Few good options on pensions, council is told | January 25, 2013 | Palo Alto Weekly | Palo Alto Online |


Palo Alto Weekly

News - January 25, 2013

Few good options on pensions, council is told

Members vote to explore 'hybrid' system of smaller pensions, Social Security

by Chris Kenrick

Despite pension reforms passed in Sacramento last summer, Palo Alto remains severely restricted in its power to rein in the escalating costs of retiree pay because of state law and pension regulations, the City Council learned Tuesday night, Jan. 22.

Retired city employees this year will cost Palo Alto a projected $23.37 million — a tenfold increase from the $2.4 million liability of 2003.

Council members voted to explore, in conversations with staff, the possibility of attacking the problem through creation of a hybrid system that would allow at least some city employees to join the federal Social Security system and combine that with a lower city pension. The vote was 6-3, with council members Liz Kniss, Gail Price and Nancy Shepherd opposing, saying the move was premature before legislative changes are sought.

As part of the California Public Employees Retirement System, Palo Alto is bound by rules of that agency, and any meaningful change will require legislation, said Kathy Shen, the city's human resources director.

The council voted unanimously to pursue legislation to close loopholes in the 2012 pension reforms and also give cities more power over their retiree pay programs.

"The situation is not going to get any better until we take (legislative) action," Shen told the council.

As a newcomer to city government 18 months ago after 35 years in the private sector, Shen said her initial impulse was to have the city withdraw from CalPERS. But she was told an exit would cost the city $600 million to $1 billion and still leave the city with the task of finding another plan of its own.

Between current and past employees, the city is covering 2,940 people, Shen said.

"That's a lot of people, and we're going to be covering them for a long time."

Even with the state reforms — as well as a second-tier pension for new hires adopted by Palo Alto in 2008 — all but the newest employees remain under the old, more generous pension formulas, and it will take 30 years for them to work through the system, she said.

Under formulas in place until recently, a city worker who retires after 30 years with a salary of $70,000 would get about 80 percent of that — or $56,700 — in pension, plus health care coverage.

"Pension costs really limit our choices," Shen told the council.

"There's pressure on the size of our workforce, benefits and salaries. We have to prioritize our services because we can't do everything at once with those costs rising."

The concept of retirement has changed in the 100 years since California's public pension system was established, she said.

Back then, people retired at 65, typically had paid off their home and had no expectation of earning their working salary in retirement, or even 60 percent of it, Shen said.

"That's now turned upside down.

"Now we have people retiring at 55 or even 50 and at the same time the average life span is higher, so you could conceivably be retired for as long as you were working. That was never the paradigm when pensions were put in place," she said.

Staff Writer Chris Kenrick can be emailed at ckenrick@paweekly.com.


Posted by Taxpayer, a resident of Barron Park
on Jan 23, 2013 at 9:08 am

The only good option is to stop the bleeding and outsource everything but a skeleton staff at City hall, and the police department. Either that or go into Chapter 9 a few years down the road. If we keep directly employing workers, freeze or lower their pay for the next 10+ years until inflation makes their compensation more in line with the private sector.

We can't afford bureaucrats that cost double what their private sector counterparts cost, and our children can't afford to keep paying them close to their full salary to retire in their 50s.

Price and Sheppard are bought and paid for by the public unions. They are the worst sort of politician. Career opportunist Kniss is no better.

Posted by registered user, Tyler Hanley, a resident of digital editor of Palo Alto Online
on Jan 23, 2013 at 10:07 am

The following comment was moved from a duplicate thread:

Posted by SuperD, a resident of the Community Center neighborhood, 19 minutes ago

Years ago, gov't jobs didn't pay as well as the private sector and therefore generous pensions were enacted to try and make the gov't sector better aligned with the corporate sector. Today the gov't sector benefits are often much much better than corporate benefits (most corporations have dropped traditional pensions and moved to defined contribution program - e.g. 401k). Tax payers are left with the burden of funding these gov't pension obligations. While Governor Moonbeam did get the gov't unions to make some concessions, this was - in my opinion - more symbolic than anything. The State of California is still burdened with huge obligations for its pensions. Voters, it's time to face the facts and elect representatives who will work to find a solution to this problem. Obviously the current and past representatives have done a pretty poor job. Wake up people. My retirement benefits depend on my own contributions as well as those of my employers, not the tax payers.

