Are public employees getting a bigger piece of the American pie than everyone else?
By Joan Trossman Bien 09/09/2010
When the public learned about the outrageous salaries, pensions and loans public officials in the city of Bell were benefiting from, the reaction was one of surprise, anger and sadness. Taxpayers outside of Bell are wondering how this will affect them, their cities and the financial stability of the state of California. It turns out that at least one of those Bell officials spent part of his career working in Ventura County cities — so local taxpayers could very well be on the hook for the lion’s share of some of these exorbitant pensions, but through no fault of their own.
The salary and pension scandal in the city of Bell has brought to a boil the simmering anger of taxpayers who work in the private sector. Many who are approaching retirement age feel betrayed and abandoned by their employers, the government and the hollow promises of rewards following a lifetime of hard work. They are experiencing a double whammy of unfortunate circumstance. Private workers will possibly never be able to comfortably retire due to the failure of 401K plans and their inability to live up to what they promised when they replaced traditional pensions. Adding insult to injury, private taxpayers are required to pay for the secure and sometimes cushy retirements of public employees, as they face a grim retirement outlook for themselves.
This battle between the private and public sectors amounts to a new class war, replacing that of the traditional clash between the rich and the poor. Missing from the equation is stability and upward mobility for a shrinking middle class.
For them, the future looks very scary.
The American Dream of working hard and living frugally, so that one can enjoy the so-called golden years, has been fading since the 1970s. And the economic meltdown that began in 2007 left nothing standing. Not the 401K plans, many of which lost more than half their value. Not the value of homes, which had been advertised as the ultimate safe investment. Not the security of having a job, despite a good education and a lifetime of work experience.
Dick Thomson is the president of the Ventura County Taxpayers Association. He said the pensions for public employees have become unsustainable in California. “Public employees need to fall in line with where the private sector is headed,” he said. “I believe they need to fall in line with salaries as well.”
David Grau of Ventura works in the private sector and said the way that public employee pensions have been enhanced would never happen in the private sector.
“Politicians use these pensions to garner favor from unions because the problem is kicked down the road 20 years,” Grau said. “That is irresponsible. I have friends who have lost their houses, lost their health benefits, and then you have this group of people who are treated differently.”
The depressed state of the economy is casting a pall over the prospect of recovering lost investments. “I think the recession that we are in today is not a typical recession,” Ventura City Manager Rick Cole said. “Our economic problems are not a temporary setback, and we have to adjust to the new normal. I think that most people understand in their gut that this recession is a life-changer for our country.”
A similar reluctance to predict the timing of better days was echoed by Simi Valley City Manager Mike Sedell. “We will come out of this at some point, but I’m not predicting a fast recovery,” he said. “We are cautiously optimistic that this will be a slow but gradual recovery.”
How different are the worlds of those working for the government from those of people working in the private sector? A recent study by USA Today found that private workers have seen their pay and benefits stagnate while the average compensation for federal employees is now twice that of private employees.
The numbers tell the story. In 2009, federal workers earned an average compensation of $123,049 while private workers earned $61,051. The compensation gap favoring federal civil servants went from $30,415 in 2000 to $61,998 last year.
Additionally, many private companies and corporations have unilaterally shed the obligations of what is called a defined benefits pension, where the worker retires at a predetermined age and is paid a pension for life, based on the wage scale and number of years worked. Instead, pensions have been replaced with the 401K plan, shifting the responsibility from the employer to the worker. These plans may offer little in the way of solid, safe investments, and can be poorly managed despite sometimes large and hidden management fees, and are influenced by the whims of the stock market. In 1980, 17 percent of private companies offered 401K plans for retirement. In 2010, 70 percent had switched to such plans. A number of them have stopped giving matching contributions. Bit by bit, the security of a retirement plan for workers has been eroded without their permission or sometimes even their knowledge.
How did this happen? Not all that long ago, it could be expected that government salaries would be beneath those in the private sector in exchange for excellent and predictable benefits and pensions. That equation was turned on its head during the past decade, and now the private sector workers are being financially battered from every direction.
As the number of unemployment claims continues to rise, along with the number of months it now takes to find another job, private taxpayers have found themselves on the hook with the obligation to fund the pensions of the sometimes better-paid government workers.
All politics are local
Small wonder that the Bell scandal has focused the fury of private taxpayers. The prospect of public officials inflating their own salaries to obscene levels and then collecting bloated pensions, all at the taxpayers’ expense, has enraged many. Changes are being demanded. Investigations have been launched. The terms “conspiracy,” “collusion” and “fraud” have become part of the public discourse.
