- 5.1 Earthquake
- Affordable Housing
- Roadside Spraying
- Ukiah Water Board Drama
- Giants Finish Fourth
- Richie & Vance
- Pacifica in Chaos
- Public Pension Plan Plan
- Police Reports
A MAGNITUDE-5.1 EARTHQUAKE was widely felt in the Los Angeles area and surrounding counties Friday evening, but authorities said there were no immediate reports of significant damages or injuries.
The U.S. Geological Survey said the quake struck at about 9:09 p.m. and was centered near Brea in Orange County — about 20 miles southeast of downtown Los Angeles — at a depth of about 5 miles. It was felt as far south as San Diego and as far north as Ventura County, according to citizen responses collected online by the USGS.
MENDO’S INCREDIBLE SHRINKING HOUSING ELEMENT.
BACK IN 2002 Mendocino County Planners made a big deal out of going around the County to hold community meetings to take input on “affordable housing.” They presented their charts and graphs town by town showing how little “affordable” housing Mendo had, and summarized the County’s long-delayed preparation of the legally mandated “housing element” of the County’s even longer-delayed General Plan. They listened earnestly to the few well-meaning people with big enough bladders to sit through their self-evident presentation. And they wrote some things on butcher paper in bright colors sort of summarizing the comments the public made. By 2004 they had finished their work and boldly designated 90 acres in Brooktrails for “affordable housing” development.
But it wasn’t to be — there was no water or sewer available on those 90 acres, as pointed out by Northcoast Legal Services attorney Lisa Hillegas when she surprised county staff by checking into the 90 acres then successfully suing the County for non-compliance with the state affordable housing plan element of the General Plan requirement.
As Ukiah Daily Journal Editor KC Meadows wrote in 2005: “Expensive lesson for the County — we hope that Mendocino County has learned its lesson with the arrival of the $68,000 bill for the legal fees of public advocates who successfully sued the County, forcing it to do something it should have done without anybody having to go to court. Every county must have a general plan and the general plan must have a ‘housing element.’ Housing elements are, in part, mandated so that local governments are forced to plan for and create spaces for low and moderate income housing. This County’s housing element was way off the mark in identifying areas that would serve that purpose. The county said affordable housing could go in Brooktrails — but the land identified had no water or sewer. The County said affordable housing could go where the Hopland school is now. The county said some 70 homes could be built in a rural area near Gualala. The County was warned by the public advocates that it needed to make its housing element more realistic, but the county ignored them. So the advocates went to court with the state of California behind them. The County quickly corrected its housing plan, but not soon enough — the County has to pay the legal fees of the advocates. If the County had simply agreed in the first place with what they had to have known were legitimate complaints about the County’s housing element, no one would have had to go to court, and the County wouldn’t be writing a big check right now. County officials need to understand that sometimes when someone says you’re wrong, you are really wrong.”
IN HER SUCCESSFUL SUIT, Ms. Hillegas noted:
“Respondents [Mendocino County] in their Opposition to this Petition concede that the County has few or no sites where 1,390 units of multi-family housing affordable to lower income residents can be built to accommodate the County's regional share of housing need during the current 2003-2009 planning period. This regional need, as determined by the Mendocino County of Governments, includes 746 units of housing affordable to very low income households and 644 units affordable to low income households. The County Housing Element acknowledged the lack of sites and was amended (after this lawsuit was filed) to include a program to provide at least 50 acres of sites suitable for lower income housing development by right no later than July 1, 2007. The California Department of Housing and Community Development granted conditional approval of the County's Housing Element subject to the express condition that this program be successfully implemented by July 1, 2007. The respondents concede that no sites have been rezoned and no housing affordable to lower income households has been built.”
IN A PURELY MENDO MOMENT, one of the depositions taken in Ms. Hillegas’s suit included a round of questions to then-Senior Planner Pam Townsend who explained why she thought the Housing Element was so deficient and so late:
“[Planning Department Director Ray Hall] didn't review code amendments in a timely manner because I'd written code amendments after the 1993 housing element was adopted and they never got out of his 'in' box even though I asked him a couple of times.”
Hall’s in-box must have been the size of Anton Stadium to accommodate all the un-acted upon County business in it. (Maybe that’s where Anderson Valley’s “community input” to the General Plan disappeared.)
Townsend said many of her proposed code amendments “never went anywhere.” In fact, Townsend said most of her work “didn't really go anywhere” because of Hall's failure to review it. “Ray wasn't always good with wanting to do a lot of inter-division and department coordination,” the diplomatic Townsend said.
Asked why she thought Hall didn't review her work, Townsend explained, “I think it was, I guess, you know, not a high priority… Maybe it was too overwhelming to him…”
SO IT WAS DOWN to 50 acres of rezone for affordable housing.
MENDO, in the person of the Board of Supervisors and the Planning Department, has never taken its General Plan or its Housing Element seriously, seeing them as entirely pro-forma annoying meaningless (albeit expensive) paperwork exercises with no practical value. That approach works most of the time, but not with the Housing Element because attorneys like Ms. Hillegas can get their fees paid by suing the non-complaint county — never mind that there’s no real way to generate anywhere near 1400 units of “affordable housing” anyway.
