$1.8M goes to Hinkley School water system
February 02, 2012 5:11 PM
KATIE LUCIA, Staff Writer

HINKLEY • The regional water board signed a $3.6 million agreement with Pacific Gas and Electric on Wednesday night, dedicating half of that money to build a new water filtration system at the Hinkley School.

The settlement was concerning PG&E’s violation of their cleanup order requiring them to contain the rapidly growing plume of water that’s contaminated by chromium 6, a cancer-causing metal, said Lauri Kemper, assistant executive officer of the Lahontan Regional Water Quality Control Board.

PG&E pushed to have as much of that settlement money given to the community as possible, according to company spokesman Jeff Smith. They decided on a water system for the school after community members voiced concerns about the facility’s quality of water. Currently PG&E supplies bottled water to the school to address those concerns.

“It’s good to see the school got (that money) so they can put a new water system up there and take care of the kids,” said Hinkley resident Jim Dodd, who serves on the community advisory committee. “It’s just nice to see something getting done.”

Barstow Unified School District Interim Superintendent Jeff Malan said the district was excited about the news and looked forward to working with PG&E and the water board.

PG&E is responsible for cleanup and containment of the contamination of chromium 6 that leaked into the groundwater from PG&E’s cooling towers in the 1960s.

The water board, which is overseeing the cleanup, issued a notice of violation to PG&E in 2009 after the company found the contamination was on the move, Kemper said. In the last three months alone the plume has extended more than one mile, she said.

The company maintains there was no actual violation, Smith said, as the change in plume boundary is due to new information gathered from recently installed monitoring wells rather than actual migration.

While Kemper agrees there may have been contamination not previously discovered in the area, she said there is substantial evidence the contamination is in fact migrating north.

The notice was issued after PG&E found one of their monitoring wells was reading higher levels of chromium 6, Kemper said. The well, located on Alcudia Road, used to read less than the maximum background level of 3.1 parts per billion, but increased to 9.5 parts per billion. Increased chromium 6 levels were also found in private wells, she said.

Kemper said the contamination is growing primarily because the groundwater naturally moves north. Additionally, individual pumps may be pulling the water in that direction.

Had the two not reached a settlement, the board could have imposed a maximum fine of $5.5 million or recommended the case to the state Attorney General’s office. In either case, all of the money would have gone to the state water board’s fund and none to the community.

PG&E and the water board will be hosting a meeting to describe the settlement agreement and hear public comments on the matter. The meeting will be from 6:30 to 8:30 p.m. Feb. 16 at the Hinkley School, 37600 Hinkley Road

Katie Lucia may be reached at (760) 256-4123 or KLucia@DesertDispatch.com.

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Mike Cruz, The (San Bernardino County) Sun
Created: 01/30/2012 10:27:09 AM PST

RANCHO CUCAMONGA – A workplace discrimination lawsuit has been filed in Superior Court against Ontario Police Chief Eric Hopley by his former administrative assistant Brenda Vallejo.

Vallejo alleges in the lawsuit that Hopley and the city discriminated against her when she returned from family medical leave in July 2010. She had received treatment for thyroid cancer.

Upon returning to work, Vallejo alleges Hopley’s demeanor and behavior toward her changed. Specifically, Hopley created a hostile work environment and reassigned her to work with a sergeant.

Vallejo considered the move a wrongful demotion that was not comparable to the duties and responsibilities she had when working with Hopley. Weeks later, Vallejo was reassigned again to the Detective Bureau.

“When she got sick, everything changed,” said Vallejo’s lawyer Sandra L. Noel, of Redlands. “His attitude towards her changed.”

Hopley spoke to Vallejo in a demeaning and hostile manner, refused to respond to her greetings, made demeaning facial expressions, shunned her and excluded her from information needed to perform her duties, according to the lawsuit.

Vallejo’s work with Hopley, which was often of a confidential nature, was given to other individuals, her lawyer explained.

“He made a concerted effort to let her know she was no longer wanted,” said Noel. At the time of her medical leave, Vallejo had been with the department for a year.

To read entire story, click here.

Understaffed, overwhelmed, Riverside and San Bernardino county officials say the verdict is few options on further cuts

RICHARD K. De ATLEY/Staff

RICHARD K. De ATLEY
STAFF WRITER
rdeatley@pe.com

Published: 29 January 2012 07:33 PM

Like passengers on a plane with half the engines snuffed, Inland court officials can only wait and watch as Gov. Jerry Brown’s proposed budget for next year fiscal year moves through the state’s political turbulence.

After four years of cuts reduced the statewide court budget by nearly $653 million — losses passed on to the state’s 58 superior courts, including $5.7 million slashed for Riverside County and $6.1 million for San Bernardino County courts for the current fiscal year — Brown has no further cuts proposed in his new budget.

But there’s a catch: Brown’s budget is based on his tax package getting approved. If it doesn’t, an additional $125 million in cuts to the courts will be imposed.

And court officials have expressed ambivalence about Brown’s proposed revenue plan of increasing fees and fines to raise $50 million.

“We do have money problems but the fees and fines are getting to be a problem for folks who are coming in for civil cases and family law cases,” said San Bernardino County Court Executive Officer Stephen H. Nash in a phone interview. “We do appreciate the governor’s support for new money, but we are not excited about higher fees.”

The interest in court funding is especially keen in Riverside and San Bernardino counties, where courts for years have been seriously understaffed as the counties’ populations each soared past 2 million during the past decade.

The state Judicial Council funds county courts based on the number of judicial officers, not population.

Riverside County has 76 judicial positions, including judges and commissioners, but a recent workload assessment report that was assigned by the state Judicial Council said it should have 150.

San Bernardino has 86 judges and commissioners combined, and likewise needs 150. The two courts have the highest caseloads-per-judge in the state for large population counties.

Another round of deep cuts could overwhelm their systems.

‘KEEP THE COURTS OPEN’

“The goal is to keep the courts open,” Riverside County Court Executive Officer Sherri Carter said. “We really want to do that without furloughs or layoffs because we don’t have the staff to do the work we have now.”

Riverside County officials fear a return to the backlogged court struggles of a few years ago, when civil cases sat unheard and a strike force of 12 judges was dispatched to the county to handle its longest-pending criminal cases.

Riverside County has depended for years on assigned judges — retired jurists sent by the state Administrative Office of the Courts to counties that need extra help with their case workload.

While the state pays the assigned judges’ salaries, the local courts have to pay for their courtroom personnel. And there is no extra staff in the clerk’s office to handle the work generated by the assigned judges.

Carter said the cost to the courts is “in the millions.”

Riverside County Superior Court has already reduced the number of assigned judges from 22 a day to 15, “and that just keeps our heads above water,” Riverside County Presiding Judge Sherrill Ellsworth said.

But “if we are looking under rocks” to save money, further cuts in the assigned judges program would have to be considered, she said.

Also threatened are the collaborative courts, in which prosecutors, defense attorneys, probation officers and social workers cooperate in programs designed to help selected defendants return to productive roles in society.

Veterans, domestic violence cases, and drug offenders are among the specialized courts.

“We have done a good job addressing those issues and being a full-service court,” Ellsworth said, but all of it is threatened by further substantial cuts, she said.

To read entire story, click here.

By Howard Mintz hmintz@mercurynews.com
Posted: 01/30/2012 06:56:26 AM PST
Updated: 01/30/2012 07:31:17 AM PST

With a crucial vote looming Monday, a conflict that has shaken California’s judiciary reaches a critical stage when the Assembly considers legislation that would strip control of most of the court system’s purse strings from a central bureaucracy and turn it over to the Legislature and local trial judges.

The yearlong battle over control of the court system’s $3 billion budget reached a boiling point this week as Chief Justice Tani Cantil-Sakauye began a campaign to kill the legislation sponsored by Charles Calderon, D-Whittier, the Assembly’s ranking Democrat.

The Assembly must vote on Monday, otherwise the legislation will die for at least the remainder of this year.

