The Bad News Goes Downtown

by Mark Scaramella, January 5, 2012

Let’s begin the new year by describing the Supervisor's latest expression of fiscal austerity, the December 12th meeting with the County’s Retirement Board. That get-together was held in the Ukiah Conference Center in Ukiah's dying downtown. The Ukiah Conference Center is a rented facility, meaning the Supes had to pay for space rather than hold the meeting at their fully amortized home a mile to the north at Bush and Low Gap.

The meeting’s location was a sore point with Supervisor Pinches, the only supervisor who consistently speaks out against unnecessary County expenditures. This expenditure turned out to be both unnecessary and indefensible. The week before Pinches had wondered why the County needed to rent the downtown venue when the County was so short of discretionary funds.

Pinches: “Why are we doing this at the Conference Center?”

CEO Carmel Angelo seemed surprised anyone would ask, asking, "Why?"

Pinches repeated himself: “Why?”

Angelo: “Well, we have more people that will be— we have two boards.”

Pinches: “So we have to pay to use the conference center, right?”

Supervisor Kendall Smith, clearly irked, said, “Supervisor, we went over this and over this and it went round and round.”

Angelo on doo-wop, muttered, “Yeah.”

Smith: “The number of people involved in the retirement board members and the staff attend with presentations and our staff, it’s, it’s, it wasn’t going to work and, in any of our existing buildings here, and that was the determination the staff made. So this became the best option.”

Which is simply untrue. There's plenty of room in the County Center for joint sessions.

Smith added, “For all things considered.”

Pinches: “Again we’re spending money we don’t have.”

Smith: “We did the best we could trying to look for a county facility that could accommodate it and— ”

Pinches: “You can always justify it, but this is just—”

Smith interrupted: “Ok.”

Pinches gave up, seeing that he was the only person in the room interested in saving the taxpayers a few bucks.

* * *

So, on December 12, the two boards and a few County officials, perhaps twenty people altogether, gathered in rented space around around u-shaped tables draped in wine-stained tablecloths to discuss the unhappy state of the County’s retirement system.

Tony Shaw presented a letter from the Employers Council suggesting a reduced) pension “tier” for new hires. (Which has since been tentatively agreed to by the County and their largest bargaining unit, Service Employees International Union, as part of the agreement to scale back the pay cut from 12.5% to 10%.)

The retirement system’s most persistent critic, John Dickerson of Ukiah, provided yet more criticism, saying what he’s said many times before, that the system as currently structured is underfunded, that the IRS may force the County to adequately fund it, and that the pension liability threatens to burden the County with increasing red ink and debt service over the next few decades to the serious detriment of County operations and services. True, but hardly unique to Mendocino County in an imploding national economy. Dickerson said he’s also in the process of developing some kind of pension-related ballot measure.

Mendocino County being rural headquarters of fuzzy-warm, lots of time was spent in discussion of how important it is for the pension system to be “sustainable” and how the two boards need to “work cooperatively,” and “people of good will” and so on through the Big Book of Government Cliches.

A key element of the discussion revolved around the assumed rate of return for the pension system’s stock market investments over the next five years. The County's wizards of finance, led by the ineffable retirement system administrator Jim Andersen, said Mendocino County's savvy plays on Wall Street would earn us 7.75%.

To their credit, three Supervisors found this preposterous projection to be unrealistic — although all three seemed to recognize that the County is more or less stuck with it. Reducing the fantasy return figure would mean that the County might have to use scarce general fund dollars to make up the difference between the much-lower actual return and the 7.75%.

Supervisor Pinches declared that “the expected 7.75% return on investment is pretty optimistic.” Pinches didn’t think that comparing Mendo’s expected rate of return with other counties worked either. “That’s kind of like going to the second grade and having a math test and out of your 30 second graders, 20 of them came up with the answer that 2 + 2 is 5. Well, most of them made that answer, so I guess we should change the real result that 2 + 2 is 5! I don’t buy into that analogy.”