IN 2008 THE COUNTY tried to switch to an “incentive-based” affordable housing plan which would give tax breaks to developers who included a small percentage of technically “affordable” housing in their development plans. (Never mind that Mendo is woefully slow in even processing housing development permit applications in the first place.) So that approach has, predictably, failed to produce any affordable housing, or even locations for affordable housing. In addition, the General Plan still required a “fee-based” approach to affordable housing, not an “incentive-based” approach. And the fee-based approach required some acres zoned for affordable housing development. (Although the Board arbitrarily reduced the “fee” — which would then be used to somehow subsidies other “affordable housing” — from 10% of development costs to a nearly irrelevant 2%, acknowledging at the time that it was pointless and ineffectual.
SO IT WAS BACK to the Rezoning Maps again to satisfy Judge Henderson that the County was seriously trying to comply with the minimal zoning requirements called for in Ms. Hillegas’s successful suit. By this time the rezoned acreage had fallen to 24 acres because there are so few places that can support large scale housing development of any kind, much less “affordable.”
THEN THE 24 ACRES had to be reduced to 17.02 acres in Ukiah Valley only, just over the minimum specified in Judge Henderson’s ruling.
BUT THEN SUPERVISORS John McCowen and Dan Gjerde had to recuse themselves on the vote last week because McCowen owns property near some of those acres and Gjerde “had negotiated a lower rate at a Ukiah hotel owned by one of the objecting landowners” — whatever that means.
SO THEY REMOVED those few acres associated with McCowen and Gjerde to try to get three votes in favor of the rezone. But Supervisor John Pinches dissented citing something about property rights, meaning there were only two Supervisors — Dan Hamburg and Carre Brown — to vote on the rezone. By that time they were down to a measly 15 acres of rezone and acting County Counsel Doug Losak was telling them that he couldn’t assure them that the judge would be satisfied with such a low number.
(— Mark Scaramella)
CAN'T BE THE ONLY traveler to notice CalTrans roadside spray policies, especially this time of year. Years ago, a Mendo eco-outcry persuaded Big Orange we wouldn't tolerate the annual herbicide-drench of pavement margins. Turning the green optimism of spring to withered brown throughout the County was simply too much for thousands of us. And darned if Caltrans didn't stop doing it. In Mendocino County.
AS SOON as you cross the county line into Sonoma County, the roadside death stripes begin, sparing only the occasional clump of poppies, as if by sparing us the annual murder of the state flower Caltrans is telling us, We Care.
I REMEMBER a weird conversation with a Caltrans guy named Melendez, not that I've enjoyed what might be described as normal social intercourse with any of the rest of the Eureka office, especially CT's ineffible spokesman, Phil Frisbie. Frisbie, a few years ago, suddenly notified me that he'd taken the AVA off his press release roster because, get this, “You made fun of us five years ago.” (Wes? Wes Chesbro? You gonna let Caltrans get away with this?)
ANYWAY, MELENDEZ became quite animated in defense of roadside spraying. It's a matter of what he called “'encroachment.” Weeds, if they weren't thoroughly obliterated in the spring COULD TAKE OVER THE PAVEMENT! They had to be stopped, and it was his by god and gumbo duty to see that pavement won.
OF COURSE the chemical companies love roadside spraying. And Caltrans spends annual millions on herbicides, and this Melendez guy definitely believed in Better Living With Chemicals. Every spring, though, I send up a prayer of gratitude that the people of Mendocino County chose roadside life, and myself I haven't noticed the slightest diminution of pavement. There's more of it all the time.
FLOOD CONTROL BY GRAPE GROWERS? The Russian River Flood Control District and Water Conservation Improvement District Board has five members: Former Ukiah-area Supervisor Richard Shoemaker, Ukiah Business Activist Lee Howard, Ukiah Grape Grower Judy Hatch, Ukiah Grape Grower Al White and Ukiah Grape Grower Paul Zellman.
IF YOU GET the impression that the grape industry dominates this board you may be on to something. From the title (which harkens back to the 1950 when the district was first formed), you might think that a flood and water district has something to do with Flood Control or Water Conservation. You’d be mistaken. Until recently the RRFC board’s meetings were held without anything like public transparency because there’s been enough water for grapes and ballparks and the taps were never dry. But when there’s a drought competition for available water brings some attention to the otherwise ignorable RRFC’s activities.
(Note, last December, Director Zellman posted the following unintentionally ironic — and presumably legal — remark on his “sustainable winegrowing” personal blog: “Last week, I attended a holiday celebration for a local school in Mendocino County. Of course, everyone brought some of their favorite wines to share.”) Of course.
LAST TUESDAY, Ukiah Daily Journal reporter Justine Frederiksen published a useful story about the RRFC’s recent decision to sell 355 acre-feet of Lake Mendocino water to the Redwood Valley County Water District. Essentially, one group of grape growers had reluctantly voted to sell some of their precious frost protection water to other grape growers in Redwood Valley which has no real water rights — just some “surplus” water they used to get from Lake Mendocino (but not now with the Lake level very low).
