 2017 at 11:36 pm

In May 10 issue of Daily Post, there is a table of top 400 highest compensated San Mateo County government salaries. I am sure that Santa Clara county schedule is pretty much the same. The total benefit ranges from $264,406 (lowest) to $589,243 (highest). On the top of paying for their astronomical packages, we, the tax payers, are obligated to pay for their equally pompous retirement benefits for the rest of our lives! Wow! That sounds very unfair for average person in respective counties.


Consumer
Midtown
on May 10, 2017 at 11:44 pm
Consumer, Midtown
on May 10, 2017 at 11:44 pm

A little off-subject, shouldn't the local and national media be concerned with these sort of issues rather than just Russian meddling with the elections! Russians do what they have been doing for many years!

Recently there were a gang of 30-40 young people attacking passengers in Bart! Say, as a Bart rider and media consumer, I would be more concerned about my safety in Bart than who forward what email to whom!


mj
Evergreen Park
on May 11, 2017 at 1:45 pm
mj, Evergreen Park
on May 11, 2017 at 1:45 pm

My understanding is that an individual's retirement pension calculation includes the final year of pay, which can be augmented, in some cases almost doubled, by overtime that final year.

My understanding is that the members of the city management team that negotiates pay and benefits also stand to benefit since they too are part of a union.

My understanding is that city employees can retire after 30 years of service, and many do retire at 55 with full retirement benefits.


Joe
Another Palo Alto neighborhood
on May 11, 2017 at 2:44 pm
Joe, Another Palo Alto neighborhood
on May 11, 2017 at 2:44 pm

> My understanding is that an individual's retirement pension calculation
> includes the final year of pay, which can be augmented, in some cases
> almost doubled, by overtime that final year.

How CalPERS exit salaries are calculated by each of the governmental agencies contracting with CalPERS. You would need to contact the Finance Director to determine the exact formula Palo Alto uses for this determination. In some agencies, overtime has been used as a determinant, but various grand jury investigations have brought critical light on that practice, and it probably is not as frequently utilized here in California as in the past. Palo Alto does have a very loose procedure where declaring public safety employees to be “disabled” at the time of their retirement, as this allows them a 50% deduction on their State/Federal income taxes for revenue derived from their pension benefits:

Web Link

Previous investigations by local papers have revealed that as many as 50% of the officers retiring in any given year are “disabled”. There are also other tax benefits for retired public safety officers.

It’s not likely that any Palo Alto employees have exited into the CalPERS system with double their last year’s salaries. However, with the 2% minimum COLAs applied to their checks yearly, then they will see double their salaries if they live long enough.

> My understanding is that the members of the city management team that
> negotiates pay and benefits also stand to benefit since they too are part
> of a union.

This is mostly true. Any members of the City Council that are negotiators, or who vote on the results of these negotiations, are not labor union members. Don’t think the City Manager is a member of any union, either—but that could change from year-to-year. But other Staff members negotiating with the unions most likely are members of some union that will doubtless benefit from salary increases to the unions with which they are negotiating.

> My understanding is that city employees can retire after 30 years of service,
> and many do retire at 55 with full retirement benefits.

Actually, most city employees can retire any time that they want, after some number of years of city service (20 years, if memory serves). Most employees do not work a full thirty years before retiring—27 years is an average that I remember. One of the more controversial benefits available to CalPERS members in the past is something called “air time”. Employees have been able to buy at least five years of service time by making a one-time contribution to their retirement account. Not certain if this program is still on the books, or how frequently it is used—but it demonstrates how effectively the unions have negotiated “employee rights” for their members, and how ineffectively those negotiating in the name of the taxpayers have not.


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