Andersen, a 2 +2 is 5 guy all his days, replied, “Our consultants tell us that over the next ten years there’s a 54% chance of hitting 7.8%. Could it be below that for the next few years? Yes.”

Retirement Board member Ted Stevens noted, “If you reduce the expected rate of return, then the County contribution would go up.”

Supervisor John McCowen added, “Every dollar in increased pension contributions comes out of County operations.”

Hamburg: “I want to associate with myself with the comments of Supervisor Pinches. I think that our financial experts have shown themselves to be less than accurate prognosticators, particularly over the last couple of decades. We are in a financial kettle of fish now that I don't think any of the experts anticipated. When I look at the information that was in this packet, for example the one here from R.V. Kuhns, where they talk about ‘speculation over the extent of an economic soft patch,’ I mean, if that isn't a euphemism I don't know what is. ‘With headlines highlighting a flare up in Greece’s sovereign debt crisis…’ Well it's not just Greece, it's Portugal, Italy, Ireland, Spain — this is very widespread. ‘Economic sentiment fluctuated during the second quarter as optimism concerning the global economic recovery faltered…’ You know, that is language that is meant more to confuse than to enlighten. Also, just a comment about this TIAA-CREF Institute study. The first thing I noticed in reading through that was that it was quite dated. I guess it was produced prior to the meltdown in the fall of 2008. But they talk here about, ‘the reasons we are in financial stress are several and vary from state to state. The major factor lies with the 2000-2002 recession and bear market.’ We've had some extremely significant problems with the market since the 2000-2002 — I don't even remember the 2000-2002 bear market! We've had bears running wild all over the capitols and even the county seats of this country ever since 2002! So I don't believe a lot of what the financial prognosticators have to say. I think Supervisor Pinches is right on in asking questions about the dependability of a 7.75% return rate on investments.”

Hamburg's statement of financial reality sparked an hour of unreality, aimless back and forth about what had happened to the rosy predictions of the past, how things are calculated, what the state may or may not do, possible (but unlikely) tweaks to the benefits and contribution levels, and what’s going to happen in 2012. Supervisor Smith, as always on auto-blather, launched several laughably untrue self-serving riffs on local economic history

Then it was Hamburg’s turn again, and again he was on-target: “I think that ‘pension reform’ is a euphemism for a declining standard of living. I think we should kind of be clear about that. What we're really doing is saying that people who have worked 20, 30 or more years for a public entity are going to get less in their retirement. It's kind of fashionable these days to attack public retirement funds, public pension funds and say that public employees have it so much better than their private-sector counterparts. Well, what's happened in this country is that private sector pensions have been largely destroyed. There used to be a federal agency called the Pension Benefit Guarantee Fund — I hope I got that right. Anyway, its purpose was to make up for the losses when private industry failed and was no longer able to meet its pension obligations. The feds would basically step up and pay those pensions. Last I saw, that fund has been depleted down to zero. The federal government is no longer doing that for the private sector. So now that the private sector pensions have largely been decimated, the powers that be — not people in this room  to my estimation — have decided that we should go after the public pensions because it's no longer suitable for middle-class Americans to have a dignified retirement. I am all in favor of some sort of pension reform. I think the governor's guidelines are a good start. I thought the LAO [Legislative Analyst’s Office] report that was in our packet was interesting. I liked hearing [CEO] Carmel [Angelo] talk about what the CEOs are doing. I think it's all necessary. I think there's been some gaming of the pension system. I think anybody who looks at the governor's proposals can see that that has to stop. There are also some unseemly high pensions. I think even looking at the pensions in Mendocino County — the typical pensioner in Mendocino County gets about $30,000 or $40,000 a year. But there are pensions up at $60,000, $70,000, $80,000, over $100,000 a year. I don't think when people reach that point in their life when they have put their kids through college, they paid off their mortgages, I don't think they need — or I don't think the system can afford these extremely high pensions. I'm not in favor of them and I'd like to see the highest pension levels come down. But to say to somebody who has worked 20, 30 or 40 years — whether they have done it in the private sector or the public sector, that they should not be eligible for a dignified standard of living in their older years to me is just repugnant. I just think it's worth remembering that what we're really talking about here is the lowering of the standard of living of typical, working Americans. I think some of it is necessary, but that doesn't make it any less regrettable to me.”