“I was shocked,” Thomson said. “I was outraged. It made me suspicious of our local city governments. What’s happened in these people, they’ve just lost touch with how well the jobs should be compensated.”
Grau said people’s eyes usually glaze over when it comes to the subject of public employee pensions and salaries. “Pensions are so confusing,” he said. “I think without what happened in Bell, we wouldn’t be talking now. It’s almost fortuitous that it happened.”
Ventura County has not escaped the backwash of the Bell officials who now stand to reap lifelong benefits in the form of huge pensions. Pensions for public employees are a complicated and layered puzzle. Essentially, one year during an entire career can define the benefits for decades, in at least some cases. A pension based on an inflated salary, such as those for the Bell officials, must be paid for as long as the retired employee lives.
Changes in the way in which those pensions are calculated have exacerbated the volatility of the amount and placed a greater burden on taxpayers.
Cole said the roots lie in the reluctance of officials to raise salaries for employees. In 1999, a new law was passed, SB 400, that opened the door for more generous pensions. Instead of giving the workers a higher salary, officials agreed to pay a higher portion of the pensions, thus laying the bill at the feet of future taxpayers. This bill applied specifically to CalPERS, the retirement plan for employees of the state of California and of other government entities that chose CalPERS as their retirement plan.
“That seemed like a good idea because it was cheaper to the taxpayer in the short run,” Cole said. “In the long run, of course, that has not proven to be the case. But people make short-sighted decisions, unfortunately. They particularly make short-sighted decisions in good times because it is a pretty universal theme that the good times are going to last forever. In hindsight, that has certainly proven to be counterproductive. And it is not fair to the taxpayers.”
Cole said the pensions through CalPERS are based on three factors: retirement age, the year of highest income, and the number of years worked. But when the stock market took off, the new law offered premium retirement packages.
“Once that cookie jar was opened, it was really hard to put the lid back on,” Cole said. “The richest plan is for public safety. But it was based on a stock market boom that was clearly an aberration.”
Now, it is personal
One of the Bell officials caught accepting an unreasonably high salary, and who then announced his immediate retirement, was Bell Police Chief Randy Adams. He had been receiving an annual salary of $457,000. With all benefits added in, his yearly take was $770,046 plus $76,428 in additional sick pay. That translates to an estimated annual pension of $411,300, or 90 percent of his pay, plus lifelong medical benefits for himself and his wife. Randy Adams is now 59 years old.
According to an article in the Los Angles Times under the rules of CalPERS, Bell will only be on the hook to pay 3 percent of Adams’ pension because he was employed by Bell for only one year. Glendale will have to pay 16 percent of Adams’ pension which, according to Pasadena Weekly, will be an additional half a million dollars. Simi Valley will be obligated to shoulder 18 percent above what was anticipated, and Ventura will be burdened with 63 percent of that pension because it employed Adams for 23 years.
CalPERS has put payment of Adams and other Bell officials accused of inflating their salaries on hold while investigations are conducted. However, if the salaries are determined to be legal, then the pensions must be paid in full, with automatic cost of living raises. Although the law now limits compensation payouts at $245,000, Adams is excluded from that law because he was already part of the CalPERS program when the federal law was adopted in 1996.
Randy Adams served as the Chief of Police in Simi Valley from 1995 until January 2003. At the time of his departure, his salary was $137,036 plus an additional $6,851 in educational incentives. Adams moved from Simi Valley to the same post in Glendale at a higher rate of pay. However, it was a larger city, and the pay was in line with others in comparable positions.
While working for Simi Valley, Adams had served as an expert witness for Glendale, testifying on police tactics and procedures.
However, his exit from Simi Valley did not go smoothly. Adams said he injured his back lifting boxes on January 23, 2003. His last day on the job in Simi Valley was January 30, 2003, one week later. It wasn’t until May 2003, five months after leaving Simi Valley, that Adams filed a claim for workers compensation for that injury. He had, however, moved directly to the job of police chief in Glendale when he departed Simi Valley.
“That comp claim, over significant opposition and frustration of the city council, was eventually settled,” Sedell said.
“The settlement was reached ($48,000) because in the state worker’s comp law, there are certain presumptions that if a law enforcement officer has certain conditions, they are presumed to be job related. It is very difficult to overcome that.”