Calderon’s bill, backed by labor groups and a splinter organization of the state’s judges, would largely scrap a 15-year-old state law that centralized court supervision and budget authority among California’s 58 trial courts.

The struggle for power over local court budgets could shape how judges deal with everything from how they pay for legal services for the poor to setting filing fees for lawsuits for years to come.

The legislation exposes a rare public rift within California’s sprawling judiciary, which has been rife with infighting over how hundreds of millions of dollars in budget cuts are being spread through the nation’s largest state court system.

The primary target of critics of the current system has been the Administrative Office of the Courts, the court bureaucracy, and the Judicial Council, chaired by the chief justice and the policy arm of the court system.

The Bay Area’s trial courts are an example of the division.

The presiding judges of 44 of the trial courts signed onto a letter this month opposing the legislation, but there was a mix in the Bay Area.

Santa Clara, Contra Costa, Santa Cruz and Monterey counties signed the letter, but Alameda, San Mateo and San Francisco did not. The latter counties are among those forced to shrink staff dramatically and shorten public hours at clerk’s offices to close budget gaps.

In an interview this week with the Mercury News editorial board, Cantil-Sakauye warned that Calderon’s legislation would be a disaster for most trial courts, producing unfair results for many counties and injecting politics into funding for the judiciary. She noted that Los Angeles Superior Court, which backs the change, would be able to veto important statewide legal programs with scant support from other counties.

“What we lose is uniformity,” the chief justice said. “We abdicate decision making about the policies of the judicial branch, the nonpolitical branch, to the Legislature.”

To read entire story, click here.

Executive Editor Frank Pine
Posted: 01/28/2012 05:38:39 PM PST

San Bernardino County’s Board of Supervisors asked county lawyers last week to draft language for a ballot measure that would give voters the final say on increases to pension benefits for public employees.

Supervisors Janice Rutherford, Gary Ovitt and Josie Gonzales voted yea with supervisors Brad Mitzelfelt and Neil Derry voting nay.

Gonzales and Mitzelfelt both expressed at least a little ambivalence, saying they wanted to wait and see the final language of the ballot measure before committing.

We didn’t quote Derry in our story, but he was the first person to comment on it once it was posted on our website, and the nuance of his nay is significant.

Derry: “This wasn’t pension reform. It was a feel-good measure that would have had zero impact on current employee pensions and would create a significant roadblock to negotiating pension reductions in the future. How is it `reform’ if the pensions aren’t being changed?”

Mere hours after the board made its decision Tuesday, the head of the county’s most powerful union – the Safety Employees Benefit Association – announced it would fund an initiative to cut supervisors’ pay by reducing their employment status to part time.

Union president Laren Leichliter said the SEBA announcement was not intended to intimidate supervisors and noted that signature gatherers were collecting names the Thursday before the pension item was placed on the supervisors’ agenda.

His quote: “All our elected officials, according to them they’re all overpaid, so we’re just trying to assist them in their progression of trying to save county residents money,” Leichliter said.

Maybe that’s the case, but the timing is pretty suspect and it’s hard to see this as anything other than the latest example of the rough-and-tumble politics of San Bernardino County in particular and California in general.

The real issue here, however, appears to be the county’s ongoing contract negotiations with SEBA. As the county struggles to close daunting budget shortfalls, those negotiations have been anything but smooth.

In December, the county threatened to impose a 14 percent reduction in pay and benefits on SEBA’s Specialized Peace Officers bargaining unit, which includes probation officers, coroner investigators and welfare-fraud investigators.

To avoid that, the unit approved a contract with a 7 percent cut in benefits and a reduction in annual merit raises from 5 percent to 2.5 percent.

To read entire column, click here.

Sandra Emerson, Staff Writer
Created: 01/28/2012 06:06:01 AM PST

UPLAND – The City Council has not made a formal request for the League of California Cities’ assistance in the medical marijuana case pending in the state Supreme Court, but some inquiries have been made.

Councilman Ken Willis inquired about the League possibly getting involved in the case during a dinner on Jan. 19. City staff also made an inquiry, said City Manager Stephen Dunn.

“Basically, Upland was looking for help because it’s a big battle we’ve been funding, but realistically I don’t know what the League is going to respond or if they’ve responded to it,” Dunn said. “I understand it could potentially put the League in a predicament. There are a number of cities, particularly in Northern California, that do support medical marijuana.”

The League’s City Attorneys’ Department formed a Medical Marijuana Committee and will review the implications for cities pending the Supreme Court’s decision.

They will look at four cases that the Supreme Court recently decided to review, including Upland’s case involving G3 Holistic.

“Those cases will be reviewed by the legal advocacy committee and those committees will determine what action is taken,” said Eva Spiegel, spokeswoman for the League.

Dunn said there is no plan to make an official outreach to the League.

“I think the intent of staff and the intent of Councilman Willis is to say, `Hey, League, make it high on your radar and if you can help in the battle then please do,”‘ Dunn said. “We’re not asking them to take on the battle.”

As of November, the city has spent more than $360,000 to fight medical marijuana dispensaries, said Councilman Gino Filippi.

“I continue to remain concerned with the amount of financial resources and attorney’s fees the city of Upland continues to incur in dealing with lawsuits including medical marijuana dispensaries operating in the city, when our general funds are needed for the operation of general services that the city provides to our citizens,” he said.

G3 Holistic closed in September 2010 after West Valley Superior Court Judge Barry Plotkin in Rancho Cucamonga granted the city an injunction.

To read entire story, click here.

PolitiCal
On politics in the Golden State
January 27, 2012 | 10:19 am

A correction has been added to this post. See below for details.

The California Supreme Court, faced with a possible ballot measure to scrap newly drawn election districts, decided Friday to leave the boundaries in place for this year’s state Senate races.

Republican opponents of the new Senate districts asked the state high court to discard them in anticipation that voters may do so in November. A nonpartisan citizens commission drew the boundaries, which Republicans fear will reduce their numbers in the Legislature.

To read entire story, click here.

Cities hoping for extra life for redevelopment agencies are told to focus on a future without them as a Feb. 1 deadline nears

BY JIM MILLER
SACRAMENTO BUREAU
jmiller@pe.co

Published: 26 January 2012 09:04 PM

SACRAMENTO — Legislation to extend the life of redevelopment agencies beyond Feb. 1 seemed all but dead Thursday despite a last-ditch push by local officials and other groups.

The California Supreme Court last month upheld a state law ending redevelopment, which for decades has helped local governments pay to revitalize downtowns and build new streets and also been criticized as a taxpayer subsidy for politically connected developers. Inland Southern California has some of the most active agencies in the state.

On Thursday, Senate President Pro Tem Darrell Steinberg said a Senate measure, SB 659, to push back the deadline until April 15 is “not going to happen.” A spokeswoman for Assembly Speaker John A. Perez, D-Los Angeles, had a similar assessment.

Local governments need to look forward instead of focusing on legislation to postpone next week’s deadline, said Steinberg, D-Sacramento.

“I’m skeptical. I think the speaker’s skeptical,” he said. ”And the governor is dead-set against the bill.”

Brown has said the agencies’ dissolution should go forward. “I don’t think we can delay this funeral,” the governor said last week in Los Angeles.

Under redevelopment, agencies collect a share of the growth of property taxes in redevelopment areas. That money, known as the tax increment, pays for land purchases, low-income housing and other projects.

Brown proposed eliminating the agencies in his January 2011 budget. Lawmakers ultimately approved a two-bill package that dissolved the agencies but allowed them to re-establish if they paid more money to the state. Cities and redevelopment agencies sued, leading to last month’s decision to uphold the law dissolving the agencies while striking down the lifeline bill that would have allowed them to continue.

Many cities and counties already have shut down their redevelopment offices and taken on the role as successor agencies to start dealing with debt and assets.

To read entire, click here.

Chief Justice Tani Cantil-Sakauye

January 26, 2012

Chief Justice Tani Cantil-Sakauye today urged the defeat of Assembly legislation that would undermine the authority of the Judicial Council, and give courts in as few as two counties authority to veto any statewide judicial project.

