PENSIONS: What they were thinking
Beverly Johnson had been on Alameda’s City Council for less than two years in 2000 when city staff approached her and other council members about upgrading public safety workers’ pensions.
Three months earlier, Governor Gray Davis and the state Legislature had authorized cities, counties and other agencies participating in the CalPERS retirement system to negotiate new public safety pensions that would allow workers to retire at 50 with 3 percent of their top salary for each year served. The new rules were approved almost unanimously after state leaders were told by CalPERS – which co-sponsored one of the bills authorizing the benefit increases – that the pension fund had a surplus of cash and that municipalities paying into it wouldn’t pay a cent more in contribution rates in the decade to come.
After receiving assurances from city staff that the changes wouldn’t cost the city anything, Johnson said, the council – unanimously and without debate – approved the benefit bumps, first for police and several months later, firefighters. But eventually, she said, she learned that all those assurances were for naught.
Now city leaders in Alameda, like cities across the state, are trying to cope with pension costs that are expected to grow sharply over the next several years, in part to compensate for investment losses CalPERS suffered when the stock and housing markets crashed in 2008. Alameda’s contribution rates are expected to rise to 45 percent of public safety workers’ salaries, from 31 percent now and 19 percent for the rest of the city’s employees, from 13 percent now, by 2015-2016 the city’s projections show. City staffers told the council in late March that they expect their pension contribution costs to rise by $1.75 million next year alone.
“It comes down to having to lay off police and firefighters to pay your PERS costs. That’s the choice cities need to make,” said Johnson, who has since emerged as one of the council’s strongest critics of the cost of public safety workers’ retirement benefits. (The city’s other employees get 2 percent of their top salary for each year they work and can retire at age 55.)
As part of a series of stories on pension costs, The Island contacted the three surviving members of the City Council that approved the enhanced benefit. Former City Councilwoman Barbara Kerr could not be reached for comment, and former councilman and recent mayoral candidate Tony Daysog declined to comment, saying he was gathering his thoughts in order to write his own opinion piece on the matter.
Daysog, who served on the city’s Fiscal Sustainability Committee in 2008-2009, told The Island when he ran for mayor in 2010 that he’d place public safety workers on furlough days in order to save money to pay for pension and retiree health benefits, and also that he would seek to create a two-tiered retirement system for public safety workers that would include a 401(k)-style defined contribution plan, hold down salary increases and open labor negotiations for public view.
Johnson said the pension increases were approved at a time when the state’s economy was flush and cities actively competed with each other and the private sector for workers, particularly police officers, who some cities were paying signing bonuses to hire. She said the city needed to offer the benefit in order to effectively compete for workers but that Alameda now needs to adapt to its reduced circumstances.
“At that time the economy was really strong. It was hard to hire people for jobs in the police department and for other city jobs,” said Johnson, whose husband is a police officer in another city. “Once you do that on a statewide basis when people are competing for jobs, you have to (do it locally too).”
Johnson said the city’s then-manager, Jim Flint, had promised to eliminate police retention pay and freeze positions in order to pay for the enhanced retirement benefit for police; she said those items were put back into police officers’ contract after the council approved it. Staff reports generated when the changes were made showed that the benefit would cost close to $854,000 a year for police officers and managers; the roughly $880,o00 a year in increased costs for firefighters and fire department managers was to be covered by freezing and cutting positions and trimming funding.
The city-run pension plan public safety employees had been in before entering the CalPERS system offered cost of living increases and no health care, the city’s human resources director, Karen Willis, said; an earlier plan offered to safety retirees raises every time active employees received them, allowing them to earn more in retirement than they had when they were working, Johnson said.
She said former City Manager Debra Kurita, who began working for Alameda in 2007, had tried to convince the council to increase pension benefits for non-safety employees but the council opted not to.
Johnson and other city leaders later discovered the new pensions were “not sustainable,” she said. And cities and other agencies that invest in the PERS system – and by extension, the taxpayers in those places – are now stuck covering those losses, she said.
“They were falsely reassuring cities, ‘don’t worry about paying pensions’ – our investments will pay,” Johnson said of CalPERS.
Johnson said she’s encouraged by efforts that have been made at the bargaining table to address pension and retiree health care costs. So far, Alameda’s firefighters have hammered out a tentative contract with the city, but the details have not yet been made public.
“We can’t fix everything in one fell swoop. But there are significant steps forward,” Johnson said. “And we will keep working on the issue.”