[Marin County] San Rafael protests No. 1 pension tab ranking

Blog note: this article references two grand jury repors.

Marin’s “city with a mission” is crying foul over a new report that slaps San Rafael with the No. 1 ranking for pension debtors in the state.

“We’re not trying to make excuses,” said San Rafael Mayor Gary Phillips. “We just want there to be a level playing field.”

At issue is a recent California state auditor report, “Local Government High Risk Dashboard,” that pinpoints which of 470 cities in the state are most financially strapped in 10 different areas, including pensions. Neither San Rafael nor any other Marin cities made the list of top 18 cities highlighted as being the most high-risk overall — the mission city was No. 36  — but San Rafael did place No. 1 in the pension category.

That is misleading, according to Phillips, because the dashboard fails to note that San Rafael is not part of the California Public Employees Retirement System — as are most of other cities surveyed. San Rafael is a member of the Marin County Employees Retirement Association, which specifies a faster rate to pay down pension debt than CalPERS.

“It’s like the difference between a 30-year mortgage and a 15-year mortgage,” Phillips said. As such, San Rafael’s pension debt payments are larger, but the debt will be paid off sooner, at a lower cost, said Nadine Hade, the city’s finance director.

“A significant reduction in contribution rates is projected for 2030-2031, as the bulk of the unfunded liability will have been paid off due to a shorter amortization period,” Hade said in an email. “Given CalPERS has a longer amortization period, it will not be the case for them and I would expect their costs will be greater.”

Margarita Fernandez, public affairs chief for the California state auditor’s office, said the dashboard report was meant to be a point of reference and transparency and not a fiscal hammer.

“We do not correct for the differences between CalPERS and other retirement systems,” she said in an email. “The tool is intended to generate the discussion and assessments to determine if a city is in fact in fiscal stress or if perhaps there are some reasons why the indicators may be high or low.”

Richard Tait, a spokesman for the Marin-based grassroots group Citizens for Sustainable Pension Plans, said San Rafael’s high rate of debt payoff comes with a price.

“It’s not a bad thing to pay off your debts, but it does impact the amount left over for critical city services,” he said Monday.

Unfunded liability means the amount of pension benefits that are promised and owed to employees over the term of their retirement, but which is not currently covered by cash on hand. In 2017, a Marin County Civil Grand Jury report, “The Budget Squeeze: How Will Marin Fund its Public Employee Pensions?” indicated the county’s public agencies had a total combined unfunded pension liability of at least $1 billion.

According to Hade, San Rafael’s net pension liability was $110,567,858 as of June 30. Although the amount paid down differs each year, she said, “for the fiscal year ending June 30, 2019, we paid down $13.8 million of the unfunded liability. This was approximately 68% of our pension expense for the year.” The city’s annual revenue as of June 30 was $123,179,437.

Jeff Wickman, retirement administrator for MCERA, said the auditor’s report, which uses 2016-17 data, appears to base its pension-related rankings largely on the ratio of pension debt paid off as a percentage of the city’s revenue. He said San Rafael’s ratio has consistently gone up over the last two years, and its pension debt has gone down.

“San Rafael’s funding in our plan has been steadfastly improving,” Wickman said. “Our plan is more aggressive in terms of contributions (from employers and employees). We’re trying to achieve 100% funding.”

Wickman said the MCERA member employers and employees pay at higher contribution rates “so that we’re not relying as much on the return on our investments” to fund the program.

San Rafael has come under fire before about its pensions. In 2017, the California Policy Center, a nonprofit watchdog research group, also ranked the city as No. 1 in spending to pay down its pension debt.

“The issue of the high percentage of pension contributions to revenue ratios in San Rafael, at 18.25%, was first highlighted (some months ago),” said Jody Morales, a member of Citizens for Sustainable Pension Plans.

“As I recall, it was Marc Joffe who then made the statement that anything over 10% signals a real problem,” Morales added in an email. “Tweaking around the edges of the problem has had little to no positive impact in San Rafael – or most government entities. It is evident that PEPRA (Public Employee Pension Reform Act) offered no real relief when instituted in 2013. Gov. Brown’s original proposals went much further, but were – unfortunately – greatly watered down by the legislators.”

In June 2017, pension watchdog David Brown of Mill Valley filed suit against San Rafael, alleging that it did not follow due process regarding advance public notice and scrutiny of the eventual costs when it approved “enhancements” on pension benefits for public safety workers. The suit, which later ran into some technicalities and failed to go forward, drew from a 2015-16 Marin County Civil Grand Jury report that criticized pension benefit “enhancements,” for the Southern Marin fire district, Novato, San Rafael and Marin County.

Meanwhile, Jim Schutz, San Rafael city manager, said Wickman was in the process of contacting the state to clarify the numbers used in the auditor’s report for the county-run pension plans, such as MCERA. According to the website for the report, the state may have used a different set of pension numbers for MCERA and the other non-CalPERS pension plans.

November 4, 2019

Marin Independent Journal

By Keri Brenner