Leaders didn’t think CalPERS increases would be a problem
James Rufus Koren, Staff Writer
Posted: 04/23/2011 08:03:04 PM PDT

Unions wanted them. Pension managers said they were affordable. Elected officials approved them.

But improved pension benefits granted to public employees over the past 12 years are now costing local governments dearly. And for that, officials acknowledge, there’s plenty of blame to go around.

“I think everybody got it wrong,” said former state Sen. Jim Brulte, a Republican who represented much of San Bernardino County and voted in 1999 to give better pensions to state workers.

Looking back, local leaders say overly optimistic assumptions about the economy spurred the state and some cities and counties to raise pension benefits, especially for public safety personnel, starting a chain reaction that eventually pushed other agencies to follow suit.

“It was a frenzy,” said San Bernardino County CEO Greg Devereaux. “It was a frenzy based on bad information.”

Strong approval

In 1999, Brulte and 38 other state senators – Republicans and Democrats alike – approved a bill that gave expanded pensions to most state workers. The bill gave lucrative “3-at-50″ pensions, which allow workers to retire at age 50 with three percent of their final pay multiplied by each year of service, to California Highway Patrol officers.

For instance, if an officer with 30 years on the force retired at age 50 with a final salary of $75,000, the officer would earn $67,500 per year for the rest of their lives.

At the time, officials from the California Public Employees’ Retirement System, or CalPERS, said the state could easily afford the added benefits.

“I remember, we quizzed the CalPERS folks on whether they could assure us there would be no additional hit to the (state) general fund,” Brulte said. “They assured us that would be the case. Which is why I think it passed nearly unanimously.”

Indeed, the bill, SB 400, passed 39-0 in the Senate and 70-7 in the Assembly. According to the Assembly analysis of the bill, even with the added benefits, the state would pay less than $800 million per year for pensions through 2009.

“Boy, the CalPERS people were definitely wrong about that,” Brulte said.

In fact, the state’s pension costs climbed dramatically – helped along by subsequent additions to employee benefits – rising to $2.8 billion in 2008-09.

Pension bandwagon

After the state raised its pensions, many cities, counties and other local government agencies followed suit.

In 2000, 49 local agencies gave 3-at-50 pensions to their police officers or firefighters. In 2001, 116 more agencies did the same. Colton and Chino police officers got 3-at-50 in 2000, Colton firefighters got it in 2001, as did Banning and Beaumont police officers.

Devereaux, who was then the city manager of Ontario, said CalPERS was telling cities the same thing they’d told the state: that the added benefits would be affordable.

“The costs they were putting out for 3-at-50, they were relatively low,” he said.

At the time, cities were paying little or nothing for their pension plans. San Bernardino County, which has its own retirement system separate from CalPERS, paid nothing for most employees and only 2.3 percent of pay for public safety employees in the 2002 fiscal year.

That made it difficult to argue against the bigger pensions when unions came to ask for them.

“It became very difficult for local staff to explain some of the inherent risks of (Cal)PERS not meeting their earning projections,” Devereaux said. “It’s hard for a local staff to have credibility over the agency managing the money.”

Asked about Devereaux’s assertion that the agency essentially encouraged cities to boost pensions, CalPERS spokesman Wayne Davis said only, “Our job is to provide all the information we can for the local agencies to make informed decisions.”

A bargaining chip

After steady growth through the ’90s, the stock market became more volatile in 2000 and took big hits in 2001 and 2002.

But in 2002 and 2003, agencies continued to add 3-at-50 pension benefits. This time, instead of rosy economic projections, officials say they were motivated by competition and by what they thought might be a good bargain.

“The sheriff thought he wasn’t going to be able to recruit employees if he couldn’t compete with what the state and other agencies were doing,” said Dennis Hansberger, a former San Bernardino County Supervisor who voted in 2003 to approve 3-at-50 pensions for sheriff’s deputies. “He was saying, `If I can’t offer those sorts of wages and benefits, how am I going to keep my force?”‘

Jim Erwin, who at that time was president of the union representing sheriff’s deputies – the San Bernardino County Safety Employees’ Benefit Association – said the county got more out of the deal than a recruiting tool.

In an unrelated matter, Erwin is charged with conspiracy to commit a crime, bribery and perjury in connection with a corruption probe involving a $102 million settlement San Bernardino County reached in 2006.

In 1997, the California Supreme Court ruled that some of the benefits public employees had received over the years – such as uniform allowances or car allowances – had to count toward employee pensions.

“That caused a huge increase in the benefits people are entitled to, and it was ordered by the courts,” said San Bernardino County Treasurer-Tax Collector Larry Walker.

After an appeals process, the court’s decision in the case – known as the Ventura case – was finalized in 2003. Erwin said sheriff’s deputies settled with the county on the Ventura case in the process of negotiating 3-at-50 pension benefits.

“They said, `We won’t argue over Ventura if you give us this,”‘ said John Michaelson, the county’s former chief administrative officer. “It was a bargaining chip for them and it would have cost the county something.”

And even without that chip, Erwin and Michaelson said the county pension fund was doing relatively well at the time.

Public employee unions have money and political clout, and the deputies’ union – the San Bernardino County Safety Employees’ Benefit Association – was, and is, a big contributor to the campaigns of county leaders. But Erwin said sheriff’s deputies wouldn’t have gotten 3-at-50 pensions if anyone had foreseen the recession that, in 2003, was only five years away.

“If they did (see it coming), there’s no way we would have gotten 3-at-50,” he said. “All the (political action committee) money in the world wouldn’t have gotten that through.”

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