Cantil-Sakauye, who became chief justice in 2010, is showing herself to be a tough fighter as she lobbies to kill legislation by Assemblyman Charles Calderon, D-Whittier, himself the consummate inside player.

Appearing before The Bee’s editorial board, Cantil Sakauye said Calderon’s bill, AB 1208, would “reduce and eliminate the authority of the Judicial Council” to control significant parts of judicial branch spending.

As chief justice of the California Supreme Court, Cantil-Sakauye chairs the Judicial Council, which sets policy for courts statewide.

By far the bulk of the judicial branch’s $3.1 billion, more than 83 percent, is spent on trial courts. But the Judicial Council uses some money for statewide projects, including installation of a computer system, which has faced significant cost overruns.

Cantil-Sakauye said that under AB 1208, as few as two counties could veto any statewide project, such as the computer system. She said the measure also could have the effect of limiting the counties’ ability to set up special courts to hear criminal cases involving veterans or mentally people defendants.

Cantil-Sakauye said there should be “equal public access, wherever you live, whether or not your county is wealthy and whether or not you have a good relationship with your county supervisors or presiding judge.”

Siding with Cantil-Sakauye are presiding judges from 44 counties, a statewide association of defense lawyers, the big business-backed Civil Justice Association of California and the association’s rival, the Consumer Attorneys of California, which represents plaintiffs’ lawyers. Critics say the legislation raises separation of powers issues.

To read entire story, click here.

California Atty. Gen. Kamala D. Harris walked away from talks with the banks last year, saying not enough was being offered for California homeowners. (Al Seib / Los Angeles Times)

By Alejandro Lazo

January 25, 2012, 2:57 p.m.

Calif. Atty. Gen. Kamala D. Harris’ office has called a proposed $25-billion settlement with the nation’s mortgage industry “inadequate.”

“We’ve reviewed the details of the latest settlement proposal from the banks, and we believe it is inadequate for California,” Shum Preston, a spokesman for Harris, said in a statement. “Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California.”

Many analysts consider California’s participation to be key to a strong deal. Harris walked away from talks with the banks last year, saying not enough was being offered by the financial institutions for California homeowners.

Since then, certain terms have been added to lure the Golden State back to the table, and Harris has opened separate inquiries into the mortgage business.

State attorneys general have received drafts of a $25-billion settlement with the nation’s biggest banks that would overhaul foreclosure and mortgage servicing practices. No deal has been officially reached among the states, federal agencies and the nation’s five largest mortgage servicers: Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co.,Citigroup Inc. and Ally Financial Inc. Individual states must decide whether they will join a settlement or pursue independent lawsuits and investigations.

The proposed $25-billion settlement would cover only mortgages held by the banks privately and exclude those from Fannie Mae and Freddie Mac.

The biggest component of the deal would be a $17-billion principal reduction program that the Center for Responsible Lending this week said would “provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery.”

That money would go toward writing down the principal of homeowners who are “underwater,” on their mortgages, or owe more on their properties than they are currently worth. Negotiators estimate that about 1 million homeowners could benefit, with an average principal reduction on those loans of $20,000.

In addition, $5 billion would go to a reserve account for state and federal programs and to individual homeowners harmed by bad servicing practices. Negotiators estimate about 750,000 people could receive checks for about $1,800. An additional $3 billion would help homeowners refinance their loans at a rate of 5.25%.

To read entire story, click here.

California State Controller John Chiang

PolitiCal
On politics in the Golden State
January 24, 2012 | 1:51 pm

Democratic lawmakers sued state Controller John Chiang on Tuesday seeking limits on the controller’s right to withhold lawmakers’ pay during a budget stalemate.

Speaker John A. Perez (D-Los Angeles) and Senate leader Darrell Steinberg (D-Sacramento) said in a joint statement Tuesday that the action is necessary to “clarify the constitutional role of the California state controller,’’ who withheld pay from lawmakers last year after determining they had not approved a balanced budget on time.

Under a law passed by voters in 2010, the controller has the right to dock lawmakers’ pay if a budget is not passed by the June 15 constitutional deadline. Last year, Democratic legislators approved a spending plan before the required date (no Republicans voted for it), but Chiang decided to withhold legislators’ paychecks anyway, arguing that the budget they passed was nearly $2 billion out of balance.

Democrats accused the controller of engaging in an illegal power grab, saying he had no authority to withhold their pay -– about $400 for each day after June 15 without a budget in place.

To read entire story, click here.

Dan Walters

By Dan Walters
dwalters@sacbee.com
Published: Wednesday, Jan. 25, 2012 – 12:00 am | Page 3A

As the Legislature reconvened this month, California’s judges resumed their civil war over money and power.

It pits Chief Justice Tani Cantil-Sakauye and the State Judicial Council, along with one faction of trial and appellate judges, against a rebellious faction, organized as the Alliance of California Judges, over how to allocate pain as the courts adjust to reduced financing.

An early political test for the combatants is Assembly Bill 1208, a rebel-sponsored bill that faces a deadline this week for approval by the Assembly.

The measure, which would strengthen the authority of local judges vis-à-vis the Judicial Council and the Administrative Office of the Courts, has been stalled for months as both sides ramped up their lobbying.

For a profession that places high value on decorum and what’s called “judicial demeanor,” the public and private politicking has gotten downright nasty at times, with the contending factions exchanging accusations of bad conduct.

Cantil-Sakauye has remained publicly aloof from the fray, leaving the day-to-day maneuvering to her supporters, but there’s little doubt that she is – continuing the no-change position that predecessor Ronald George held – helping organize opposition to the bill, which is being carried by the Assembly’s Democratic floor leader, Charles Calderon.

Her faction has been peddling the concept that were AB 1208 to become law, it would threaten the independence of the judiciary. But the rebels contend that the state court bureaucracy that she heads has been wasting money on a bloated staff, an unworkable computer system and a grandiose courthouse construction program while trial courts are being forced to reduce staff and services.

The rebel alliance has produced a 20-page white paper that lays out in detail what it regards as misappropriation of operational funds for the courts that leaves them unable to cope with criminal and civil business.

To read entire story, click here.

San Bernardino County Supervisor Neil Derry

BY IMRAN GHORI
STAFF WRITER
ighori@pe.com

Published: 23 January 2012 08:14 PM

San Bernardino County Supervisor Neil Derry will return to normal voting at today’s board meeting even as he sparred with federal officials over the exact nature of his eight-month suspension.

Due to criminal charges he faced last year, Derry had not taken part in votes involving federal funds.

That suspension from voting on federal government contracts ended Thursday, according to a letter from the Federal Highway Administration dated Jan. 13. The letter goes on to rebuke Derry over his guilty plea to a misdemeanor in July and states that an eight-month debarment — during which he was disqualified from voting on government contracts — was imposed as a result.

Derry and his attorney took issue with the letter and accused federal officials of not following their own procedures. They said they had threatened to sue the agency over the lengthy period it was taking in clearing him for voting.

“Basically, this letter was to cover their tails for not doing their jobs for the last four months,” Derry said. “Incompetence bordering on malfeasance.”

Derry began recusing himself from votes involving federal funds shortly after the state attorney general charged him last April with two felonies and a misdemeanor over a campaign contribution.

The charges against Derry stemmed from a $5,000 campaign contribution in May 2007 that prosecutors said Derry attempted to launder through a committee controlled by former county Assessor Bill Postmus, who pleaded guilty to criminal charges last year in a separate case.

Federal transportation and community development money can be withheld from agencies when members of their governing boards are accused of money laundering, bribery and other corruption-related charges. The Board of Supervisors, along with other agencies that Derry serves on, deal with large amounts of federal dollars, raising concerns that the money could be jeopardized.

A little over two months after the charges were filed, Derry accepted a plea deal in which the two felonies were dismissed and he pleaded guilty to the misdemeanor. But getting himself cleared to vote ended up taking much longer.