Ms. Frederiksen’s report said that the 355 acre-feet RRFC was willing to sell would provide about 80 gallons per person per day, implying that the 355 acre-feet was for ordinary domestic use to help in the drought. The 355 acre-feet (about 116 million gallons) became available — to sell (at a price not mentioned by RRFC or Ms. Frederiksen) — because recent rains have brought the level of Lake Mendocino up a bit and allowed RRFC to ease up some on their drought-related conservation measures.
Ms. Frederiksen also reported, “[RRFC General Manager Sean] White said Sonoma County Water Agency will also make releases for frost protection in coordination with the flood control district and the Mendocino County Farm Bureau, although those releases may affect the amount of water available for late season irrigation.”
In answer to a question from Director Howard about the legality of selling the water, Sean White replied, “I think this is an extraordinary situation and a lot of people are leaning on a lot of people to make sure that baseline needs are met.” (The “baseline” needs include frost protection and, later in the year, irrigation.) “There is a benefit for everyone in this agreement,” White added, explaining that the flood control district's customers were “getting less of a cut, Redwood Valley is getting water when before they had nothing, and we are getting frost protection when before we had none.”
“What happens if we don't sell you that 355 acre-feet of water?” Shoemaker asked Bill Koehler of the Redwood Valley County Water District.
“In 60 days, we'll be out (of water),” Koehler said. “We're in a world of hurt, but at least we're getting something to our domestic users.”
Mr. Kohler didn’t explain how much of his about-to-be-purchased water will go to frost protection and how much to domestic use nor where the money would come from for the 355 acre-feet, but the implication is that frost protection comes first, then domestic users get some if there’s any left over.
Hopland grape grower (and County Planning Commissioner) Greg Nelson said he was concerned about the precedent the sale of the 355 acre-feet was setting, explaining that making his water supply, and that of other “flood control district agricultural contractors,” (aka fellow grape growers) less reliable could negatively affect their property values.
Translation: Grapes and the property values of grape growers are more important than domestic water for people.
Grape grower/RRFC Director Judy Hatch said, “In the spirit of helpfulness, I would like to sell the 355 acre-feet to Redwood Valley, but I do not have enough legal information to support it.” Then she recused herself from the final vote to sell the 355 acre-feet due to an unspecified “conflict of interest,” which must have had something to do with her own grapes and water. But RRFC Treasurer Al White, probably the biggest, loudest wine booster in Mendocino County, made no such similar “conflict of interest” declaration, saying he agreed with Hatch about the possible unanswered legal questions, but that the board should move forward with the agreement while the legal questions were being answered.
Translation: Let’s do whatever we feel like doing and worry about the legalities later.
In the end the two remaining grape growers (after Hatch recused herself) voted with grape friendly Shoemaker to help the Redwood Valley grape growers (and domestic users, although we don’t know how much of the 355 acre-feet will go for domestic over frost protection) by 3-1. Only non-grape grower Lee Howard dissented.
THE NEXT DAY Ms. Frederiksen followed up with a story entitled, “Flood Control Board distances itself from trustee Howard.” Apparently Mr. Howard has committed the semi-crime of speaking to the State Water Board staff on his own. Grape grower Al White declared, “[Lee Howard’s] actions created confusion and caused calls to the board regarding his actions. [With this statement], we're making it clear that questions [about Howard's comments] should be addressed to [Howard] and he does not represent the board.”
Unfortunately, because she only had the meeting contents to work with, Ms. Frederiksen did not report what Mr. Howard may have actually said to the State Water Board staff that upset the Board so much that they had to publicly distance themselves from it. But since Howard reportedly spoke to the Water Board’s chief enforcement officer and their water rights specialist, we can probably safely assume it involved Howard’s dissenting vote the previous day and his doubts about the legality of selling 355 acre-feet to Redwood Valley. Otherwise, why would the grape growers even care?
Howard said the whole discussion was an attempt to shut him up, unfairly censure him, and violate his free speech rights. Then Howard played a voicemail he got from Shoemaker: “You totally stuck your finger in the eye of everyone locally, and you totally alienate everyone in this area by doing that crap, and you're going to alienate this board as well.”
Typical of Shoemaker (and KZYX and many other local boards): Don’t speak out of school, don’t express dissenting views to anyone, or we’ll ostracize you and try to publicly embarrass you.
These kinds of petty disputes are always present, but under the surface in these little backwater (sic) bureaucracies. But they quickly rise to the surface when someone asks the grape growers to share their own frost protection water.
BACKGROUND: Back in 2010 when Ms. Hatch ran for re-election to the RRFC board she said she was running because she and her husband operate a vineyard as well as rental properties. Hatch said “it was a $50 water bill in an empty property at Vineyard View Estates (Millview Water District) that was one of the things that got me going. We had an empty estate and a $50 water bill. I just went on from there.”
Oh the unfairness of it all!
