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
Filed Under: Community Commentary