Derry’s attorney, George Newhouse, said federal officials placed Derry on suspension pending the outcome of the criminal case but after that was resolved in July they had no cause to prevent him from voting. Derry did so voluntarily out of concern for his constituents, Newhouse said.

To read entire story, click here.

Sunday, January 22, 2012 – 09:30 p.m.

Upland’s finance are heading in the wrong direction fast.

One major factor?

Legal fees!

Contract City Attorney William Curley and his firm Brea-based Richards Watson and Gershon have been drilling the city for years, and it doesn’t appear to be letting up anytime soon.

Upland, a city currently operating in a deficit mode, is now spending millions annually on a smattering of legal items.

The downside of a city council unable to keep its law firm in check.

Curley appears to be leading Mayor Ray “I run the city” Musser and the rest of the city council, around by the nose.

The city has spent countless millions on shit-ass legal advice that hasn’t panned out as planned.

And now the city is saying it has no idea how much it will dole out to Curley and company in the current budget year.

The only people to pay for this lack of leadership is the city’s residents.

Insiders report the council has wanted to issue a request for proposal for a new legal services provider for some time now.

Maybe it’s time to get it done.

LA/Ontario International Airport has has suffered a 32 percent decline in airline passengers since 2007. The airport had once been projected to server 30 million passengers by 2030. (Bulletin file photo)

Liset Márquez, Inland Valley Daily Bulletin
Created: 01/19/2012 09:15:13 AM PST

ONTARIO – The battle has begun in earnest.

Officials on both sides of the LA/Ontario International Airport dispute this week lashed out at each other for information they say is misleading and a misrepresentation.

Late Wednesday night, Ontario officials angrily responded to Los Angeles World Airport’s strong criticism of their attempt to take back control of the struggling facility.

“Not only did you misrepresent Ontario’s proposal,” City Manager Chris Hughes said about LAWA’s comments, but “you prematurely commented on terms of an airport transfer prior to allowing policy makers sufficient opportunity to explore negotiation terms and consider all options.”

Until now, Ontario had engaged in private talks with officials of Los Angeles and LAWA, which operates ONT as well as Los Angeles International Airport, in an effort to regain control of ONT.

Things changed earlier this week when Ontario launched a media campaign to sway Los Angeles voters in their quest to regain control of ONT.

The campaign includes a website – SetOntarioFree.com – as well as a Facebook page and Twitter account. On Thursday, city officials announced they had also launched a YouTube channel.

Included in the efforts was poll results that city officials say shows a majority of voters support the transfer of ONT to Ontario from Los Angeles.

The poll results prompted LAWA Executive Director Gina Marie Lindsey to fire back at Ontario, saying the agency does not intend to abandon its fiduciary responsibilities of ONT.

Lindsey said she rejected Ontario’s $50 million deal to buy back the airport, referring to the offer’s amount as a “foreclosure price.”

She also referred to Ontario’s poll as “misleading and an attempt to deflect the truth.”

“LAWA expects to continue to focus its work on building ONT to its potential, rather than be distracted by repeated attempts to engage in a process to sell an airport that is not for sale,” Lindsey said.

Ontario officials had refrained from disclosing their offer because they were in negotiations with LAWA.

Hughes publicly released a letter, addressed to Lindsey, outlining “numerous factual errors” she made in her statement.

Hughes said Ontario is not proposing to buy ONT, but is seeking a transfer of the operator from one public agency to another.

In its negotiations with LAWA, Ontario said they have offered Los Angeles officials a “comprehensive financial package,” which assumes all debts and financial obligations of the airport.

The package included a “generous and unprecedented payment” to Los Angeles to pay back any transaction costs associated in the transfer as well as the dissolution of the 1967 Joint Powers Agreement between the two agencies, Hughes said.

The airport’s history with LAWA dates back to 1967, when Los Angeles, at the request of Ontario, began managing and developing Ontario Airport, which at the time was serving less than a million passengers, Lindsey said.

Since then, more than $560 million in airport capital improvements have been made utilizing funds from a combination of LAX and ONT revenues, Federal Aviation Administration grants and bond proceeds secured by LAWA, she said.

“At the time, these investments and improvements were being made at ONT, LAX was deteriorating and not enough money was being re-invested for capital improvements,” she said.

Lindsey said Ontario’s offer does not come close to either the value of the airport today or address the value of the significant investment Los Angeles has dedicated to ONT.

To read entire story, click here.

RANCHO CUCAMONGA – G3 Holistic in Upland will be able to remain open.

A West Valley Superior Court judge ruled in favor of the medical marijuana cooperative because the case is under review by the California Supreme Court.

“This is a big win,” G3 President Aaron Sandusky said.

Judge Barry Plotkin issued a tentative ruling in favor of G3 and officially adopted it after hearing arguments from counsel representing the city.

“In the long run, this is a good thing. For the citizens of Upland, it’s painful at the moment, but in the long run, we will have more guidance,” Plotkin said.

On Jan. 6, the city of Upland took the co-op to court on the belief they were open in violation of an injunction granted in August 2010 by the West Valley court in Rancho Cucamonga.

The city’s zoning ordinance prohibits medical marijuana dispensaries.

G3 appealed the injunction to the Fourth District Court of Appeals in Riverside. The Appellate Court in June granted a stay on the injunction allowing G3 to remain open pending the resolution of the appeal.

To read entire story, click here.

A lower court’s ruling upholding Riverside’s ban has been used as precedent for other cities to control medical marijuana

BY RICHARD K. De ATLEY
STAFF WRITER
rdeatley@pe.com

Published: 18 January 2012 03:51 PM

The California Supreme Court will review a city of Riverside medical marijuana case in which a lower court ruled that cities and counties have the right to ban dispensaries.

Local governments throughout the state have used that decision, issued in November by the Fourth District Court of Appeal, to shut down medical marijuana clinics within their boundaries.

That court ruled that nothing in the state’s1996 Compassionate Use Act (Prop. 215) or the state Legislature’s Medical Marijuana Program, which outlines usage, pre-empts cities from banning the facilities.

The Riverside ruling was one of four medical marijuana cases the State Supreme Court voted to accept Wednesday. In hearing the cases, the court will try to tackle federal and state issues regarding medical marijuana and the dispensaries that sell it, and also address more fundamental questions of local control.

The court voted 7-0 to hear the Riverside case.

The justices also will hear an unpublished ruling on Upland’s dispensary ban, which closely followed the language of the Riverside ruling; a Long Beach case that addresses the illegality of marijuana under federal law and whether that preempts local officials from regulating dispensaries; and a Dana Point case that looks into who has standing to challenge local ordinances regulating dispensaries.

“It was only a matter of time before the California Supreme Court would take on the issue, and the time is now,” said Jeffrey V. Dunn, an Irvine-based attorney with Best Best & Krieger who represents Riverside in the case. “Federal pre-emption, state law pre-emption and standing — in one day the Supreme Court has decided to review this law in a comprehensive fashion.”

Riverside City Attorney Greg Priamos said he believed the court recognized the importance of the cases and wants to clarify the law.

“We remain cautiously optimistic that the Supreme Court will uphold the city and county land use authority; that cities and boards of supervisors have the right to establish land-use policies, and the city’s right is not preempted by state law,” Priamos said.

J. David Nick, the attorney representing dispensary owners in Riverside, said a unanimous vote to hear a case is rare. He also noted that the court took the case even though there are no conflicting appellate decisions on the issue regarding the Riverside case.

To read entire story, click here.

UPLAND – The California Supreme Court decided on Wednesday to review an appeal filed by an Upland medical marijuana cooperative.

Counsel representing G3 Holistic in Upland filed the appeal in December following a decision in November by the Fourth District Appellate Court in Riverside siding with the city’s ban on medical marijuana dispensaries through its zoning code.

“I’m totally flabbergasted,” said Roger Jon Diamond, attorney for G3. “I thought they might take it, but you never know for sure.”

The co-op appealed an injunction granted by the West Valley Superior Court in August 2010 that shut it down along with several other co-ops in the city.

The city’s zoning ordinance prohibits medical marijuana dispensaries.