Hatch added for no particular reason at the time, “We all should be working together.” But with her recent vote to censure Director Howard, Ms. Hatch made it clear that what she meant was something like the late film director Sam Goldwyn’s adage: “Consensus is when everyone agrees with me.”
At that same time election in 2010 Al White said he should be elected because “one of the key issues I see for the district is securing the water rights that it has.” And, “One of the things that the district has worked on this year (2010) is building off-stream storage ponds to prevent lowering water levels in the Russian River as grape growers take water for frost protection.”
Paul Zellman is an assistant winemaker at Brutocao Cellars in Hopland. He said he wanted to be on the RRFC Board “to see the district continue to be a leader for agricultural water in Mendocino County” — i.e., for grapes.
What does any of this have to do with Flood Control or Conservation?
Nothing. It’s all about the grapes.
(— Mark Scaramella)
SPORTS ILLUSTRATED pegs the Giants as a 4th place team, way behind you know who from down south. SI was brutal in its analysis of our Dear Beloveds. Writing as “a rival scout,” Rival Scout suggested that the two elderly acquisitions, outfielder Mike Morse and pitcher Tim Hudson were at the end of their careers, that Pablo was thinner but maybe not anymore durable than he was last season, that the bullpen was weak, especially with Romo as the closer, and so on. Then Rival Scout shocked me when he said about my fave, “Brandon Crawford doesn't have much speed and looks a bit thicker this spring, with range a half-step slower at shortstop.” A half-step slower? The guy gets an amazing jump. He's quick, not especially fast. Romo's fastball isn't overpowering but he always throws strikes and his slider gets guys out even though they know it's coming. I look for Crawford to have a big year at the plate. Belt, too. Morse? Maybe. But he does seem like another Pat ‘The Bat’ Burrell. They're basically the same team as last year but with Crawford and Belt much improved at the plate, another strong starting pitcher and maybe a revived Lincecum. Posey, Pence, Pablo, Belt, Crawford and maybe even the aged power hitter Morse. Injuries did the Giants in last year, but they're starting out whole this season and we will see what we shall see.
MARK RICHIE WRITES: “Do you have any idea if this 'Larry Vance' is a real breathing person, or is he just a cover name for Blankfort? In any case, I'm ready to admit when I'm beat. Basically, I'm excluded from even commenting in the AVA, if every time I do a person with Blankie's researched information accuses me of being an ADL agent, or publishes my wife's name and our home address, while all MY messages, which are never anything out of bounds like that, are 'moderated,' and appear, if at all, too late to effectively answer. So, even more so than in the mainstream media, I'm effectively excluded from the AVA as things stand today. Of course, it also makes your publication look ridiculous when people aren't sanctioned for Larry Vance type posts, but that doesn't seem to bother you.”
ED REPLY: We can hardly be expected to check ID's, Mark. I doubt if Vance is Blankfort. Blankfort seems much too sensible to go to the trouble. All this stuff is kinda psycho, seems to me. I think most Americans, if they ever magically got the straight skinny on the Middle East, would know that the Palestinians are ongoing victims of America's capture by the Israeli Lobby. The nutty infighting in the Bay Area about who's more for Palestinians and who's some kind of faker loses most of us, me certainly.
A MONEY GRAB & LOTS OF PROBLEMS WITH LAWYERS
by Pacifica In Exile
Berkeley - A bar complaint has been filed in Pennsylvania against the vice chair of the Pacifica National Board, Tony Norman. Norman, a listener representative from the DC station, WPFW, has been criticized by some for not disclosing when he ran for the board that he was an elected commissioner in Washington DC. The bar complaint, filed in Pennsylvania as Norman is a member of the PA bar, relates to legal papers prepared by Norman on behalf of WPFW-FM's former manager John Hughes. The WPFW local board has been wracked with conflict caused largely by extensive program changes implemented by Hughes. Eventually members of the local station board sued each other individually and Pacifica as well. Legal filings prepared by Norman on behalf of Hughes were filed without representation (or malpractice insurance) in the DC case, potentially exposing Pacifica to liability
A copy of a complaint filed with the CA Attorney General by 8 former members of the national board can be found here.
Corporate counsel Terry Gross of Gross, Belsky and Alonzo, submitted his resignation on March 27th, after alleged board chair Margy Wilkinson disclosed his refusal to represent the board in legal actions related to the attempted firing of the executive director. Gross wished Pacifica well, but said he would not do what he was being asked to do by the board majority and said he had not been treated respectfully by some members of the board.
At last night's board meeting, the board failed to produce or approve any open session minutes, leaving over 30 hours of meetings since January unofficial. The board also refused to hear member Richard Uzzell's motion asking the board to reconsider the breach of executive director's contract, which has led to organizational chaos and headlines across the country. The complete text of Uzzell's motion can be found at the end of this alert. The motion was ruled out of order. A discussion of changing signatorys on the network bank accounts was moved into closed session by KPFA rep Jose-Luis Fuentes so it could not be heard by the network's members.
An open letter to the Board signed by hundreds of staffers, volunteers and listeners across the country can be found here.