Posted by Wayne Martin, a resident of Fairmeadow
on Jan 23, 2013 at 10:15 am

> Between current and past employees,
> "we're covering 2,940 people," Shen said

> Shen said her initial impulse was to have the city
> withdraw from CalPERS. But she was told an exit
> would cost the city $600 million to $1 billion, and
> still leave the city with the task of finding another
> plan of its own.

What exactly does "exiting" CalPERS mean? Would current retirees continue in CalPERS and current/future employees participate in some new plan? Why is CalPERS demanding this much money (which comes to $200K to $350K per employee)? Ms. Shen needs to make her determinations for CalPERS exit public. Is Ms. Shen saying that the current retirees are owed $1B the City, to be paid out via pension payouts?

Ms. Shen should provide the Council/public the pension obligations of the City outside the CalPERS system, for at least a thirty-year timeline.

The City needs to come to terms with the lavish ompensation "system" that has been put in place over the years. With almost 500 of the City's employees now making over $100K (yearly) in salaries, and many pushing $200K, the pensions associated with their salaries is as follows--
Using a COLA of only 2%, CalPERS retirees receive the following payouts:

Total Pension Payouts
$100K--10-Years: $1.1M | 20-Years: $2.5M | 30-Years: $4.1M
$150K--10-Years: $1.7M | 20-Years: $3.4M | 30-Years: $6.2M
$200K--10-Years: $2.2M | 20-Years: $5.0M | 30-Years: $8.3M

Police and Fire Department employees are routinely drawing over $100K in the larger cities and some over $200K, with their pensions at 90% of their high salary.

The table is saying that if someone retires from City employment with an "exit salary" of $100K, and they live ten years, the pension payout will be a minimum of $1.1M. If that person lives twenty years -- the payout will be $2.5M, and so on. Given that most people are living until about 80 these days (77 years for men, 84 years for women), then people "retiring" at/about 50 years of age are likely to be drawing pensions for upwards of thirty years. Additionally, the surviving spouse will be paid a portion of the deceased former employees salary until his/her death -- making the pension payout estimates in the table above too low, but perhaps 30% in some cases.

Until the City, and the residents, come to terms with the fact that City of Palo Alto employment is almost a guarantee of making employees multimillionaires, this problem will not see an effective solution. Ultimately, we are going to have to ask ourselves: "why are we paying employees more (up to twice, in some cases) in retirement than we paid them when they were in active service?

Posted by Kate, a resident of Duveneck/St. Francis
on Jan 23, 2013 at 11:34 am

No good options? Well, FIND ONE - AND outsourcing may be the only solution. This Council has to get some 'spine' and act NOW including those who were are on previous councils, like Liz Kniss. Vallejo and Stockton had to declare bankruptcy. What would that do to Palo Alto's shining image in the Wall Street Journal??? Palo Alto has no business being in the real estate business either - expensive housing for present and former city managers. Pay them a salary while in office and let them find housing like the rest of us. Pathetic!!

Posted by Joseph E. Davis, a resident of Woodside
on Jan 23, 2013 at 12:36 pm

Another option is the taxing power. Pensions that exceed some threshold of reasonableness should be taxed at a 95% rate.

Posted by Annette, a resident of College Terrace
on Jan 23, 2013 at 12:37 pm

I recommend reading Shadowbosses, followed by Aesop's Fables. Palo Alto will continue to dance around this problem (and hemorrhage resources)as long as we have Council members that are beholden to the SEIU. It is more important than ever to vote smarter.

Posted by jm, a resident of Evergreen Park
on Jan 23, 2013 at 12:48 pm

I would like to compare how many employees there were in 1970, 1980, 1990, 2000, and 20012. Does anyone know?

How many upper management employees now as compared to say 10 or 20 years ago.

The 2012 comparison will be a little skewed since many lower paid jobs were outsourced, such as park maintenance. Efficient use of computers should also have reduced the number of clerical workers over the years.