The Appellate Court granted a stay on the injunction in June pending resolution of the appeal, allowing G3 to remain open.

The Appellate Court ultimately sided with the city on Nov. 9, which prompted Diamond to file the appeal with the Supreme Court in December.

G3 closed following a raid by DEA agents on Nov. 1. It reopened on Dec. 30.

The city and G3 are currently in disagreement over whether the stay granted by the Appellate Court allows the co-op to remain open.

Diamond argued that the stay is still in effect because the case is still pending on appeal.

However, the city contends the Appellate Court’s decision on the case vacated the stay.

The lawyers met in West Valley Superior Court on Jan. 6 to decide the issue, but Judge Barry Plotkin wanted further review of the Appellate Court’s decision as well as whether West Valley has jurisdiction.

They will reconvene today.

City Manager Stephen Dunn said the city will await today’s ruling by Plotkin.

To read entire story, click here.

PolitiCal
On politics in the Golden State
January 17, 2012 | 6:18 pm

The citizens commission that drew California’s new political maps won an important nod Tuesday from the Department of Justice, which signed off on the new congressional, legislative and Board of Equalization districts for four Northern California counties.

The counties—Kings, Merced, Monterey and Yuba—were under scrutiny because of concerns about past possible violations of the federal Voting Rights Act. The maps required approval, or “pre-clearance” in government jargon, from the federal agency.

Assistant U.S. Atty. Gen. Thomas E. Perez delivered the news to the California Citizens Redistricting Commission’s attorney and to California Atty. Gen. Kamala D. Harris in a two-paragraph letter. “The Attorney General does not interpose any objection to the” new maps, Perez wrote.

Stan Forbes, chairman of the California Citizens Redistricting Commission, said in a statement that the group was “pleased that the Department of Justice has found [the commission] complied with the Voting Rights Act in drawing the districts” for the four counties.

To read entire story, click here.

Tuesday, January 17, 2012 – 06:00 p.m.

So much for that plea deal way back when!

Anthony Orlando Sanchez, 36, plead not guilty to extortion and bribery charges this afternoon in U.S. District Court in Riverside.

He will be held without bail due to the fact he fled the country for Honduras several months ago.

Sanchez, who is charged in an alleged corruption scheme involving former Upland Mayor John “J.P.” Pomierski, returned to the United States on Sunday and was taken into custody by U.S. Marshals.

A trial date of March 13 has been set.

Tuesday, January 17, 2012 – 4:00 p.m.

The attempt by the City of Upland to shutter a medical marijuana co-op fell flat last week.

Upland, in an awkward position, attempted to get the 4th District Court of Appeal in Riverside to lift a stay it imposed last year allowing G3 Holistic Inc. to remain open, even though the court’s decision in the city’s favor has been appealed to the California Supreme Court.

On January 13th, the court rejected Upland’s request to dissolve the stay because of jurisdiction.

A rejection likely due to the pending appeal filing.

One has to wonder what these poorly designed legal moves is costing the city.

Josh Dulaney, Staff Writer
Posted: 01/12/2012 04:49:18 PM PST

An attorney for Norton Property Management Services LLC, one of 16 companies under federal investigation in connection with an alleged corruption at San Bernardino International Airport, says aggressive actions by the airport forced the company to file bankruptcy.

During a Thursday hearing in U.S. Bankruptcy Court in Riverside, John Melissinos, the attorney representing T. Milford Harrison, a manager at the company, said Norton Property had been working out a financial settlement with one of its three tenants, AeroPro, when the airport served Norton Property with a three-day notice on Dec. 5 to pay pay its debt, or leave a hangar.

Norton Property, which subleases portions of a hangar at the airport to the tenants, filed for Chapter 11 bankruptcy protection on Dec. 7, and says it seeks to maintain its rights under a 15-year hangar lease.

“Norton Property feels it was aggressive, because prior to that, (San Bernardino International Airport) had been working with Norton to keep AeroPro,” Melissinos said.

He said there is a proposed $192,500 settlement with AeroPro, which had failed to pay what it owed under its sublease.

Melissinos also said there is another potential tenant for the hangar, and that Norton Property wants to “sit down” with airport officials in an effort to reach a compromise.

FBI investigators in September raided the airport to gain information on airport developer Scot Spencer and his business ties there, including those with Harrison, a business partner of Spencer and former executive director of the airport.

Spencer’s signature appears with Harrison’s on the bankruptcy filing, but Spencer says he is not connected to the bankruptcy.

In their bankruptcy filing, Spencer and Harrison claim their company holds between $1 million to $10 million in assets and $500,000 to $1 million in liabilities.

To read entire story, click here.

Representatives of Norton Property Management Services, LLC., which rents and operates portions of a hangar at the embattled San Bernardino International Airport, met with creditors on Monday as the company’s bankruptcy proceedings moved forward.

John Melissinos, the attorney representing T. Milford Harrison, a manager at the company who filed for Chapter 11 bankruptcy protection on Dec. 7, told creditors a prospective tenant could be leasing the hangar as early as next month.

In a court document, he said Norton Property intends to restructure with hopes of emerging from bankruptcy protection by year’s end.

One goal is to save 72 jobs that now exist at the hangar at 255 S. Leland Norton Way.

“I think it’s going to be cash-flow positive,” Melissinos said during Monday’s proceedings, which were continued until Feb. 6. Creditors are seeking additional information including details regarding the company’s current lease agreement.

Several documents the company failed to include in its initial filing, including a list of personal property and a statement of financial affairs, have since been submitted, Melissinos said.

“All the deficiencies have been remedied. We filed everything,” he said.

Norton Property is one of 16 companies under investigation by the FBI. Federal agents raided the airport in September seeking information on airport developer Scot Spencer and his relationships with several individuals affiliated with the airport including Harrison, who is Spencer’s business partner and the airport’s former executive director.

Though Spencer’s signature appears with Harrison’s on the bankruptcy filing, Spencer said Monday he has no part of the bankruptcy.

To read entire story, click here.

Wes Woods II, Inland Valley Daily Bulletin
Created: 01/09/2012 03:03:05 PM PST

View Document: Lawsuit filed by Claremont police union vs. city and chamber

CLAREMONT – The Claremont Police Officers Association has filed a lawsuit against the Claremont Chamber of Commerce and the city alleging its right to freedom of expression, association and assembly were violated at the Village Venture event in October.

According to the lawsuit, Robert Ewing, a detective and association president, and others were not allowed to hand out fliers related to the association’s stance on contract negations with the city.

The incident took place at the arts and crafts fair in downtown that is put on by the city and the chamber.

City Manager Tony Ramos said the City Council would meet tonight in closed session about the lawsuit because it’s a “litigation matter.”

“If you saw that flier the guys were handing out … it paints the City Council in a position that highlights how they’ve been detrimental to public safety,” said Dieter Dammeier, an attorney for the Police Officers Association.

The city “didn’t want the facts to come out.”

On the flier is the phrase “Why Is City Council Gambling With Your Safety?” and includes a hooded man with a gun and a flashlight. Statements on the flier such as “Police budget reduced,” “97 sex offenders” and “1908 parolees” are imposed on a roulette wheel.

Ewing contacted chamber staff member Maureen Aldridge about two weeks before the event and asked to participate, according to the lawsuit.

He told Aldridge that the association wanted to set up a booth to distribute materials related to the association’s position on the contract negotiations, according to the lawsuit.

Aldridge said the association would not have to pay a normally required fee, and it could set up next to the Police Department’s command post.

Ewing set up the association’s booth next to the Police Department’s equipment, but Police Chief Paul Cooper said the association was not allowed to have its booth at the location, according to the lawsuit.

In response, a booth was set up a short distance away and fliers were handed out.

Aldridge later told association members that they could not have a booth at all, according to the lawsuit.

To read entire story, click here.

January 08, 2012 3:14 PM
Brooke Edwards Staggs, City Editor

VICTORVILLE • Even before the state axed redevelopment agencies to bolster its budget, the viability of Victorville’s RDA was in question, according to an annual audit released this week.