In the closed session of the board meeting, it is reported banking authorities were changed to Raul Salvador, who was terminated as the CFO on January 2nd on the conclusion of a probationary period marked by 5 co-worker complaints, and a 990 tax filing for 2012 that had to be amended to include the necessary Schedule B recording government funding. A report on the complaints against Salvador by an Association of Workplace Investigators certified inspector was grabbed by Wilkinson, who has not disclosed it to the rest of the board. The board also approved only 2 sets of closed session minutes, March 13th and 20th, skipping over 20-30 hours of meetings on February 7th, 8th, 9th, 10th and 20th as well as March 6th, leaving over 80% of the meetings of the 2014 board undocumented.
Wilkinson is said to have expressed "surprise" at the amount of unpaid bills facing the network, indicating she and other members of the board majority had limited understanding of the financial reports presented to the board, which indicated an operating loss of $1.7 million dollars for fiscal year 2013.
Fuentes, who unsuccessfully attempted to change the authorizations on the network's bank accounts unilaterally earlier in the week, is reported to have been the intiator of both motions to breach the executive director's contract. The first was offered in early February, a week after he was seated on the board, when Fuentes moved to terminate Reese due to her lack of a social security number for religious/moral reasons. That motion was tabled and then offered again by Fuentes on March 13th with no reason for termination provided. The board's refusal to issue minutes for the February meetings may relate to legal concerns about discrimination. Reese was fully transparent with the 2013 board about her private religious beliefs and received IRS authorization for Pacifica to take back-up withholding from her paycheck.
Disputed chair Margy Wilkinson is reported to have said with regard to Reese's attempted firing; "it isn't illegal until someone says it is".
Reese has continued to report to work at the national headquarters since March 17th.
* * *
Richard Uzzell, a national board member from KPFT-FM in Houston offered the following motion to end the standoff between the Board and the Executive Director: The motion was ruled to be out of order.
Whereas, Pacifica has been thrown into chaos by the actions of the board; and we are facing a complaint with the attorney general, possible multiple lawsuits and are perceived to be self-destructing in public, and;
Whereas, this will not help our upcoming fund drives.
Whereas, the board needs to put the organization above our factional fights, as just about everyone has told us, and make it clear that we will proceed in the future deliberately and with caution, following sound personnel procedures and with sufficient independent legal guidance.
Therefore be it Resolved, that in the interests of the welfare of Pacifica and our five stations, 180 programming affiliates and our archival collections, the Pacifica National Board declares that the motion to fire Summer Reese as executive director is declared null and void; due to the lack of notice, lack of legal and HR consultation, no provision for continuing operations, increased financial risk to the network and confusion for network staff and volunteers.
And be it further Resolved, that the Pacifica National Board agrees to proceed with a system-wide performance evaluation for the executive director per the contract terms and agrees that duly-retained corporate counsel and independent human resources professionals shall be present for all executive personnel discussions going forward.
BLUE RIBBON PANEL ON PUBLIC PENSION PLAN FUNDING
As I reported at the Board of Supervisors meeting on February 25, recommendations had been released a day earlier, on February 24, by a blue-ribbon panel of the Society of Actuaries (SOA) — the entity responsible for education, testing and licensing in the profession — to improve the financial health of public pension plans. The blue-ribbon panel was formed in by the Society of Actuaries in 2013. It was intended to be multidisciplinary panel of experts that could provides new guidelines for trustees, legislators and plan advisers. The blue-ribbon panel said the new guidelines were necessary, because the total amount of unfunded public pension plan liabilities in the U.S. amounts to more than $1 trillion, according to some estimates.
The blue-ribbon panel in its report went on to say that both public pension plans and their plan sponsors, needed more precise, meaningful information about the health of public pension funds so that trustees, legislators and plan advisers, as well as citizens, could have the facts they needed to work together to make informed decisions about the future of their plans.
This blue-ribbon panel of the Society of Actuaries laid out a path to strengthen public defined benefit plans, while championing the valuation of pension liabilities in a more economically realistic way.
Depending on the path sponsors take, these areas can contribute to strengthening or weakening public funds. Public retirement systems have tended to favor expedient approaches that lowered pension contributions and liabilities in the shorter term, but in the longer term undermined long-term funding levels and retirement security.The proposal, presented in the report that was released on February 24, frames the issue of improving funding levels by tackling the conflicting objectives of pension plans, including cost stability vs. investment volatility and intergenerational equity vs. short-term public budgeting pressures.
The question is whether the constituencies involved with public funds, including actuaries, pension trustees, and the Actuarial Standards Board, will accept the SOA panel's recommendations.
There is no doubt that the recommendations in the report should be embraced. But the impulse in the past has been to resist infusing the systems with better economics. When the Governmental Accounting Standards Board (GASB) sought to change the accounting method for valuing liabilities, it was pressured to moderate its initial ideas. These watered-down proposals resulted in GASB Pronouncements 67 and 68, which will be implemented in 2014 and 2015, respectively. GASB 67 and 68 are a good start, but it's only a start. It's not the final word on pension reform.
