Encinitas is bound to be our own little Greek tragedy

By Charlie McDermott

The city of Encinitas is in the midst of a financial crisis, but you wouldn’t know it by walking around town. During the 2004 Olympic Games you also could not tell that Greece was past the point of no return and poised to go down in flames, have a banker appointed to rule the country, and Germans deciding who gets paid and who doesn’t. And more surprising, no one could have guessed that the remaining elected Greek politicians would be begging to go along with such plans.Any reasonable person who looks under the city’s hood will see a Greek tragedy in the making. Encinitas, like Greece, has very significant unfunded financial liabilities, incompetent management, and politicians that are 100 percent beholden to public employee unions and select developers.

Informed citizens are already upset with our failing roads, boondoggles like the Hall Property, up-zoning, and the appointment of Fire Chief Muir to the Encinitas City Council. However, all these issues are just the tentacles of the same squid, which is our unfunded pension liability.

The Council needs to find an additional $50 million so that it can make good on its promises to guarantee that all current city employees retire with multi-million dollar taxpayer guaranteed pensions after 30 years of service. That $50 million represents 100 years of road maintenance, five new fire stations, $2,076 per household, or a few $ million per future city retiree.

How did we get here? Well, back in 2005 the Council voted to raise the annual retirement payout calculation from 60 percent of employees’ highest 12 months pay to 81 percent (i.e., 2.7 percent at 55). In addition, safety employees are paid at 90 percent (i.e., 3 percent at 55). These major increases in annual lifetime payouts were made without immediately adding additional money to the pension fund or requiring employees, to pay anything additional towards their retirement. In fact, safety employees have paid a total of $0.00 into their pension plans.

The current pension hole is so large because the individual payouts are very significant. The city needs to bank about $1 million per retiree by age 55 for every $45,000 they will collect in annual retirement payouts. And with the top 72 city earners making between $100,000 and $220,000 in 2010, the city needs to have $2.2 million to $4.8 million ready for each employee by the time they retire.

In addition, CalPERS (the retirement plan administrator) uses a very unrealistic though politically expedient, metric of 7.75 percent to estimate the rate of return on the money they have in the bank. As those of us with 401Ks know, the stock market and the real estate market took a big drop and thus you had to adjust your expectations about retirement and savings. However, our city employees were guaranteed their new higher payout by you, the taxpayer, no matter what happens to their CalPERS investment funds.

This idea of locking in a massive increase in payout while having the public cover all the potential losses may seem unfair. However, it is the lies and cover up that followed pension collapse that should get the apathetic voter base motivated to demand change now.

It was very clear in 2008 that there was no way (except for massive inflation) for CalPERS to ever safely meet their 7.75 percent return target with treasuries yielding 1 to 4 percent and cash near 0 percent. So instead of lowering the 7.75 percent metric and pumping more money into the fund, they kept it high and used other fraudulent retrospective math tricks to enable the city to systematically underfund the pension. Why? Because CalPERS knows that cities cannot afford to begin making the necessary payments to bring the system back to solvency.

According to the most recent CalPERS Actuarial Report for the city of Encinitas, the funded status of the pension is as follows: Fire/Lifeguard Plan is 66 percent funded (-$12.6 million liability [est.]), Misc. Employee Plan is 59 percent funded (-$25 million liability), Water District Plan is 62 percent funded ($2 million liability [est.]), and health pension is only 4 percent funded (-$9 million liability). Thus today we are at least -$50 million short in our retirement plan funding on an Accrued Liability versus Market Value of Assets basis.

Though our Council knowingly conspires with city management, CalPERS and the employee unions to allow them to accrue massive lifetime payouts, they cannot cover up the massive gap in their own reports.

Lastly, these pension payouts are a superior obligation of the city and they will be paid before funding any services, including sheriffs. And with the state releasing thousands of criminals onto the streets I want the city to be able to afford sheriffs.

If we choose to continue to elect the puppets of special interests like Stocks, Gaspar, Bond, and Muir we will be forced to face the music at a much later date when all the options will be grim as opposed to unpleasant — and like the Greeks, these decisions will be made for us by faceless and heartless investors who run the muni-bond market.

Thus, to the useful idiots on the Council I say, “Keep on handing out those raises to your paymasters, because wealthy outside interests who literally want to own our city are counting on you to hand them the keys to our prized public assets.”

Links to data used may be found online at https://docs.google.com/spreadsheet/ccc?key=0AvkXNcnZ_7P9dE0wQjNjdVJVUE1BN1RsUk54cnczeXc#gid=0 and http://www.scribd.com/EncinitasProject

 

Charlie McDermott is an Encinitas Resident

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  1. Cyrus Kamada says:

    Charlie, what would be the result of issuing pension obligation bonds – essentially paying off one debt with another. A number of other California cities have gone this route, and it’s compared to arbitrage, where you depend on paying off a debt with another debt on which you are paying lower interest rates than you are making on your investments. I understand that the courts have found that cities can issue these bonds without a vote of the public. Is this where we are heading?

  2. General Plan Protest says:

    Another tragic aspect of this story is the quality of work for which we are paying certain City employees for in the first place. We have had several full-time planners dedicated to the General Plan update for the past 2 years–some of whom are paid 6 figures, who we will be paying for the rest of their lives.

    We still have no valid research because of the corrupted methods and poor controls of this project at every stage even after paying MIG consultants over a million and paying Planning staff. Our 1,100 Draft plan has already cost us almost $200 per page, and is over twice as long as the plan for the County of San Diego–which has over 3 million people.

    At last night’s first reboot of the General Plan Open House, Patrick Murphy was distributing CD copies of the plan that Council rejected since they said that the Housing and Land Use Elements had to be thrown out.

    They should do a recall on these disks–they shouldn’t be distributing more. Why do they ignore the direction of City Council members?

  3. Clark Schnell says:

    No money for anything but pensions any more. It used to be that the public servants worked for us, now we work for them and their pensions.

  4. Rudi Paulaner says:

    As all of us get up every morning and go to work well into our senior years, let’s be thankful for all the sacrifices these civil servants have made. They are willing to accept 20 pecent less than their working pay to be retired.

    Wake up tax payers!!!

    • Clark Schnell says:

      Now that is funny! 20% would be a gift, but Rudy, half these guys jump out early on disability, buy years off retirement, come back for a second career after retiring at 51 years of age, work day rates at the fire house for $1000 a day, etc… I think Charlie is going way too easy on these city employees.

      We need a 40% haircut on all public employees across the board! Supercuts here we come!!

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