Supervisor McCowen agreed that “most of our 'reforms' are going to fall on the people who can least afford them. Most retirees don’t have extravagant retirements. Maybe 75% get $30,000 or less. So how do we effect savings to maintain the system?”

Someone noted that a few of the under-$30,000 pensioners are also drawing pensions from previous employers.

McCowen added that some of the retirement system's critics, especially Dickerson and KZYX financial gadfly John Sakowicz, are exaggerating the extent of the problem. “The pension system will be maintained,” declared McCowen.

Pinches thought that part of the problem was the 2000 “Slavin Study,” which compared Mendo’s salaries to those in neighboring counties and recommended across the board pay increases so Mendo could keep up with the Joneses: “I was not on the board at that time,” said Pinches, “but I followed that issue really close. That was one of my complaints that nobody really knew what the cost and the implications, not only to the County but to the retirement system for the long-term, was going to be. There was no study done whatsoever. It was just, we have to do this and everybody needs a big pay increase. So it was implemented. But there was really no analysis whatsoever done of what the implications would be.”

McCowen: “Whether the required actuarial studies were performed or not — and I don't know because I wasn't here — but it's clear to me that when entire classes of employees were ratcheted upward from one level of benefit to another, many of them, immediately before they retired, or shortly before they retired — that had to have a negative impact on the sustainability of the system. So you have people who suddenly, with the stroke of a pen, become eligible for a tremendously increased benefit level when they'd never paid in for that benefit level because they were paying in at the previously approved level. Again, those were decisions to grant those benefits that the Board of Supervisors made. Often, I think, previous boards felt that it was necessary to grant the increased benefits because other jurisdictions were doing it. And in order to try and retain experienced and qualified employees, they thought they had to offer those benefits to be competitive. But we are having to deal now with how to pay the bills. I also think that part of the dynamic in addition to the practical method of how we retain qualified employees, part of it, frankly, was politically expedient for the Board to approve increased benefits for the people who could then vote for them, or vote against them if they didn't approve those benefits. We're finally, I think, forced into a corner where we don't have the luxury of taking the short term politically expedient approach. We have to do what is fiscally prudent for the County and for the pension system. It's painful. It's painful to make those decisions. It would probably be more painful and irresponsible not to make them.”

Hamburg: “I don't know that going over all the mistakes made in the past again and again is useful. Although there are some people who think that is necessary, that we should go back and find out. Who's responsible for this mess? Who are the perps? Let's go after them! That's not my point of view. Nobody sitting around this table is responsible for any of the problems that we are in today. To some extent, what I really think is, we are all culpable because we all drank the Kool-Aid. We all drank the Kool-Aid of an ever-expanding economy — a pie that keeps growing and growing and growing. I remember one county employee who I used to work with back when my hair was dark — Carre, you remember that? [laughs] — I ran the CETA [Comprehensive Employment and Training Act] program. He was in charge of CETA. Everyone remember the CETA program? It was an employee training program. It put a lot of people to work. It helped create an enormous number of jobs in this county.”

There’s no evidence that CETA “created an enormous number of jobs” beyond the jobs it temporarily funded. It certainly did employ lots of the blah-blah people, trainers and program administrators and facilitators. It also produced some salary improvements for the small number of women who ended up in more jobs for closer to full-time hours and a little more pay. But male adults got very little out of CETA training other than small stipends for training for jobs that mostly didn't exist beyond CETA.