With the SOA panel's new proposals, it is in the interest of proponents of public retirement systems, including actuaries, to change. We must all support pension reform. Otherwise the systems sow their own seeds of destruction as the political pressure builds to scrap defined benefit plans and move to defined contribution plans, thereby putting all investment risk onto participants.
The SOA panel's proposal sought only to help public sponsors to make their systems stronger.
One of its key recommendations is that public retirement systems should use a forward-looking rate to discount pension liabilities to give a truer economic picture of plan costs, rather than historical plan returns, which tend to understate liabilities.
The new rate would replace the actual long-term rate of return on plan assets generally used now by sponsors and their actuaries to discount liabilities and set contribution levels.
The SOA's blue-ribbon panel could have, and perhaps should have, have gone further and recommended the use of a risk-free rate — or the rates on the Treasury yield curve — for valuing pension liabilities. In the 68-page “Report of the Blue Ribbon Panel on Public Pension Plan Funding,” the 12-member, blue-ribbon panel recognized the superiority of the use of the risk-free rate for such valuation.
“Economic theory suggests that achieving full intergenerational equity means that current taxpayers should pay the “risk-free' cost of services so as not to burden future taxpayers with the cost of investment risk being taken by current taxpayers,” the report said.
“The panel recognizes that most plans prefer the lower current cost achieved by assuming higher expected investment returns (and therefore higher risk taking and a possible shift of costs to future generations), as opposed to preserving pure intergenerational equity.”
Benefits that are riskless, such as those pension benefits protected by provisions in state constitutions that prohibit reductions, should be discounted at the risk-free, or at least a very low, rate to provide for funding adequacy to ensure pension promises are kept.
Public plans believe their sponsoring entities, states and cities, don't go out of business, enabling them to withstand short-term market and funding challenges and use a higher assumed rate. But the bankruptcy filings by Detroit and some other cities reveal the fallacy of that thinking. States cannot seek bankruptcy, but economic challenges might force their taxpayers to do so, or at least be unable to bear further economic burdens, making difficult raising revenue to finance pension contributions.
The SOA's blue-ribbon panel instead chose a forward-looking rate, which it said would be lower than the rate generally in use now by public sponsors. For forecasting the rate, “it is important to consider the extent to which future economic and market conditions may differ from those of today or of the past,” the report said, noting “the long-term secular decline in interest rates ... strongly suggests that the robust fixed-income performance of the past is not likely to be repeated in the future.”
The panel incorporates the risk-free rate as a risk management tool as part of its recommendations to enhance disclosure of public systems. It recommends using the risk-free rate for reporting purposes to discount liabilities and to compare it against the investment return assumption as a way to gauge the level of investment risk taken by the plan. Such a move would be a good step toward assessing the risks and costs of plans.
The underfunding of plans tends to derive from a lack of contributions and the overpromising of benefits, including cost-of-living increases, rather than from insufficient returns on assets. Many funds have tended to achieve their assumed rate of return over the long term.
“Funding adequacy and intergenerational equity should take precedence over the goal of cost stability and predictability,” the report said. Even though “predictability of cost in the short term is important for public budgeting purposes,” the report said, “allocating a significant portion of investments to higher-risk, more volatile assets will tend to undermine the goal of cost stability.”
In addition, the panel recommends governmental entities responsible for funding and plan trustees “should strive to fund 100%” of pension obligations, rather than the 80% typically considered as adequate. “Financial resources, including both current and future contributions, should be adequate to fund benefits over a broad range of expected future economic outcomes” and “respond to changing economic conditions,” the report said.
Among the recommendations, the report calls for other enhanced disclosure, which would help taxpayers understand the complexities of pension finance and could build support for strengthening plans.
The panel plans to take its recommendations to the Actuarial Standard Board (ASB), which adopts standards of practices for the actuarial industry. The process might take some time to play out, even if the ASB embraces the panel's recommendations.
Trustees should not wait; they should adopt the suggestions. That would take agreement from the funding sources of public plans, especially state and local legislators. But the status quo leaves the plans vulnerable to underfunding.
If public entities, like Mendocino County, want to keep defined benefit systems, they have to make funding a priority. The SOA's blue-ribbon panel shows them how to do it. If we fail to act, we need not look any further than Detroit to see the future of our county's pension system.
A CASE STUDY: DETROIT
Detroit is the teachable moment. For all their hundreds of billions of dollars, public pension systems are largely unregulated. Actuarial standards, however obscure, may be the closest thing the sector has to a uniform and enforceable code. And the code has just been updated, thanks to Detroit.
Again, to review, the SOA's blue-ribbon panel recommend that pension actuaries provide plan boards of trustees and, ultimately, the public with the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. That means pension officials would disclose something they have long resisted discussing: the total cost, in today’s dollars, of the workers’ pensions, assuming no credit for expected investment gains over the years.
“We think it would be a useful benchmark for plans to have,” said Robert W.Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.”
Economists refer to this elusive number as the plan’s total liability, discounted at a risk-free rate. The SOA has called for its disclosure for years, saying it would help pension trustees make better decisions. Economists have calculated rough approximations in recent years for various states and cities, but only the plan actuaries have the data needed for precise calculations.
