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VC taxpayers tackle public pensions

By   /   Friday, January 27th, 2012  /   1 Comment

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Ventura County CEO Mike Powers told a taxpayer group that Ventura’s pension system reforms have spurred similar actions around the state. But he faced tough questions from the group about retired public safety officers with six-figure pensions and the 22 officials who are bringing in more than $200,000 a year in retirement.

Powers spoke at the Las Posas Country Club on Jan. 27 to the annual dinner of the Ventura County Taxpayers Association, a group that has sharply criticized public employee pensions in the county and offered detailed proposals for reform. Powers, who took the reins last year, outlined the highlights of pension reform for a county government with a $1.7 billion budget and 8,000 employees.

As a percentage of payroll, pension obligations cost Ventura County 22 percent of payroll compared to Santa Barbara County’s 34 percent, Powers said. He also pointed out that the county’s pension fund is projected to have no unfunded obligations and that the county’s bonds have received the highest possible credit rating from Standard & Poor’s.

Powers defended questions about whether it’s reasonable to assume an average return rate of 8 percent on the county’s pension fund, which has more than $2 billion invested and has seen much lower returns in recent years. Powers said that, while the markets have hit a rough patch, the average over the past 20 years has been at 8 percent. He also said the county amortizes its obligations out over 15 years, a more fiscally conservative approach than the 30 years used by other counties.

But the real fireworks were sparked by COLAs – so-called cost of living adjustments. Those adjustments increase the value of some county pensions by 3 percent a year. The taxpayers group argues that when COLAs are combined with the early age at which some officials retired, they essentially put the power of compound interest at work against the tax-paying public. A pensioner who retires with a $200,000 a year pension, for example, will be making $361,000 after 20 years.

Powers pointed out that in 1979, Ventura County cut off these COLAs for all civilian employees, and 80 percent of county employees do not receive them. Cops and firefighters, however, do receive them. While public safety officials represent a small percentage of retirees, they make up more than a majority of the county’s pension spending – their average pension is $80,000, while the average pension for civilian employees is $35,000.

Powers also touched on so-called pay-spiking. That is a practice in which county managers would take measures to increase their compensation during the last few years of work, with the inflated figure then used to calculate pensions. For example, county managers had the option to sell back unused vacation time to the county, raising their compensation as much as 35 to 40 percent and along with it their pension baseline.

Powers said the county discontinued vacation buybacks last year. He also highlighted that the county does not provide medical benefits to retirees, a major cost driver in other counties.
Jim McDermott, an attorney and vocal advocate for pension reform, said he remained unconvinced that anything but marginal reforms would take place. Because both elected officials and non-elected mangers see a personal financial benefit from the system, no one has much incentive to change it, McDermott said.

“I like what I’m hearing, but in the end I follow the money. How can I expect really meaningful change from the management and elected officials who are participants in the system?”
Powers responded by emphasizing that the public safety unions had voluntarily opened up their contracts to take pay decreases and that all unionized employees must now contribute 3 more percent points of their salaries to their retirement. That boosted contributions for most from 1 or 2 percent to 4 or 5 percent, Powers said.

The Business Times asked Powers about how salaries are determined for public employees. In most cases, those salaries are determined by pay for comparable work in other counties rather than private-sector positions within Ventura County. Powers said that public employees research what they could be making in other counties and that Ventura County has to stay competitive to win talent.

“People know. That is, in itself, a labor market,” he said. Ventura County CEO Mike Powers told a taxpayer group that Ventura’s pension system reforms have spurred similar actions around the state. But he faced tough questions from the group about retired public safety officers with six-figure pensions and the 22 officials who are bringing in more than $200,000 a year in retirement.

Powers spoke at the Las Posas Country Club on Jan. 27 to the annual dinner of the Ventura County Taxpayers Association, a group that has sharply criticized public employee pensions in the county and offered detailed proposals for reform. Powers, who took the reins last year, outlined the highlights of pension reform for a county government with a $1.7 billion budget and 8,000 employees.

As a percentage of payroll, pension obligations cost Ventura County 22 percent of payroll compared to Santa Barbara County’s 34 percent, Powers said. He also pointed out that the county’s pension fund is projected to have no unfunded obligations and that the county’s bonds have received the highest possible credit rating from Standard & Poor’s.

Powers defended questions about whether it’s reasonable to assume an average return rate of 8 percent on the county’s pension fund, which has more than $2 billion invested and has seen much lower returns in recent years.

Powers said that, while the markets have hit a rough patch, the average over the past 20 years has been at 8 percent. He also said the county amortizes its obligations out over 15 years, a more fiscally conservative approach than the 30 years used by other counties.

But the real fireworks were sparked by COLAs – so-called cost-of- living adjustments. Those adjustments increase the value of some county pensions by 3 percent a year. The taxpayers group argues that when COLAs are combined with the early age at which some officials retired, they essentially put the power of compound interest at work against the tax-paying public. A pensioner who retires with a $200,000 a year pension, for example, will be making $361,000 after 20 years.

Powers pointed out that in 1979, Ventura County cut off these COLAs for all civilian employees, and 80 percent of county employees do not receive them. Cops and firefighters, however, do receive them. While public safety officials represent a small percentage of retirees, they make up more than a majority of the county’s pension spending – their average pension is $80,000, while the average pension for civilian employees is $35,000.

Powers also touched on so-called pay-spiking. That is a practice in which county managers would take measures to increase their compensation during the last few years of work, with the inflated figure then used to calculate pensions. For example, county managers had the option to sell back unused vacation time to the county, raising their compensation as much as 35 to 40 percent and along with it their pension baseline.
Powers said the county discontinued vacation buybacks last year. He also highlighted that the county does not provide medical benefits to retirees, a major cost driver in other counties.

Jim McDermott, an attorney and vocal advocate for pension reform, said he remained unconvinced that anything but marginal reforms would take place. Because both elected officials and non-elected mangers see a personal financial benefit from the system, no one has much incentive to change it, McDermott said.

“I like what I’m hearing, but in the end I follow the money. How can I expect really meaningful change from the management and elected officials who are participants in the system?”

Powers responded by emphasizing that the public safety unions had voluntarily opened up their contracts to take pay decreases and that all unionized employees must now contribute 3 more percent points of their salaries to their retirement. That boosted contributions for most from 1 or 2 percent to 4 or 5 percent, Powers said.

The Business Times asked Powers about how salaries are determined for public employees. In most cases, those salaries are determined by pay for comparable work in other counties rather than private-sector positions within Ventura County. Powers said that public employees research what they could be making in other counties and that Ventura County has to stay competitive to win talent.

“People know. That is, in itself, a labor market,” he said.

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1 Comment

  1. apataki says:

    The 8% return assumption is ludicrous. To reach this number given current low bond yields the County is banking on massive gains in their non fixed-income portfolio over the next several yields. This is very unlikely to happen given the fact that the equity markets are richly valued at present.

    The fact that the county had 8% returns in the past means does guarantee they will occur in the future. In fact, quite the opposite. Periods of high returns (think 1980-2000) are usually followed by periods of low returns (2000-?). Markets are mean reverting.

    If Mr. Powers is so sure of these 8% returns than I am sure he would not mind his employees taking on this risk themselves: move them all to a defined contribution plan and get the taxpayers off the hook if his grandiose returns do not happen.

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