Back to Hamburg: “But I would always go to him and say, ‘What do you think's going to happen, Ed?’ And he'd always say, ‘Dan, bet on the come.’ I think betting on the come is what we all got in the habit of doing. There will always be more. It will always get bigger. We can always have a bigger pie, a bigger house, a bigger car, a bigger this, a bigger that. It's not — as much as I think that our economy, our national economy, is really screwed up by being so unequal — 1% of the population owning 40% of the wealth. The top 1% owning more than the bottom 90%. That's really, to my mind, fundamentally what is wrong with our entire economy, that it is grossly — and I'm not saying anything that's not backed up by statistics — this economy is more unequal than it has been since the Great Depression of the 1930s. And that really is as descriptive as you can be of what's wrong with our economy. Also, we have all been guilty, you know, the generic we, of thinking it's always going to get better, there's always going to be more, we are always going to have more because we can always give more. Of course, members of the Board of Supervisors want to be the heroes. Of course you want to give out more! Of course you want to be popular! Whether it's for votes or just because you want people to like you. We're all — you know, this is very natural. But we are just not in that era anymore. We have to, as my colleague Supervisor McCowen said, it's our solemn duty and responsibility as public guardians to make sure that the people who work for Mendocino County have at least a hope of a decent retirement. That's our obligation and we have to meet it.”

Amen, bro.

Pinches concluded his remarks by bemoaning the lack of economic activity in Mendocino County and those nattering nabobs of negativity who, Pinches insists, constantly get in the way of free enterprise. “As long as we keep making decisions to limit economic activity in this County we're going to be continually dealing with the results. It's sexy to be anti-this or anti-that. We've been against so many things and stopped so many things for over 40 years in this county — I could name a host of things.”

Pinches gave some examples — Louisiana Pacific, Georgia Pacific, Masonite and later the Harwood mill in Branscomb among them —  all of which stopped themselves in a context of short-term profit-taking by outside corporations. (Harwood collapsed via poor management and the rape and run tactics of the outside-based timber corporations.) No Mendolanders are standing in the way of Mendocino Redwoods or Campbell-Hawthorne who acquired cutover timberlands; there’s simply 1. A very depressed timber market, and 2. Not much marketable timber has grown back. Pinches also cites the big Mendocino Crossings Mall project which lost its ballot measure to change the zoning from industrial to commercial by an overwhelming vote of 70-30 percent. But that had more to do with people simply noting that super-malls are on the decline and not a particularly good use of the old Masonite property. Pinches may be right about the gravel mining projects and asphalt plants that have been — or still are — opposed. But even if approved, those operations would have to compete in a down market without much new road construction.

Pinches went on: “But we have really flatlined economic development. As long as this County continues in that trend, whether it's the City Councils making decisions or the Board of Supervisors and planning commissions limiting or turning down projects in Mendocino County and keeping our assessed valuations and our sales tax base on a flatline, we're going to continue like this. There will be some people in the future who may be sitting in his room 20 years from now saying, what are we going to do? That's our problem. We are just dealing with the results. We have to get some more economic development and turn it into tax base which turns into revenues for the county and the cities. We are on a downhill path and we have to get it turned around. We have been unwilling to create economic opportunities in this county like the other 57 counties in the state have done. We can do that. A lot of people argue that, oh no, we approved this and we approved that. But if you look at the history of the big issues in Mendocino County, we've lost big time.”

Supervisor Carre Brown finally commented: “I didn't mean to start us on another roll. Sincerely. Supervisor Hamburg, Supervisor McCowen, Supervisor Pinches — I feel it's our responsibility now to carry forth. I'm not trying to put the blame elsewhere. I think we need to stand up, especially during these very hard times and make those difficult decisions. And we have been. But it is very difficult, not only emotionally, but going out in the community and people turn their backs on you and walk the other way because of the tough decisions you have to make…"

One Response to The Bad News Goes Downtown

  1. Trelanie Hill Reply

    January 7, 2012 at 1:26 pm

    Let’s put it this way,
    If the County can earn 7.75 % on their retirement accounts, the rate on home mortgages will increase to between 8-9 %

    The County should expect to earn slightly less than the 30 yr fixed mortgage.

    Unless the County wants to invest in riskier markets, they will earn between 3- 4%

    Jim Hill
    Potter Valley

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