Posted by Senior, a resident of Duveneck/St. Francis
on Jan 23, 2013 at 1:11 pm

Would it work to change ALL public employees to Social Security. The current pension system is way out of line. That could probably also help save Social Security

Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Jan 23, 2013 at 1:47 pm

It's time to gut the public employee pension system and switch to a defined contribution plan. Whatever's been paid into Calpers can be used to pay pensions already earned- but NO MORE. We HAVE to end this idiocy. Now.

Posted by J.T.Colton, a resident of Palo Alto Hills
on Jan 23, 2013 at 5:04 pm

Ms. Shen really needs to study up on contractural law. Perhaps her private sector job really didn't prepare her for dealing with the financial expertise or contractural law knowledge necessary to carry out particular duties of a councilmember.Less than 1% of City of Palo Alto employees work 30 years for the city and continuing to reference pension obligations using this skewed cost factor are perhaps used ignorantly. Regardless, the problem has and continues to be management salary/benefit packages handed out by the city manager and authorized by city council. Many managers are given guaranteed severance packages that provide for the city to buy additional years of retirement to compliment their retirement package. Paying a City Manager nearly $500,000 in salary/benefits including using taxpayer money to buy his family a house in Palo Alto, paying his home insurance and property taxes, home remodel costs, vehicle allowance, gym fees, multi-week paid vacation,etc, etc,.... Perhaps city council needs to be realistic where the problem exists and that they are more than responsible for their continuing ignorance of public service pension cost reality.

Posted by John, a resident of Midtown
on Jan 23, 2013 at 5:46 pm

Simple question: What is the real unfunded pensions mandate in front of Palo Alto over the next 30 years?

Posted by Joseph E. Davis, a resident of Woodside
on Jan 23, 2013 at 7:27 pm

Another simple question: if a private sector citizen were to purchase an annuity that returned the typical public sector pension benefit, how much would it cost?

(I suspect it would be multiple millions per employee.)

Posted by Wayne Martin, a resident of Fairmeadow
on Jan 23, 2013 at 7:36 pm

> Less than 1% of City of Palo Alto employees work 30
> years for the city

If memory serves, the average is about 27 years. However, it would be a good idea for Ms. Shen to publish as much of this sort of data that she can.

I believe it makes sense to use 30 years as an employment timeline, at least as an upper bound. Could not hurt to provide estimates in terms of a multi-nodal dataset that includes the high years, middle years and low years for retirment.

> Perhaps city council needs to be realistic where the
> problem exists and that they are more than responsible
> for their continuing ignorance of public service pension
> cost reality.

Yes, but the public has a role in this too. For decades, too many Palo Altans have been more than happy ignoring what has been going on, and not holding the Council accountable, in any way. This is a hard thing to expect of us, however--given that CalPERS has not been forthcoming with data, often requiring interested parties to sue them in order to get data needed to do independent analysis of their operation.

Only the largest papers have the resources to investigate CalPERS/CalSTRS. So, if they don't--there are few organizations left to do the job.

Posted by Fed Up, a resident of College Terrace
on Jan 23, 2013 at 9:37 pm

Meet the REAL 1% -- Public Sector Unionized Employees with their Gold-Plated Pensions & Cadillac Health Care.

All pension contracts should be challenged & held null & void because they are not arms-length transactions. Public sector union leadership bribes elected politicians into giving ever-larger pensions.

These bribes are quite legal. "Give us larger pensions in years down the road & we will give you campaign contributions. Fail to give us what we want & we will endorse & get the vote out for your opponents & contribute to their campaign."

Posted by @pension, a resident of College Terrace
on Jan 23, 2013 at 11:10 pm

This is absolutely insane! I just retired from high tech career after 35 years of hard work with typically 10 hours of work a day. My salary has ranged from $30k to $120k. I paid for all government employees salaries with my taxes. I don't have any pension from companies that I worked for, my retirement consist of my 401K that I contributed to from my salary and social security of $28k/year plus medicare. Compare that with PA city employee that retires with $70k and gets ~$57k/year for the rest of her life plus medical coverage plus any IRA. Ummm! I am paying for the salary of someone who is going to live more affluent than me!! I should have worked for the government.

Posted by Nora Charles, a resident of Stanford
on Jan 23, 2013 at 11:54 pm

Unbelievable. Of course, being Palo Alto, probably nothing will change, other than larger and larger payments to these employees. Enough!

