Grand jury data on pension liabilities paint varied pictures
The panel blames lack of adequate budget numbers for shortcomings in its evaluation of the effects of unfunded obligations.
By Emily Foxhall
7:17 PM PDT, July 30, 2014
In a report aiming to evaluate how cities are being affected by pension liabilities, the Orange County Grand Jury called for area cities to make more budget information readily available.
Lacking the desired data, the 2013-14 group tried to use its own measurements to illustrate the effects.
Depending on which is used, the two measurements can offer very different perceptions of some cities’ ability to meet their pension obligations.
Among 10 Orange County cities studied, Newport Beach had the highest unfunded liability per capita (per resident), but the lowest as a percentage of general-fund revenue. The report said those metrics “would not be needed if the cities provided adequate budget data!”
Newport Beach had unfunded liabilities of $274,594,522, according to data as of June 30, 2012,provided to the grand jury by the California Public Employees’ Retirement System. That number reflects the difference between the city’s assets and the amount needed to meet pension liabilities.
Evaluating the impact of unfunded liabilities on a city such as Newport Beach would be feasible with more information, the report said.
“It would be a simple matter of checking whether a city’s predicted revenues for current and future years are sufficient to meet total planned expenditures in those years, including the pension-related expenditures,” it said.
Instead, the report applied measurements related to the census and cities’ general funds.
Newport Beach’s population was just over 87,000, according to the report, making the unfunded liability nearly $3,154 per person — the highest amount among the 10 cities deemed comparable.
The second- and third-highest ranking cities when measured per capita were Brea and Laguna Beach, at about $2,325 and $2,292, respectively.
Costa Mesa’s liability per capita ranked fourth-highest at $2,039.
Newport Beach City Manager Dave Kiff said such numbers are flawed, misleading and inaccurate, providing information counter to the report’s intention.
“It actually moves the bar the wrong way,” he said. “Instead of educating people, it misleads.”
Though the 10 cities compared included only those that use city employees for police and fire protection in addition to nonsafety city services, Kiff said they still differ in services that their nonsafety employees provide.
He offered Costa Mesa as an example, noting its water and sewer systems are managed by agencies other than the city. Those outside employees have pensions, too, but those amounts were not counted.
A city like Newport Beach that provides many services in-house often gets singled out on pensions, Kiff said. “It always identifies Newport because we have everything under one roof,” he said.
Kiff added that the per-capita amount is not an accurate reflection of a resident’s obligations. The city serves many daytime workers and tourists who also pay into pension costs, be it through buying a car at a local dealership, parking in a metered lot or staying at a hotel, he said.
“People keep thinking that it’s just the resident that has to pay for this, and it’s not,” he said.
Laguna Beach likewise has a lot of tourists, said City Manager John Pietig, who also cautioned that the per-capita measurement can be misleading.
Cities would best be evaluated individually, he said.
Still, the solution to a lack of public understanding of a city’s pension burden wouldn’t be solved simply by throwing out more numbers, said Fred Smoller, an associate professor of political science at Chapman University in Orange.
“It’s not enough to simply put the data out there,” Smoller said. “They have to be analyzed and interpreted and put into context in order for them to have meaning and therefore be accessible to the public.
“This is another example of how the shortfall in news coverage is undermining public discussion of a critical issue,” he added. “Do cities really have an incentive to let people know what public pensions cost?”
Costa Mesa Mayor Jim Righeimer said the context in which a city arrived at its current obligations also is important to public understanding.
“There is a train wreck coming and there has to be some kind of warning,” Righeimer said.
Though Newport Beach had the highest unfunded liability per capita in the report, it also stacked up as the city most able to handle its liabilities when city revenue is considered.
Newport Beach’s unfunded pension liabilities came out to 107.5 percent as a measurement of general fund revenue – $255,333,875 – in the 2013-14 budget.
The second- and third-lowest were Laguna Beach and Huntington Beach, at 109.7 and 112.1 percent, respectively.
Kiff believes those statistics better reflect a city’s status but still are not totally accurate, since they do not take into account other obligations.
“You can’t just stop paving the streets,” he said.
The report also shared misgivings: “A significant drawback to the General Fund Percentage metric is the difficulty to achieve any reliable apples-to-apples comparison since city revenues are structured differently.”
Kiff said cities instead should be evaluated on whether they have sustainable plans to pay off the liabilities.
To mitigate costs in Newport Beach, employees will pay more toward their pensions over time, new employees will receive less-generous packages and outsourcing is being considered where it can be, he said.
When it comes to the overall approach, “We think we measure up pretty well there,” Kiff said.
The city intends to pay off its unfunded liability for safety employees in 25 years and for nonsafety in 21 years, Kiff said.
City Finance Department Director Dan Matusiewicz said Newport is trying to take a “balanced approach,” setting aside money to cover things such as unexpected costs, workers’ compensation and equipment replacement.
But Newport Beach resident and political consultant Dave Ellis thinks the city should be able to pay down its liability faster.
“It’s a policy decision, ” he said. “Newport is a very wealthy city. It has that option.”
UNFUNDED LIABILITIES PER CAPITA
Newport Beach: $3,154
Laguna Beach: $2,292
Costa Mesa: $2,039
Huntington Beach: $1,718
Fountain Valley: $1,288
Garden Grove: $1,215
UNFUNDED PENSION LIABILITIES AS PERCENT OF GENERAL FUND REVENUES
Garden Grove: 229.4%
Costa Mesa: 221.1%
Fountain Valley: 196.4%
Huntington Beach: 112.1%
Laguna Beach: 109.7%
Newport Beach: 107.5%
Source: 2013-2014 Orange County Grand Jury report, “Orange county City Pension Liabilities”