A $5.3 million deficit in assets and millions more in interfund loans had caused the city’s RDA to have liquidity problems, which the auditor stated “raise substantial doubt about the agency’s ability to continue as a going concern.”

Victorville established its first redevelopment area 31 years ago to rehabilitate and develop some 1,686 acres along Bear Valley Road and Hook Boulevard. The city added a smaller RDA in 1998 to clean up the blighted Old Town area, using the additional tax revenue to buy up property and improve aesthetics.

In September and October of 2009, the city loaned a total of $11.8 million from its redevelopment agency to its Southern California Logistics Airport Authority. The funds were needed for activities at the airport and to make debt service on bonds taken out for improvements there.

With SCLAA carrying a $101 million deficit and recently hit with default notices for missing debt payments, the airport authority doesn’t appear to have means to pay back those loans in the foreseeable future. Still, City Manager Doug Robertson said Victorville had intended to temporarily loan another $7.5 million from its RDA to SCLAA to make debt service Dec. 1, but held off due to state legislation pending at the time.

Last summer, Gov. Jerry Brown decided to eliminate all RDAs and redirect their tax revenue to support schools and local services. On Dec. 29, the California Supreme Court up held that decision.

When asked Thursday how Victorville’s RDA could have loaned the money to cover SCLAA’s debt given the liquidity issues outlined in the audit, Robertson said the money actually would have been pulled from a pooled city account and paid back by April as new tax revenue came in.

To read entire story, click here.

Dan Walters

By Dan Walters
dwalters@sacbee.com
Published: Monday, Jan. 9, 2012 – 12:00 am | Page 3A
Last Modified: Monday, Jan. 9, 2012 – 6:30 am

Last year, the state Supreme Court interjected itself – in a big way – into the perennial “tort war” that pits personal injury lawyers against insurance companies and business groups over the arcane rules of liability lawsuits.

Both the courts and the Legislature play roles in deciding who can sue and collect money from whom over injurious acts.

Last August, the Supreme Court, by a 6-1 ruling, imposed limits on how medical damages could be calculated in auto accidents and other personal injury cases.

The issue in the case (Howell v. Hamilton Meats) was whether the injured party could collect the full medical bills imposed by doctors, hospitals and other medical care providers, or would be limited to the amounts actually paid by insurers, which are often pennies on the dollar.

The case, stemming from a 2005 collision in San Diego County, involved $200,000 in medical bills that were whittled down to $60,000 before payment.

The trial judge decreed that only the smaller amount need be paid, while an appellate court said it should be the full amount, and several other pending cases had conflicting appellate court decisions, so the issue was kicked upstairs to the Supreme Court.

Its widely watched ruling hit personal injury lawyers in their wallets but elated insurers, who had said an adverse outcome would have cost them, and their policyholders, another $3 billion a year.

And that’s where the Legislature enters.

To read entire column, click here.

Health & Welfare | Daily Report | Decoding Prime

January 9, 2012 | Lance Williams

FBI agents interviewed a former Shasta County hospital patient Friday amid indications of a widening federal inquiry into Medicare billing practices at the Prime Healthcare Services hospital chain.

Darlene Courtois, 64, who was featured in a California Watch report last month about unusual Medicare billings at a Prime hospital in Redding, spent more than an hour with three federal agents, said her daughter, Julie Schmitz.

Schmitz said the agents asked questions about a 2010 hospital stay after which Prime had billed Medicare for treating Courtois for kwashiorkor, a dangerous form of malnutrition that afflicts children during African famines.

The agents also asked questions about an incident last month in which the hospital allegedly publicized Courtois’ medical records – without her permission – in an effort to refute the California Watch story, Schmitz said in a telephone interview.
Become a Source

Medicare pays hefty bonuses to hospitals for treating complicated medical cases, and a diagnosis of kwashiorkor can boost a hospital’s payout by more than $6,000 per patient, records show.

As California Watch has reported, in the past two years, Prime’s Shasta Regional Medical Center has billed Medicare for more than 1,000 kwashiorkor cases – 70 times the statewide rate.

Among them was Courtois, a retired teacher’s aide who lives in rural Shingletown, west of Mount Lassen.

Courtois told the agents that she was hospitalized in 2010 for kidney failure, not kwashiorkor, her daughter said. She told the agents she received no treatment for kwashiorkor or any other kind of malnutrition during her 2010 hospitalization, by the daughter’s account.

Schmitz said her mother disputed the hospital’s account that she had received diet counseling to treat her for a condition called protein malnutrition.

“No. They didn’t. Nobody has,” said Schmitz, who monitors her mother’s care and who participated in the FBI interview.

In an e-mail in response to a request for comment, a hospital spokesman wrote, “Shasta Regional Medical Center believes it has followed all state and federal laws and regulations. In abundance of caution, Shasta Regional has already notified all the proper agencies.”

In the past 18 months, three California congressmen have asked Medicare to investigate Prime for a suspected form of Medicare fraud called upcoding, in which a provider files false claims via computerized billing codes to reap enhanced reimbursement.

To read entire story, click here.

Riverside’s downtown Greyhound bus station will have to wait longer to move to a planned transit center. The end of redevelopment has made the transit project’s future uncertain.(/FILE PHOTO/2008)

BY ALICIA ROBINSON
STAFF WRITER
arobinson@pe.com

Published: 07 January 2012 06:52 PM

Riverside may have to scrap plans for a downtown bus and train transit hub, a new shopping plaza in the Five Points area of La Sierra, relocation of two historic Victorian homes and a variety of other projects, now that state legislation and a court ruling have dismantled redevelopment.

Worse yet, say city officials, they may be forced to sell many of the properties owned by the city’s now-defunct redevelopment agency, including some on the Main Street mall, University Avenue, at Five Points, and in several areas downtown where new and better housing was planned.

City leaders are still trying to sort out exactly what they can and can’t do with former agency projects. Debts for projects that are done, such as a new playground and ball fields at Hunter Hobby Park, will be paid. Any projects that are already under binding agreements, such as development or construction contracts that were signed before June 28, likely will proceed.

But for all other redevelopment agency assets, “If it’s not already committed, we’re required to dispose of it,” Riverside Development Director Emilio Ramirez said.

A few things are for certain, Ramirez and City Manager Scott Barber agreed. The Five Points shopping center project, where the city already has done about $2.7million in road improvements, probably won’t happen because the city only had an agreement to negotiate with a developer, but not an actual contract or plan.

“We’ve already sunk a bunch of cash into making that happen,” Ramirez said. “If we lose that project, it’s going to hurt.”

Bill Oaks, manager of Sierra Memorial Chapel Mortuary in the Five Points area, is just as disappointed. He has suffered through seeing the older, run-down buildings cleared out and demolished and the annoyance of road work.

“What really concerns me is not getting the new businesses back in,” Oaks said. “Everybody was looking forward to what’s going on.”

To read entire story, click here.

Joe Nelson, Staff Writer
Posted: 01/07/2012 02:42:29 PM PST

Victorville City Manager Doug Robertson said the city’s November default on bond payments totaling $10.6 million has not prompted an inquiry from a federal agency that has been investigating the city’s bond debt for the last two years.

In an e-mail, Robertson said investigators from the Securities and Exchange Commission (SEC) has not made any inquiries about the defaults thus far, but he is expecting they will.

“We don’t believe we’ve done anything wrong so our biggest concern is the timely completion of their inquiry so we can move on,” Robertson said.

The city received a notice from the Bank of New York Mellon, dated Dec. 16, indicating it had failed to pay a total of $535,000 in principal payments that were due on Dec. 1. The bank, which holds the city’s reserve funds in trust, said reserve funds could not be used to make payments on the principal.

The city was, however, able to use the reserve funds to cover interest on the bonds totaling $1.3 million.

According to the notice, the bank could demand that the principal of all issued bonds and accrued interest be paid immediately.

In 2010, the SEC launched an investigation into the city’s bond debt and how it spent the money, and the investigation has now entered its third year.