Though the actuaries who work for public pensions have the capacity to spot risks and measure shortfalls with pinpoint accuracy, it is their clients — usually the pension trustees — who call the shots. And plan trustees prefer to be given traditional actuarial estimates, which are smoothed, stretched, averaged, backloaded and otherwise spread across time.
Such numbers generally comply with current actuarial standards, but as Detroit shows, they can also paper over looming disasters. Detroit’s pension fund was said to be healthy just before the bankruptcy, but it turned out to be several billion dollars short.
The new liability measurement called for by the Society of Actuaries panel would not be the only number provided to the public, but it would provide new insight into the market risks for pension plans and the shortfall that might have to be made up by local taxpayers if investment returns did not measure up to expectations.
Disclosing pension liabilities based on risk-free discount rates, however, is viewed with deep suspicion by plan trustees and the unions that represent public workers. Pension officials and union leaders say the risk-free approach, if permitted, will be used to cast public pensions in the worst possible light to whip up fervor against them and justify the termination of the plans.
A CASE STUDY: NEW YORK CITY
So far, the only public pension actuary who has publicly provided such numbers is Robert C. North Jr., who tracks the five funds that make up New York City’s vast pension system. He is also one of the 12 members of the blue-ribbon panel. (Other members include New York’s former lieutenant governor, Richard Ravitch; the Pension Benefit Guaranty Corporation’s former executive director, Bradley D. Belt; and the Principal Financial Group’s chief executive, Larry D. Zimpleman.)
For New York City’s biggest fund, known as the New York City Employee Retirement System (NYCERS), the conventional numbers show assets of about $45 billion and liabilities of $67 billion, or a less-than-stellar funded ratio of 66 percent.
But Mr. North’s fair-value numbers, deep in NYCERS’s annual report, show assets of $43 billion and liabilities of $106 billion, or a funded ratio of just 40 percent — a sure sign of trouble ahead as the city’s work force ages and retires.
The difference, $63 billion, is NYCERS’s shortfall. That money has to be made up before today’s city workers retire — within 14 years, on average. As a result, New York’s contributions to Nycers are rising every year, squeezing the city budget and making it harder for the city to provide public services.
Mr. North said in 2006 that he tried to give these numbers greater prominence in the annual reports, but was blocked by the plan’s outside auditor, who said that doing so did not comply with generally accepted accounting principles.
Detroit felt an even bigger budget squeeze over the last decade. But, unable to see the hopelessness of its situation, the city borrowed $1.4 billion from the bond markets, put that cash into its pension system and declared victory. The money was invested in assets that subsequently lost value, the workers kept on accruing new benefits, tax revenues continued to falter and finally, last year, that debt was the first thing Detroit defaulted on as it hurtled toward bankruptcy.
New York City now says the borrowing transaction was an illegal sham and has asked the bankruptcy court to void it. Bondholders have been told to expect pennies on the dollar for their claims. Pensioners’ losses in the bankruptcy will be softened, but some of them have been warned that their pension checks will be docked to offsetimproper payouts in the past.
Detroit might have gone bankrupt in any case, but the pain might have been lessened if better decisions had been made early on to address the rising cost of the benefits in the face of the shrinking tax base.
For other places that may have the same problem, the blue-ribbon panel is calling for actuaries to produce other details as well: each pension plan’s projected annual cash payments; the estimated volatility of the fund’s investment performance; and something called a “standardized plan contribution,” which would help all stakeholders assess whether the actual contributions to a pension fund, paid by workers and taxpayers, are reasonable and adequate.
“One would think that alert trustees would want to review this,” Mr. Stein said, “and evaluate how they should respond.”
Mr. Stein said the panel had asked the Actuarial Standards Board to incorporate its recommendations into its professional standards, or perhaps into a new standard solely for public pensions.
PENSION OBLIGATION BONDS AREN'T THE ANSWER
The blue-ribbon panel went on to say in its report that public pension plans should not be funded with instruments that bear risk or delay cash funding, such as pension obligation bonds.
“Plans are not funded in a broad budgetary sense when debt is issued by the plan sponsor to fund the plan, whether inside or outside the plan,” said the panel.
The panel said that effective pension funding programs should follow three principles. One of the principles is adequacy, or the goal to fund 100% of the value of promises made; the second principle is intergenerational equity, or the goal that current employee costs will not be borne by future taxpayers; and the third principle is cost stability and predictability.
To state it another way, pension obligation bonds aren't the answer to funding a chronically underfunded plan.
The panel recommended several good governance characteristics that pension systems should adopt. One of these is that plans should maximize the likelihood that funding objectives be achieved. Plans should also ensure that recommended contributions are paid, and that complete financial information is disclosed to all stakeholders. Finally, the use of financial instruments that delay cash contributions, like pension obligation bonds, should not be encouraged, the report said.
The report recommended that the Actuarial Standards Board require several types of financial and risk measures to be disclosed in actuarial reports.