Cole agreed that the laws of worker’s compensation can be inflexible. “It is not unusual for police officers and firefighters to claim some kind of chronic injury at the end of their careers,” he said. “Back problems, whatever, and unfortunately for both sides, worker’s compensation can be pretty cumbersome and arbitrary. Sometimes you have to use common sense, sometimes you have to go by the letter of the law, sometimes there is a law where common sense goes out the window.”
After serving as Glendale Police Chief, Adams announced his retirement in April 2009. He told the local newspaper that he was surprised by the generous offer from Bell. “I expected to fully retire, enjoy life and travel.”
Adams added that he intended to work in Bell for only one year, possibly two or three. He again told the newspaper, “They kind of made me an offer that would help me transition into final retirement, even better than today. But the reality, so that it is not misunderstood, I am clearly retiring from here.” He then refused to reveal his new salary in Bell, saying it was confidential. And Adams added, “They wanted a credentialed, experienced chief from the outside to come and help them upgrade and overhaul the department.”
The only thing in the police department that was upgraded when Adams arrived there was his own salary. The former chief of police, Andy Probst, told the Los Angeles Times that his salary at the time he was fired was $175,000. At the same time that Adams arrived in 2009, the police department in Bell suffered budget cuts of 58 percent. Police training was greatly reduced and grants were needed to replace aging bulletproof vests. Twenty-four authorized police officer positions were left unfilled. Community services and recreation programs were reduced by $593,438. Public safety was cut by $228,888.
Cole said the pension that Adams would have received before going to Bell would have been in the range of $180,000. “That is very generous, and I think, more than sufficient for him to draw a retirement on.”
Battered but not broken
The shock of learning about Adams and the other Bell officials who had been slathering themselves with public money is still being felt by local officials. Sedell was outspoken in his anger.
“It was frustration, it was outrage, it was a sense [of] how could people do these things that are potentially illegal but at least immoral and unethical?” Sedell said. “Certainly the collusion that would go on with that, that’s what becomes incomprehensible. How do you have that many people that are doing this together, that nobody said anything to anybody? Nobody talked about it? And from what I’ve seen, I’m not sure that’s entirely the case. That’s why government needs to be transparent. It’s when government is not transparent that those things can happen. Not only does it need to be transparent, somebody needs to be looking.”
Ventura County Supervisor Linda Parks said some good may come from difficult circumstances. “The bad economy has had the positive effect of shining a brighter light on how our tax dollars are being spent,” she said. “Should government employees receive personal loans of tax dollars when others cannot? Should government employees receive health benefits for life, including their spouses? These are standard employee benefits provided by many cities in our county (though not by our county government). Without transparency, these kinds of perks go unchecked and grow. Exposure of these kinds of excesses will discourage public administrators and elected officials from enriching themselves at taxpayers’ expense.”
The cities of Ventura, Simi Valley and Thousand Oaks are feeling the ill effects of the depressed economy, but the city managers of those cities all say they are weathering the hard times and will survive with balanced budgets.
Thousand Oaks City Manager Scott Mitnick said his city is handling the hard times but not without serious sacrifices by some. “We have cut the workforce 15 percent and reduced the general fund and other funds significantly. We did not do any of the enhancements that many of the other cities did over the last decade.”
Mitnick said the unions have been helping the city find solutions. “We have outstanding labor relations here in Thousand Oaks. It is very transparent and open. In fact, the unions agreed to concessions to help us get through the difficult times.”
The anger that Mitnick feels is primarily directed at Sacramento. “The state took $7.5 million from our redevelopment agency. They stole money from the transportation and the general fund. We’ve had to deal with state budget cuts, and the county cuts as well. We are a built-out city and cannot grow our way out of this. We’ve learned how to be more financially independent. I have to tell you, it hasn’t been easy.”
Mike Sedell said Simi Valley is in good fiscal shape. “We are going through a downturn like most cities are, and we’ve had to cut back in employees,” he said. “Plus, there has been an across-the-board cut in compensation of about 3 percent. It’s been felt throughout the organization. We are looking at where we expect to be five years from now. We want to be the right size and provide our citizens with the right services and a balanced budget.”
Rick Cole said Ventura is positioning itself for future stability. “We want to hand our successors a sustainable, prudently managed city that fixes its roads and maintains its budget and has not used up its reserve,” he said. “We need people to serve in government who believe that they are there to serve the public instead of to make as much money as they possibly can.”
All municipalites in Ventura County plus county government have posted the salary ranges for employee categories online at their individual websites.