On Dec. 1, debt service payments for seven bonds the Southern California Logistics Airport Authority, or SCLAA, took out came due. The SCLAA, of which Robertson serves as executive director, is the redevelopment agency that secures funding and oversees development of the 2,500-acre airport, formerly the George Air Force Base, which the city envisions as its future economic engine that will drive growth.

The bonds taken out by the SCLAA are secured by redevelopment tax increments, not city funds, and the state’s efforts to dissolve redevelopment agencies has thwarted Victorville’s ability to use its redevelopment funds to help pay its bond debt, according to a letter Robertson sent to bondholders dated Nov. 21.

Robertson believes the SCLAA will be able to make the payment once Victor Valley Economic Development Authority (VVEDA) property tax distributions are made, which typically occur in April.

Even under legislation eliminating redevelopment agencies, VVEDA will be entitled to receive property tax distributions for purposes of making debt service payments, Robertson said.

To read entire story, click here.

Public Money

BY: Girard Miller | January 5, 2012

One of my pet peeves in the ongoing debates over public pension reform is the way partisans on each side try to pitch half-truths and myths to support their arguments. The other side seldom believes any of these, but they help rally the allies on the speaker’s side. Sometimes the press naively re-circulates these fallacies, which leaves the general public even more confused about what to believe. There’s an old saying in politics that if you tell the same lie long enough, the public will eventually believe it — and that apparently is the mentality of lobbyists on both sides. In an effort to start the new year with a clean slate for public debate, I’d like to set the record straight on a dozen of the most glaring fallacies and silly slogans.

This is a lengthy column, so readers can click on to any one of these topics to jump to that subject

1. “The pension mess was caused by greedy people (from the other side), not us.”

2. “There’s no crisis. The stock market will recover and then there is no problem.”

3. “The solution is to replace pensions with 401(k) plans, like the private sector.”

4. “Experts consider 80 percent to be a healthy pension funding ratio.”

5. “Only 15 percent of pension costs is paid by employers. Investment income pays the lion’s share.”

6. “My pension contract is protected by the Constitution and can’t be violated.”

7. “States are already fixing the problem with reasonable pension reforms.”

8. “The solution is collective bargaining. There is no need for drastic legislation.”

9. “This is a $3 trillion problem when you measure it using honest (risk-free) math.”

10. “We earned more than 8 percent in the last 25 years, and will do so again.”

11. “The average public pension is $23,000.”

12. The $100,000 pension club.

:

So let’s look at each of these myths, misrepresentations and slogans, one-by-one

Half-truth #1: (Multiple-choice) “The pension mess was caused by greedy …
(a) Employees
(b) Unions
(c) Politicians
(d) Wall Street investors and bankers
… and they are the ones who should pay to fix it.”

There is a target for every finger-pointer. The truth is that the pension community has plenty of blame to go around. About half of the underfunding in most public pension plans is attributable to the six-sigma market plunge that nobody saw coming in 2008. When stocks declined by 55 percent in the last recession, more than double the average decline in the 13 previous recessions, that knocked a gaping hole in funding ratios and doubled the average plan’s unfunded liabilities. I guess you could try to blame the big banks and the homebuilders and the money managers and the mortgage brokers and the speculators and hedge funds and the real estate industry and the CEOs of the Fortune 500 with their short-sighted stock options and Fannie Mae and Freddie Mac and the Congress that goaded them to lend to unworthy borrowers in the name of universal homeownership, for causing pension deficits. But I’m at a loss to see how that will ever help us fix the public pension problem.

Yet that is only half of the story. Long before the Great Recession, the seeds of today’s mess were carelessly sown by politicians who declared pension holidays, unions that bargained for retroactive pension increases, trustees who assumed that investment returns would continue to grow to the moon, employers that granted early retirement incentives and gave away benefits to pass the buck to future taxpayers, pension administrators who were too timid to stand up to self-interested trustees or stakeholders and insist on more conservative practices, accountants who allowed unfunded liabilities to be amortized over two generations, and actuaries abetted by investment advisors who jiggered the investment portfolios toward ever-riskier allocations to enable disingenuous trustees to justify discount rates that would avoid the inevitably heftier contribution rates needed to assure intergenerational equity. Those who point fingers of blame should first look in the mirror.

Half-truth #2: “There is no crisis. Once the stock market recovers, there is no problem.”

Some of today’s pension Pollyannas claim that when stock-market trends return to their historical averages, everything works out. That is simply ignorance and puffery from people who don’t even bother to understand pension math. The actuarial projections used by most public pension plans are already assuming that 85-year historical returns will continue indefinitely, even though many of the major investment consultants have already dialed down their projections for the next decade. Perpetual stock-market increases of 10 percent annually are already baked into the funding ratios that now hover just above 70 percent on average nationwide. Even if stocks return next year to their previous peak levels (DJIA 14,100), that wouldn’t restore pre-recession funding ratios. That’s because there have been no capital gains from equities for the five intervening years while the underlying liabilities have grown about 50 percent. Stocks may have good and bad growing seasons, but there is never a crop failure on the liabilities farm. As I explained last year, stock indexes would have to double in the next two years to restore most pension funds to their 2007 funding ratios. To return the average pension fund to full funding, stock markets would have to produce 14 percent compounded returns the rest of this decade, with no intervening recession. That would put the Dow Industrials at 30,000 in January 2020. I’ll gladly give even odds against that scenario to anyone who wants to buy into that long-shot.

Half-truth #3: “The solution is to replace pensions with 401(k) plans, like the private sector.”

First of all, new 401(k) plans cannot be instituted for state and local government employees under the 1986 tax act. Pre-existing “k” plans are allowed, but there is no ongoing federal tax authority to install these corporate-style, defined contribution (DC) plans for public employees. But there are 401(a) defined contribution plans that can be offered, so a DC option is still available by law. However, the creation of a new DC plan does nothing to eliminate or even reduce the unfunded liability of a pension system. In fact, it probably makes matters worse, as described in my earlier column on this topic.

Freezing an existing pension plan will compel prudent trustees to adopt a more conservative investment portfolio to manage its risks as retirees age (just like individuals must de-risk their own investments as they age), and that will reduce the discount rate which in turn increases the employer’s contribution rates. This doesn’t mean that DC plans should not be part of the solution, but a wiser approach is a hybrid structure with a smaller pension (using a 1 percent multiplier) with a companion DC plan — like the federal employees’ system or the Washington state model. Rhode Island has officially figured this out, as did California Gov. Jerry Brown in his proposed reforms.

Half-truth #4: “Experts consider 80 percent to be a healthy funding level for a public pension fund.”

This urban legend has now invaded the popular press, so it’s about time somebody set the record straight. No panel of experts ever made such a pronouncement. No reputable and objective expert that I can find has ever been quoted as saying this. What we have here is a classic myth. People refer to one report or another to substantiate their claim that some presumed experts actually made this assertion (including a GAO report and a Pew Center report that both cite unidentified experts), but nobody actually names these alleged “sources.” Like UFOs, these “experts” are always unidentified. That’s because they don’t actually exist. They can’t exist, because the pension math and 80 years of data from capital markets history just don’t support these unsubstantiated claims.

With only one rare and fleeting exception (which occurs at the very bottom of a business cycle, similar to the green flash in a tropical sunset), 80 percent funding is not a sufficient, sound or healthy funding level for a pension fund. The only authoritative references to 80 percent funding ratios are the federal ERISA and pension protection act provisions which require private-sector pension plans below 80 percent funding to take immediate remedial action! (Remember that public plans are not even governed by these laws.) These statutes do not make funding ratios at 80 percent “healthy” or “good” or “sound” or “well-funded.” Pensions funded at 80 percent are no different than a $400,000 house in a distressed neighborhood with a $500,000 mortgage — you can keep living there if you keep making the payments, but it’s underwater and your balance sheet is now upside down no matter how much you try to double-talk it. The only difference is that state and local governments can’t mail in the keys to the bank.

