San Bernardino Seal

By Ed Mendel
May 26, 2015

A San Bernardino plan to exit bankruptcy follows the path of the Vallejo and Stockton exit plans, cutting bond debt and retiree health care but not pensions. Then it veers off in a new direction: contracting for fire, waste management and other services.

The contract services are expected to reduce city pension costs. Other pension savings come from a sharp increase in employee payments toward pensions and from a payment of only 1 percent on a $50 million bond issued in 2005 to cover pensions costs.

Last week, a member of the city council had a question as a long-delayed “plan of adjustment” to exit the bankruptcy, declared in August 2012, was approved on a 6-to-1 vote, meeting a May 30 deadline imposed by a federal judge.

“The justification from what I’m understanding from the plan — the justification for contracting is more or less to save the city from the pension obligation. Is that correct?” said Councilman Henry Nickel.

One of the slides outlining the summary of the recovery plan said: “CalPERS costs continue to escalate, making in-house service provision for certain functions unsustainable.”

The city manager, Allen Parker, told Nickel “that’s part of it” but not the “entirety.”

In addition to pension savings, he said, contracting with a private firm for refuse collection now handled through a special fund is expected to yield a “$5 million payment up front” into the deficit-ridden city general fund.

Parker said the California Public Employees Retirement System safety rate for firefighters is between 45 and 55 percent of base pay. “So if you have a fireman making say $100,000 a year, there is another $50,000 a year that goes to CalPERS,” he said.

An actuary estimated that contracting for fire services could save the city $2 million a year in pension costs, Parker said. The city expects total savings of $7 million or more a year, similar to a Santa Ana contract with the Orange County Fire Authority.

Unlike other unions, firefighters have not voluntarily agreed to help the struggling city by taking a 10 percent pay cut and foregoing merit increases. The cost of firefighter overtime has averaged $6.5 million in recent years.

After the court allowed the city to overturn a firefighter contract requiring “constant manning” last year, the city expected reduced staffing during off-hours. But overtime has not decreased, wiping out anticipated savings of $2.5 million this year.

Negotiations with the firefighters are difficult, Parker said, and their union has filed several lawsuits. He said the situation is “out of hand” and “can’t be contained,” part of the reason for the plan to contract for fire services.

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