Part 5 of 7:

A New Reform Initiative is Proposed

Mayor Chuck Reed of San Jose is a genuine pension reform advocate. He has been working on a state-wide pension reform initiative for the last year. On Oct. 15th, the proposed initiative was filed with the state attorney general. Pacific Grove’s Mayor, a dyed-in-the-wool anti-pension reformer, endorsed the initiative. Because Pacific Grove is in CalPERS (San Jose is not), if the initiative is enacted, CalPERS will not implement it. But it is a good start towards reform.

Two of the cities in the state that spend the greatest portion of their budgets for pension costs are San Jose and Pacific Grove. Both spend over 20% of their budgets for pension costs.

The Reed initiative is similar to the 2010 initiative approved by 76% of Pagrovians. It allows cities to modify pensions for work not yet performed. In 2010, the Mayor was the only council member who opposed placing the Pacific Grove initiative on the ballot. As a Charter city, the initiative was legal, but as described earlier in part two of this series, the city attorney did not allow an honest defense of the initiative, so Pacific Grove lost a law suit about the initiative by default.

In 2013, when the legality of the 2010 Reed-like initiative was set for trial, I met with the Mayor and two other council members and informed them that the city attorney was in my view taking a dive in the law suit about the initiative. I requested but was not allowed to be interviewed by the law firm defending the case under the city attorney’s direction.

In 2009, it was discovered that a large pension increase granted in 2002 for police and fire had probably been adopted illegally. The Mayor and a majority of the council sided with the union-conflicted city attorney, who successfully urged them to disregard the matter and to refuse a presentation of the newly discovered evidence.

In 2012, Pacific Grove citizens collected over 1,000 signatures and a new initiative was certified to be placed on the ballot. But with the Mayor in the lead, the council has spent about $200,000 to date to keep the initiative from the voters by refusing to place the initiative on the ballot.

The latest Pacific Grove initiative repeals and rescinds the 2002 pension increase. If successful, the matter would then go to CalPERS, which has a set of rules relative to recalculating invalid pensions.

The mayor has said over and over that Pacific Grove is no worse off than surrounding cities regarding pension matters. He is dead wrong on the facts: Pacific Grove spends over two times more of its budget for pensions than any surrounding city. And, while Pacific Grove compares with surrounding cities in the size of its pension deficit, Pacific Grove has, in addition, a $36 million pension liability—which makes it twice as bad off.

Has the mayor had a change of heart? Will he now support the current Pacific Grove initiative and let the citizens vote on it, or is he just grabbing headlines? His conduct indicates the latter.

The Need for Deeper Reforms to Counteract a Rigged System

The Sarbanes-Oxley Act of 2002 (SOX) was enacted in response to major corporate, legal, and accounting scandals related to companies like Enron, Tyco, Adelphia, Peregrine, and WorldCom. As a result of SOX, top management, including legal and accounting, must certify that they have supplied complete and accurate information in their public reports. Penalties are severe.

Pacific Grove and other cities and counties need a SOX that applies to CalPERS, union officials, managers, attorneys, and department heads. In my view, if a SOX had been in place for CalPERS in 1999, when it defrauded the legislature into approving a 50% retroactive pension increase, the responsible CalPERS officials would still be in jail.

In my opinion, every incident that I have described in in this series occurred because of intentional and grossly negligent conduct by some or all of the Pacific Grove agencies involved, and of course by CalPERS. Many of my readers believe that the city councils should have seen through the flawed presentations, but I disagree. Must it be necessary for the council to distrust city staff? They deserve help. As an example, consider the 2002 adoption of the illegal pension increase for police and fire. My 40 years of experience as a trial attorney enabled me to pursue missing documents. One of those documents was the actuary report describing the cost of the new benefit: it was required to be in the hands of the council before it could adopt the 2002 pension increase, but had been intentionally hidden from them. The report meant little to me. But when I showed it to a member of that 2002 council (a Ph.D. in math from Caltech), he immediately realized that the council had been flagrantly defrauded into approving the massive pension increase.

A real problem in city government (since the legalization of public unions) is that there is no trained advocate for truth in government decision making. The present system has the unions and city management on the same side, both in favor of unconscionable salaries and pensions. It has created a runaway train-like effect for city and county finances. That has been accomplished by control of truth (or not), including the purchase of biased and “as requested” studies and legal opinions. Every city in Monterey County has an uncontrollable pension deficit, sparked by a system of raising salaries and benefits to the highest of any surrounding city (in total defiance of the laws of supply and demand). Pacific Grove is worse off than surrounding cities because management took higher risks in
a city with a low tax base. Greed has had no limits in Pacific Grove. I would like to see the Pacific Grove charter amended to provide for a “Citizens’ Advocate” elected every two years, to fully advise the council and citizens and to represent the city in collective bargaining. The advocate would be a contract auditor of the truth and completeness of staff proposals, and completely independent of staff.