Until the last recession, respectable and world-wise actuaries would tell you privately that when a pension system gets its funding ratio above 100 percent, there is a political problem. Employees, unions and politicians suddenly become grave-robbers who invariably break into the tomb to steal enhanced benefits and pension contribution holidays. So these savvy advisors historically have tolerated modest underfunding, based on their recurring past experience with the forces of evil in this business. They figured the ideal public plan would drift between 80 to 100 percent funding over a market cycle, and nobody would be hurt if the plans were a “little bit underfunded” in normal times. Obviously that didn’t work out so well in the Great Recession, which has forced us all to take a harder look at the math and this conventional wisdom.

As I have explained in one of my very first Governing columns in late 2007 (when the last business cycle was peaking), a fully funded pension plan must today have market-value assets of 125 percent of current accrued actuarial liabilities near the peak of an average business cycle — in order to offset the near-certain loss of stock market values in the following recession. Historically, that is because the 14 recessions since 1926 (including the most recent) have shrunk equity values by 30 percent on average, and equity investments represent about two-thirds of the average public pension funds’ portfolio. Real-time pension funding ratios will therefore likely decline by about 20 percent in the average recession, depending on how much the bond portfolio offsets the stock losses and mounting liabilities. So there is not a major public pension plan in the United States today that can be described as “overfunded.”

A pension plan that is 100 percent funded at the end of a business expansion will likely lose 20 percent of its value in an average recession, so 80 percent is the bare-minimum “healthy” funding level at the bottom of a recession — and only then. Once the economy begins to recover, it is mathematically necessary for a reasonable funding ratio to be higher than 80 percent and rising on a clear path to full funding. Otherwise, the plan is doomed to be chronically underfunded with current taxpayers supporting retirees who didn’t ever work for them. A plan funded at 80 percent going into a recession will likely find itself funded at 65 percent at the cyclical trough — and that’s a toxic recipe calling for huge increases in employer contributions to thereafter pay off the unfunded liabilities. That’s why today’s 70 percent funding ratios are a legitimate concern and a financial burden on younger generations who will inherit this problem that their elders keep sidestepping.

Just think for one minute about what would happen if Europe unravels or China lands hard and we suffer another average recession from today’s levels. That would take most pension funding ratios well below 60 percent percent and trigger a more horrendous multi-year budgetary catastrophe for public employers nationwide. Pension trustees and plan administrators with funding ratios at or below today’s national average should be asking that question on the record in formal board sessions — if they understand how fiduciaries are expected to perform their duties.

One can argue that a pension plan with 80 percent funding today can be deemed prudently funded if it adopts a more aggressive amortization schedule that defrays its unfunded liabilities over the average remaining service period of incumbent employees. That’s essentially what the GASB’s proposed service-life amortization guidelines would ultimately imply. Anything less should invite suspicion and deserves serious reconsideration of the plan’s funding policies and benefits levels. And if employees put skin in the game by agreeing to hereafter bear one-half the cost of paying down the plan’s unfunded liabilities during their working years, we can then talk about 80 percent funding as a logically “healthy” or “sustainable” number.

Half-truth #5: “Public employers and thus taxpayers only pay about 15 percent of the cost of public pensions. The rest comes from employee contributions and the investment income.”

The idea that investment income comes out of thin air to pay the bills is disingenuous and deceptive. I’m all for actuarial pre-funding and using the power of compounding investment earnings to achieve intergenerational equity, but “interest follows principal.” If employers/taxpayers hadn’t made their contributions, there would be no investment income in the pension fund. Instead, the employers/taxpayers could have invested the money themselves and pocketed the earnings. Especially for police and fire funds and the majority of pension plans with serious underfunding, most public employers today continue to make the lion’s share of total contributions — even though we are beginning to see worthwhile incremental increases in employee contributions toward normal costs in some states. But when you count employer contributions to pay for unfunded liabilities that are required (because investments didn’t earn what these same pension advocates expect them to earn as part of this myth), the employers’ share dwarfs most employees’.

If interest does not follow principal, then why do plans pay interest on refunds on unvested participants’ contributions, and retirees’ deferred retirement “DROP” accounts?

Half-truth #6: “This is a contract, protected by the federal Constitution’s contracts clause. You can’t reduce my pension.”

The federal Constitution also authorizes Congress to create bankruptcy courts, which routinely overturn contracts, although I doubt that municipal bankruptcy proceedings will be the solution to pension problems, as explained in an earlier column on bankruptcy and benefits reform.

There is no question that some state constitutions declare the pension promise to be inviolable, and some state courts have held that the pension promise is a contract. In “normal” economic times when the pension plan is properly funded, almost everybody would agree that contractual pension obligations should be fulfilled. But these are not ordinary times, and dozens of major public pension plans are facing the potential for depletion of their assets during the lifetimes of current employees if nothing is changed. Ultimately, some municipal employers will face a genuine financial emergency if they don’t significantly revise their plans’ benefits structures. We have already seen such actions upheld in Colorado and Minnesota, where courts held that benefits changes could be made, in order to preserve a reasonable benefit for everybody in the plan. Rhode Island just enacted a law to change benefits including the retirement age for incumbent employees. The city of Cincinnati took similar actions. In some states, these “breaches of contract” will go to court, but what the plaintiffs often do not understand when they file suit is that several courts have supported the police power of the state to make plan modifications if they are necessary — provided that the remaining benefits are reasonable, and if the plan change is the minimum change required to fix the plan. The simple economics of pension plans inform us that the sooner you fix them, the less pain the beneficiaries will suffer later on. This does not mean that every underwater pension plan should stiff its retirees; the plan must clearly be at risk and alternative remedies should be explored. In fact, the courts typically require such efforts before they impair contracts and reduce vested benefits.

Half-truth #7: “Many states have already adopted pension reforms. We can manage through this problem with some moderate consensus-based changes.”

As this editorial cartoon from California illustrates, the magnitude of the pension problem dwarfs the scope of reforms enacted in most state legislatures and proposed in others. Not that I would belittle the work done so far and the ongoing efforts of pension reformers nationwide. But the simple math is that, when you include both the pension and the retiree medical benefits (OPEB) obligations, we are facing a $2.5 trillion problem with state and local government retirement deficits. Most of the state reforms made to date focus on prospective benefits changes, often with increased employee contributions and sometimes with higher retirement ages for new hires. But they seldom address the massive unfunded liabilities of the plans. Very few states have seriously attacked the unfunded liabilities, which leaves the bills for these debts to the next generation — what President Obama rightfully calls “kicking the can.”

What’s worse mathematically, not even one state has adopted laws to require public employers to begin funding their OPEB plans on an actuarial basis. Not one. What are we waiting for? It’s been 28 years since Massachusetts belatedly joined the other 49 states to require actuarial funding for pensions instead of pay-as-you-go. It’s been 7 years since GASB issued Statement 45 to put OPEB liabilities on the books. The DNA tests are all positive: How much longer will it take the legislatures to admit paternity of this orphaned child?

Half-truth #8: “The necessary changes can be achieved through collective bargaining.”

I’m quite impressed by dozens of public-sector unions that have stepped up and agreed to increase employee contributions to support their current benefits. Their leadership is directionally correct, and although their critics may quibble with the magnitude of their concessions, these specific unions deserve genuine praise for becoming part of the solution. They genuinely understand the value of the benefits, and their members are willing to pay a fair personal price to preserve them. I’ve even seen a few cases where unions have agreed to share some of the cost of contributions to their OPEB (retiree medical benefits) That was unheard-of in most localities before GASB shed light on the size of those liabilities seven years ago. So my hat’s off to you folks: your hearts are in the right place, and your payroll deductions are too.

That said, most unions must still be dragged to the table to address retirement plan reform. When confronted with harsh reality, most will begrudgingly agree to plan changes for new hires. But in 2012, real change must begin with incumbent employees. At the very least, we must see more multi-year increases in employee contributions for both pensions and OPEB. Where state law permits prospective benefits reforms for future service of current workers, those must be included in the package as well.

To read entire column, click here.