Posted by Tough Love, a resident of Crescent Park
on Jan 24, 2013 at 1:08 pm

Declare Bankruptcy and renege on HALF the promised pensions .......

YUP ..... the half that likely would NOT have been promised in the absence of the trading of Public Sector Union campaign contributions and election support for favorable votes on pay, pensions, and benefits.

Posted by Robert, a resident of Greenmeadow
on Jan 24, 2013 at 1:28 pm

We need a ballot initiative to demand outsourcing, including the fire department. Recent statistics show firefighting is now just a hiar more dangerous than being a cashier. It's 6X safer than construction work. And yet we pay close to 200K per year for high school graduates when total compensation is factored in.

We need to recall Price, Sheppard, and Kniss. They have sold their votes to the SEIU and the other unions.

Posted by GoBankrupt, a resident of Midtown
on Jan 24, 2013 at 3:00 pm

For all the anguish expressed by well meaning people in this discussion thread, we can rest assured that absolutely nothing will be done to solve this problem. City managers and employees know that the citizens of Palo Alto will not organize in any meaningful manner to demand change.
Public employees know that a bankruptcy would be bad for their pensions - so any adjustment that is agreed to will be to ensure that the city does not become bankrupt, but it will be bled to the maximum that it legally can be. All while taxes and parcel taxes increase and services decrease to the average citizen.
I know that this is a sad view but it is probably realistic given the parties involved. In one sense Palo Alto citizens are going to get what we deserve for our own apathy on this topic all these years. No one to blame but ourselves.

Posted by eatingdogfood, a resident of College Terrace
on Jan 24, 2013 at 5:39 pm

Democratic Hustler Politicians + Corrupt Greedy Unions = BANKRUPTCY BABY!

Posted by Mark, a resident of Crescent Park
on Jan 24, 2013 at 11:38 pm

Employees currently contribute a lot to their pensions and health care. Why don't you brilliant residents ask yourself why do we have a city council so large, for a city this size? Why do city council members receive medical for life for their short terms? Yah, your tax dollars too! And the 100k plus salaries are mainly management and contract employees, not the actual people who do the work, know the streets, and serve our community make much less, and they are always the ones taking the hits, while Jim Keene relaxes in his home, courtesy of our tax dollars, but don't worry, he will leave in time to collect his massive pension after the lower end employees are left to do three times the amount of work with less money, and forced to continue to commute farther and farther. Outsource...yeah let's see how your service is with that idea!

Posted by Anne, a resident of Barron Park
on Jan 25, 2013 at 11:50 am

"Outsource...yeah let's see how your service is with that idea!"

Typical union fear-mongering. Outsourcing service will allow us to get more/better service for our tax dollar, by a wide margin.

Private sector employees work at market rate: if they underperform they don't last long. When is the last time a lazy city union bureaucrat (and don't try to tell me there aren't any) has been fired for underperformance?

Unionized public sector workers are overpaid, and they have no fear of underperforming due to zero accountability. Look at our terrible planning department. They couldn't get the job done, so instead of replacing them with people who could, the city simply hired more planning bureaucrats.

Enough is enough.

Posted by Joseph E. Davis, a resident of Woodside
on Jan 25, 2013 at 12:59 pm

Mark, I agree with you. Council members and management must be cut down to a reasonable compensation package, the same as the rank and file. Right now, we are ridiculously overpaying for both.

Posted by Alex, a resident of Duveneck/St. Francis
on Jan 25, 2013 at 10:09 pm

Anne, Let me just say you are very uninformed..to put it nicely! I know several city employee's (line level, non-management) and have heard plenty of stories of various individuals over the years being let go because of lack of performance. All you would get from outsourcing is constant changeover, increased wait times for service, and a lack of informed and capable public servants. Luckily I am confident your opinion would be laughed at behind closed doors, even though people pretend to care.

But your remark to planning is what really astonishes me. City planners have to deal with so much bureaucracy from Planning Commission, City Council, and other uneducated people like yourself who either hire ignorant architects, or want to be treated special and ignore the rules established by the council...elected by us. Their process would be much more efficient if people at the top would actually have the experience to manage, and two, stop caving into the interests of a few. All that said, I respect your opinion, and I once shared similar views, but then I did something I would encourage you to do. Investigate for yourself, talk to people at all levels, and compare it to places around.