Ship of Fools in Costa Mesa Crashes Into Pension Facts



Tuesday night, the hapless City Council in Costa Mesa got a huge bucket of cold water thrown on their outsourcing plans. It came from the CalPERs actuary, who patiently explained some of the costs of outsourcing that had been completely ignored in Riggy’s reckless war against public employees.

We may as well just begin with the end of Mayor Quimby’s last post;

But let’s go back to the question that nobody has asked.What happens to the CalPERS liability for employees who are outsourced? Based on public records requests to CalPERS, it appears that Terry Matz, interim Assistant CEO, finally sent an email on March 30th, asking about the cost of paying off the unfunded liability for sworn firemen, but nothing yet on what happens to the 39 million in unfunded liabilities for miscellaneous employees who are laid off.

Does Riggy think your unfunded liability just goes poof if you outsource your employees jobs? I sure wouldn’t want to be the staff member who had to tell him and Council Member Mensinger about that. Of course, budgets are just a “simple checkbook problem” to Riggy. “It’s not complicated.” Except when it is.

$88 Million over 10 years to Terminate Fire pension plan!

So what does it cost to outsource Costa Mesa’s Fire department? It turns out you can do it the hard way or do it the easy way. The hard way is to terminate the Fire Pension Plan at a cost of 8.8 million a year for ten years, which includes hefty risk premium assessments, and loses the benefit of CalPERs’ 13.1% earnings last year, and 18% earnings so far this year. The easy way avoids the penalty for early withdrawal, but the price tag on this option was estimated at 3.7 million for the first year, with unknown payments in following years and an unknown duration. This payment will probably go up for a few years, then start heading down.

They are sharpening their pencils over at the Orange County Fire Authority, looking at how to bring Costa Mesa firefighters and paramedics into their pension plan, but will they save 8.8 million a year?  Or even 3.7 million  the first year?

What about the unfunded pension liability for the rest of the noticed layoffs?

Richard Santos,  Senior Pension Actuary who is the Plan Actuary for Costa Mesa’s CalPERs plans,  didn’t have a firm answer. How could he?  Riggy’s  “Fire, Aim, Ready” approach to fiscal management didn’t start with any research other than a secret meeting between Riggy and the leprechaun Mayor. So there Santos made some guesses, which indicated very clearly that Costa Mesa somehow has to pay for the $39 million unfunded pension liability for the Costa Mesa employees who aren’t sworn police or fire.

Laying off employees from 18 departments will result in a substantial increase in Costa Mesa’s pension rates. It won’t kick in for two years, because of the lag in actuarial calculations, but it will raise Costa Mesa’s pension rates as fewer employees contribute to paying off the pension obligations. So we can project some short-term savings, but higher long-term costs.

Update: Now that the presentation is online, you can actually use the actuary’s rough estimates to show the cost of outsourcing departments other than sworn police and fire. Reducing the payroll by 25%, from $30 million to $22.5 million would only reduce the city’s cost by $6.8 million, not by $7.5 million, because the employer’s share of the  pension contribution for the remaining employees would increase from 22.7% to 26%. (Or using the scenario four numbers, which appear more likely, from 20.3% to 23.6%). Cutting half the payroll wouldn’t cut the budget by $15 million, but instead by $13.6 million, because the rate would go up from 20.3% to 30.2%, a 49% increase in the pension rate.

That unfunded liability doesn’t just go “poof”.

Fully Amortized?

It may have come as a shock to some of the union-haters out there, but that bugaboo they keep throwing out, the unfunded pension liability, is fully amortized over the next thirty years, with a hump of special three year smoothing to get over. So far the three-year special smoothing is working well, with CalPERs earning for 2009-10 at 13.1% and 2010-11 earnings at 18% so far in the fiscal year that ends in June. Costa Mesa will be looking at the lower pension rates in scenario four of the 2012-13 pension rates, which gives Costa Mesa more breathing room to work its way back from the Great Recession.

Why Do Orange County Republicans Hate America?

If you listen to Bever, Mensinger, Righeimer, and their gang, you have to wonder why they hate America and have no faith in any long-term economic growth.  Mensinger asks about another Great Recession like 2008 in the next five years. Bever dwells on the downside.

If they are really such doomsters, maybe they should be working on a Transition Town plan.

They seem completely unwilling to realize that CalPERS is a very long term investment vehicle or acknowledge that part of the huge losses from the financial meltdown are being recovered.

What About that 5 million Budget Gap for Next Year?

Well apparently the dog ate Bobby Young’s homework, because the advertised study session on pensions and the budget didn’t have any information about the budget. In a series of rambling, pointless exchanges under questioning from Katrina Foley, nobody would fess up to where Righeimer and Mensinger planned to increase spending.

They have a $5 million budget gap, but they can’t explain where it comes from yet? How do they know it’s $5 million?

Fund Balance?

Yep, the general fund balance is low, but the presentation on Monday didn’t get into the other special funds like the self-insurance fund or the capital funds that bring Costa Mesa’s pooled cash and investments over 60 million.

Costa Mesa  needs a balanced budget this year.  They also need to manage their cash to match when they receive revenues and start rebuilding their cash reserves. Is it time to start making plans to have the loans paid back from their redevelopment fund and their park fund, or at least start collecting the interest from the $10 million loan to their redevelopment fund?

What’s Next for Costa Mesa?

Pass the popcorn.

I can’t wait to see what happens as they release their budget projections.

I’m betting we will see more fear-mongering from Riggy.  It’s all he knows.

Traditional Media Sucks.

Joe Serna at the hapless Daily Pilot has written a typically innumerate story ( Experts Disagree!) and Cassidy at the Register has seized on factoids to prove that the pension crisis is even worse than they have predicted. ( Sky Falling Even Faster! ). Update. By comparison, Norberto Santana at the Voice of OC does the best job of accurate and balanced reporting.

Dumb Comment of the Night

I guess Steve Mensinger is on the Council as a foil to Righeimer. Who else could make Riggy look astute?

Mensy guessed that the reason for the volatility in CalPERS investments must be “real estate”. Not even close. Although CalPERS made some disastrous investments at the peak of the bubble, the bulk of CalPERs investments are in the global equity market. Real estate investments are only around 10% of the investment portfolio.









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