Sunday, August 6, 2017
[Marin County] Pension watchdog sues San Rafael
Blog note: this article references the City of San Rafael’s response to a 2015 grand jury report on pension formulas.
A Marin man is suing San Rafael over public pension “enhancements” he says were approved illegally and have put taxpayers on the hook for millions of dollars in future benefits.
“As a result (of the enhancements), all citizens of San Rafael have suffered and will continue to suffer irreparable damage by the payment of taxes in excess of what they otherwise would have paid in the past or will pay in the future,” says David C. Brown, in a suit filed June 22 in Marin Superior Court.
Brown, of Mill Valley, alleges the city did not follow rules contained in California Code Section 7507, which, among other requirements, calls for two weeks advance public notice and scrutiny of actuarial cost estimates before approving pension increases.
“There are four requirements of 7507,” Brown said Friday. “I don’t think they met any of them.”
San Rafael Assistant City Attorney Lisa Goldfien said the city had not yet had a chance to review the suit, and officials involved in the case were on vacation. City officials would be reacting after they got back in the office and had time to assimilate the filing, she said.
“We have not yet returned service (on the lawsuit),” she said. “After we return service, we’ll have 30 days to file an official response.”
GRAND JURY REPORT
Brown’s comments and lawsuit specifically call into question the city’s response to a 2015-16 Marin County Civil Grand Jury report that criticized the pension enhancements approved by San Rafael, as well as those by Southern Marin Fire District, Novato and Marin County. The grand jury report, “Pension Enhancements: A Case of Government Code Violations and a Lack of Transparency,” suggested Marin public agencies may have violated statutes for transparency in approving pension enhancements.
San Rafael’s response to the grand jury report was written in 2015 by attorney Michael Colantuono, of Colantuono, Highsmith and Whatley, PC, of Penn Valley, under contract with the city.
Colantuono declined comment on Friday, but Goldfien said the city stands by his response to the grand jury report.
“We felt our response was appropriate and sufficient,” she said of the Colantuono memo. “Apparently Mr. Brown doesn’t think so, and that’s the basis of his lawsuit.”
Brown, in the lawsuit, is asking the court to direct the city to immediately stop future accruals of pension “enhancements” approved in 2002 and 2006, and to reclaim payments or accruals made for the past three years — the amount of time allowed by the statute of limitations in the case.
Enhancement amounts vary among employees, but a typical firefighter pension before the enhancements might have been a formula of 2 percent (of the average annual salary) at age 55, times the years of service. That meant that a 55-year-old retiree with 30 years of service and an average salary of $100,000 would have a pension benefit of $60,000 annually.
With the enhancements, some pension benefits could have moved to a formula of 3 percent at age 55.
That meant that a 55-year-old firefighter with 30 years on the job, and earning an average $100,000 annually, would earn $90,000 annually.
“If someone lives another 30 years, that’s an extra $30,000 a year for 30 years, or $900,000,” Brown said. “And that’s just for one person.”
As a result of the enhancements, the suit asserts that unfunded pension liability in the city “skyrocketed.” Unfunded pension liabilities are the amount of money the city owes in future pension obligations that are not currently being held in reserve.
“San Rafael had a surplus in its retirement fund of approximately $3.4 million as of June 30, 2002,” the suit states, citing annual actuarial reports from the Marin County Employees’ Retirement Association (MCERA).
“At the end of the ensuing 12 months, during which seven of the nine pension enhancements were authorized, the surplus was gone, and unfunded liabilities exceeded $34 million,” the suit says.
“As of June 30, 2016, unfunded liabilities had increased to over $156 million,” it reads.
Brown on Friday said state statute 7507, which calls for public disclosure of proposed pension increases, was “the one protection the Legislature wrote, in that, before you do this, you have to tell the public what it’s going to cost,” he said.
“As a taxpayer, if my elected officials want to do this kind of thing, my job is to vote them out of office,” he said. “But if I don’t know about it, I can’t vote them out of office.”
Colantuono, in his memo, however, asserts that San Rafael “substantially” complied with the two weeks advance public notice portion of Section 7507, and “strictly” complied with another section that mandates the city to secure actuarial reports detailing the cost of any proposed pension enhancements and to make that estimate publicly available.
“We further conclude that any imperfection in the city’s compliance with Section 7507 does not invalidate the pension enhancement, because Section 7507 is directory rather than mandatory in that it imposes no consequence for violators,” he writes in the memo. “Moreover, the employees and retirees have vested rights to these pension benefits.”
Colantuono cites the Oct. 21, 2002 City Council agenda that mentions the status of union negotiations for miscellaneous (non-public-safety) employees, and gives an actuary’s estimate of the cost.
“This report was made publically available before that City Council meeting, but apparently not two weeks earlier,” Colantuono says.
In their acceptance of Colantuono’s memo on July 6, 2015, Goldfien and City Attorney Robert Epstein concur with his conclusions.
“The city’s outside counsel has determined that, although the city’s compliance with Section 7507 was not perfect in some respects, the city substantially complied with the requirements of the statute,” says a report on the agenda that night. “And their (Colantuno’s) opinion is that the deficiencies in the city’s compliance would not lead to invalidation of the pension enhancements.”
According to Brown, however, San Rafael’s evidence of compliance with Section 7507 was less than satisfactory, he said.
“Colantuono’s memo is basically a whitewash of the situation,” Brown said Friday.
San Rafael is the third public agency to be sued by Brown on the issue of pension enhancements as detailed in the 2015-16 Marin County Civil Grand Jury report. He lost a 2016 suit against Southern Marin Fire after a judge said the suit’s demand to reclaim all pension enhancement benefits back to 2002 violated the statute of limitations. He dropped a subsequent suit against Novato after that city provided some records that its cost for its proposed pension enhancements had been publicly discussed six or seven months earlier.
In addition, Brown filed a suit last year against Marin County, alleging supervisors had a “conflict of interest” when they were discussing the grand jury report at a public meeting.
“I thought they should have recused themselves,” he said. “I believed it was improper for them to discuss it when they were benefiting from (the pension enhancements).”
He later dropped the suit after the supervisors voted to allocate $50,000 in legal fees to defend themselves. That case was unrelated to the current action, he said.
August 1, 2017
Marin Independent Journal
By Keri Brenner