Trends in financial and demographic measures should be disclosed so that a plan's stakeholders can understand its changing profile and risk position. Plans should present information for a 10-year period about various plan maturity and cost measures. Additionally, the report said, plans should present information that allows users to compare economic and demographic assumptions with actual experiences.
Actuaries also should disclose three benchmarks in order for current risk levels to be understood, the report said. Those benchmarks are: the expected standard deviation of investment returns of the asset portfolio on the report date; the plan liability and normal cost calculated at the risk-free rate; and a standardized plan contribution that can be compared to the recommended contribution to help users asses the recommended contribution's adequacy.
Additionally, plans should be stress tested to see both the effect of paying only 80% of the recommended contributions each year for 20 years, and the effect of investment returns over a 20-year period that are three percentage points greater and less than those used in calculating the standardized plan contribution.
Also actuaries should provide two sets of benefit payment projections for current employees, one on an earned-to-date basis and the other on a projected-benefit basis, the panel said.
In addition to urging the Actuary Standards Board (ASB) to require the disclosures, the panel calls for the board to require actuaries to include in their reports “an opinion on the reasonableness of fund methods and assumptions.”
The report also makes specific recommendations about methods and assumptions that plans use for funding calculations. The panel believes that the rate of return assumption should be forward looking and based primarily on the current risk-free rate. Also, gains and losses should be amortized over a period of no more than 15 to 20 years. It says asset smoothing periods should be no more than five years.
Actuaries should consider direct-rate smoothing and other asset and liability cash flow modeling techniques, because these approaches “can provide greater transparency into the current financial position of the trust, the level of risk in funding assumptions, and enhanced flexibility to sponsors in the development of sustainable funding programs,” the report said.
The panel recommends several good governance characteristics that pension systems should adopt. One of these is that plans should maximize the likelihood that funding objectives be achieved. Plans should ensure that recommended contributions are paid, that complete financial information is disclosed to all stakeholders and that financial instruments that delay cash contributions are not used, the report also said.
Pension systems should also ensure that trustees are properly trained and have sufficient information to be able to analyze risk. They also should carefully consider plan changes. For example, Mendocino County's Retirement Board could require that consideration and adoption of plan changes be done over two or three legislative sessions of the Board of Supervisors. The Retirement Board should also adopt a formal process for evaluating the implications of changes. Meanwhile, the Retirement Board should avoid certain high-risk plan features. There is no free lunch when an underfunded plan tries catch-up. It's a fool's bet that high-risk investments will lead to a fully funded plan.
In conclusion, it is my personal recommendation that the Board of Supervisors and the Retirement Board schedule a joint meeting and workshop in the near future, and at that meeting, Mendocino County's actuaries, Mr. Paul Angelo, Senior Vice President and Actuary and/or Mr. Andy Young, Vice President and Associate Actuary, both of the Seagal Company, should be invited to present their views on the findings and recommendations Society of Actuaries Blue-Ribbon Panel on Public Pension Funding.
POLICE CALLS as of Saturday morning:
DOMESTIC VIOLENCE -- An officer responded to Ukiah Valley Medical Center at 4:11 a.m. Thursday and arrested Morgan Ammerman, 19, of Ukiah on suspicion of domestic violence. She was booked at Mendocino County Jail.
WOMAN IN WHEELCHAIR YELLING -- Caller in the 200 block of North Orchard Avenue reported at 2:46 p.m. Thursday that a woman in a wheelchair was yelling in front of the video store. An officer responded and reported that the woman was fine. At 5:53 p.m., a caller at Lucky supermarket on East Perkins Street reported that a woman in a wheelchair was yelling. An officer responded and reported that the woman was fine.
DISTURBANCE -- Caller at McDonald's restaurant on North Orchard Avenue reported at 8:05 a.m. Friday that a woman was running in front of cars and throwing trash. An officer responded and arrested a 47-year-old woman for being under the influence of a controlled substance, possession of drug paraphernalia and violating her probation.
A Mendocino County sheriff's sergeant suffered minor injuries Friday morning when his patrol car was struck head-on by a stolen Jeep during a chase in which speeds reached 110 mph, sheriff's officials and the CHP said.
Sgt. Derek Scott of the Sheriff's Office suffered minor injuries Friday afternoon when he collided with a stolen 2001 Jeep Wrangler driven by Antonio Calderon, 23, of Willits. Scott was treated at Ukiah Valley Medical Center and released. Calderon, who suffered a bloody nose and cut to his forehead, was also treated before being booked into the Mendocino County Jail.
Ukiah Police Department Press Release:
On March 25th at about 5:15 PM Ukiah Police stopped a vehicle being driven by 50 year old James Vincent Surber, of Fortuna, in the 500 block of South State Street. Also in the vehicle was a passenger, identified as 30 year old John Robert Skelton, of Redway.
The officer detected an odor of marijuana within the vehicle, and a search revealed 20 pounds of marijuana in 1 pound bags. Also located in the vehicle was approximately $8000.00 in US Currency. Surber and Skelton were arrested for possessing and transporting marijuana for sale, and the currency was seized pursuant to state asset forfeiture laws.