In Pacific Grove, and in many other cities and counties, staff and legislative bodies act as if the destruction of its financial condition just happened and that no entity or officer was at fault. It is time to make Pacific Grove government responsible to its citizens. Reform is in order. The status quo is not an option. If not now, when? And of course electing qualified citizens to the council is key. Why won’t they run?

Read the entire series:

The Fall of Pacific Grove – How it Began, and How City Officials Fought Reform
 – Part 1, January 7, 2014

The Fall of Pacific Grove – How City Thwarted Reform, and CalPERS Squandered Surpluses
 – Part 2, January 14, 2014

The Fall of Pacific Grove – CalPERS Begins Calling Deficits “Side Funds,” Raises Annual Contributions
 – Part 3, January 21, 2014

The Fall of Pacific Grove – Outsourcing of Safety Services Causes Increased Pension Deficits
 – Part 4, January 28, 2014

The Fall of Pacific Grove – Anti-Pension Reform Mayor Claims to Favor Reed Pension Reform
 – Part 5, February 3, 2014

The Fall of Pacific Grove – Privately Owned Real Property are the Only Assets to Pay for Pensions
 – Part 6, February 11, 2014

The Fall of Pacific Grove – The Cover-Up by the City After the Hidden Actuarial Report Surfaced in 2009
 – Part 7, February 18, 2014

The Fall of Pacific Grove – Conclusion: The “California Rule” Cannot Stand
 – Conclusion, February 24, 2014

About the Author:  John M. Moore is a resident of Pacific Grove, Ca. He is a licensed member of the California State Bar (#34734) and a member of the “Public Law” section of the State Bar. He is retired and no longer practices law, but has Lexis/Nexis for research. John graduated from San Jose State College with majors in Political Science and Economics (summa cum laude). He then received a JD from The Stanford School of Law and practiced business and trial law for 40 years before retiring. In 1987, he was the founding partner of a Sacramento law firm that he formed in 1987 to take advantage of the increased bankruptcies brought about by the Tax Act of 1986. Although he did not file and manage bankruptcy cases, he represented clients in numerous litigation matters before the bankruptcy court, including several cases before judge Klein, the current judge of the Stockton bankruptcy case. He is an admirer of Judge Klein, for his ability and accuracy on the law. As managing partner, he understood the goals of bankruptcy filings and its benefits and limitations.

3 Responses to The Fall of Pacific Grove – Anti-Pension Reform Mayor Claims to Favor Reed Pension Reform

  1. Tough Love says:

    John, Keep up the good work. While your discussions are the history of Pacific Grove’s problems, the citizens in other cities (in CA and elsewhere) are starting to realize how they have been financially “mugged” by the Public Sector Unions/workers for the last 2 decades.

    Change will come… either through initiatives/legislation, or insolvency ….. because while it’s a political problem, it’s FUNDAMENTALLY a MATH problem with a tsunami building rapidly.

  2. J. D. Miller CPA, Vallejo, CA says:

    Is the cause “intentional and grossly negligent conduct” or is it a lack of integrity?

    Decades ago, before public employees could unionize, many people went to work for our local governments to do good for their communities. They knew they wouldn’t earn as much as in the private sector, but they would have job security, good benefits and a retirement that they could depend on.

    After public employees were allowed to unionize, their union representatives showed them how they could get a lot more. Then they took even more. At some point, they realized that because there was no resistance, they could have whatever they wanted. They could have it all!

    When did public employees stop wondering if their salaries and benefits and retirement packages were fair?
    When did public employees stop wondering if the people they were working for, the taxpayers, could afford to pay them everything they demanded?

    Wouldn’t integrity require that these public employees care about the people they serve in their City, those same people these public employees wanted to do good for decades ago?

    Wouldn’t integrity require that these public employees also care about their fellow employees, their union brothers and sisters, who are working for Pacific Grove, Vallejo, and all the other local governments throughout the State of California? Many of their union brothers and sisters will lose their jobs because there is no more money. It is being paid to CalPERS to pay for the retirement benefits of those who are now retired.

    Many of their union brothers and sisters will be laid off because the money that paid their salaries and benefits must now be paid to CalPERS to pay for the retirement benefits of those who are now retired.
    Eventually, every City in California could have no employees. None would be needed. The taxes will be collected automatically and transferred automatically to CalPERS to pay for the retirement benefits of former City employees.

    Only when public employees take back their integrity will things get better …for them and for the people they serve.

  3. Friends of Torrance says:

    Dear Editor,

    Please visit http://www.friendsoftorrance.com/critical_information_about_torrance_s_ca_pension_problems
    and read down about 11-12 paragraphs for validation of these statements.

    Great work………but I would like to ensure that all of the astute citizens who read your content should be informed that…….

    On Oct 30 2013, the Wall Street Journal identified Torrance as having the 10th highest pension costs as a percentage of its General Fund out of the 250 largest cities in the nation. See here for WSJ Article (Need online access) NB_WSJ_Revised_10th_Highest_Jan102014.png

    Interactive data from the Wall Street Journal’s “Pension Pinch Busts City Budgets” article above verifies that highly respected financial analysis firms are keenly aware that Torrance’s current pension system is impacting our financial solvency.

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