Saturday, May 29, 2021

[Solano County] Grand Jury report urges city to stay on top of unfunded liabilities

In 2019, the Solano County Grand Jury issued a report cautioning that the city of Vacaville’s retirement benefits package was “not sustainable” and could result in a loss of employees and services if not addressed.

A followup report, issued Tuesday, opined that even with steps taken to mitigate unfunded liabilities, the city needs to do more to keep its services and fully fund employee benefit obligations in the future.

The 2019 report focused on the city’s retirement package, also known as Other Post-Employment Benefit (OPEB), with recommendations including lowering OPEB costs through updated policies and labor relations strategies, forming a citizen oversight committee to study OPEB and make recommendations to the City Council, simplifying the language to address long-term financial impacts and not placing OPEB-related matters on the council’s consent calendar.

For its followup report, the Grand Jury interviewed a resident, City Council member and a member of the OPEB Advisory Committee that was later formed. It also viewed the Oct. 13 council meeting where the committee’s recommendations were presented, a City Council special OPEB study session on March 2 and a webinar on OPEB liabilities in Contra Costa County, hosted by Marc Joffee of the think tank Reason Foundation, in addition to reviewing several documents.

Regarding the recommendation of an OPEB oversight committee, then-Councilman Mitch Mashburn balked at the idea of it being termed an “oversight” committee at a 2019 meeting but said he was supportive of establishing an advisory committee. This idea was supported by the rest of the council, and the committee first met in Jan. 2020 for a 120-day term to study and provide a report of recommendations to the council. The committee was dissolved at the end of its term.

According to the Grand Jury report, the committee presented its report to the council, which “accepted the report, took no action to address the recommendations, and thanked the committee for its serve.”

One of the confirmations of the OPEB Advisory Committee was that the city was facing “significant fiscal challenges” from its OPEB benefit level. The committee cited a 2020 report by state Sen. John Moorlach, R-Costa Mesa, which ranked all of California’s cities based on financial soundness and placed Vacaville in the bottom 10 percent.

Moreover, a 2020 report by the California State Auditor found Vacaville to be in “high-risk of pension obligations, funding, future pension costs and OPEB funding, per the Grand Jury report.

Currently, the city has two California Public Employees’ Retirement System (CalPERS) pension plans: one for its public safety employees and another for its other employees. Combined, the two plans had an unfunded liability of $209 million as of June 2019.

“If the City of Vacaville increased its current CalPERS Safety Plan payment by $2 million annually it would save $26 million in interest and retire the unfunded liability within 15 years,” the report’s authors wrote. “If annual payments were increased by $5 million the city would save $2 million in interest and retire the unfunded liability in 10 years.”

Additionally, the report indicated that Family Premium health care rates increased an average of 8.5 percent per year from 1975 to 2020. Vacaville has three compensation tiers for both its active and retired employees, which are dependent on the date an employee was hired and how long they served.

In recent years, the city has adopted a defined contribution model for Tier 3 employees. However, the report’s authors wrote that most current employees and retirees continue to receive defined benefits under the first two tiers.

“The private sector has moved towards defined contribution plans because the costs of defined benefit plans are inherently unpredictable,” the report’s authors wrote.

With seven of the nine current memoranda of understanding between the city and seven of the nine labor groups set to expire Oct. 31, and the remaining two slated to end in 2022, the Grand Jury is recommending that the city convert to a defined contributions benefit model in future negotiations with Tier 1 and 2 employees.

Other recommendations included establishing an annual contribution schedule to retire unfunded liabilities over a 10-to-15-year period, applying for American Rescue Act funds for additional contributions toward decreasing liabilities, negotiating all labor contracts with an independent facilitator, addressing unfunded liabilities in all negotiations, re-establishing the advisory committee and following up on its recommendations and continuing to regularly and publicly review issues affecting pensions and liabilities to ensure the city’s finances remain stable and services are not impacted.

Mayor Ron Rowlett and the City Council are required to issue a formal response to the report. Courtesy copies have also been provided to City Manager Aaron Busch and the Solano County Board of Supervisors.

Kris Concepcion, the city’s interim public information officer, said the city has not thoroughly reviewed the report yet but is taking the matter seriously and will have a formal response ready before the due date. Primarily, he said the city is looking at areas that differed from the 2019 report and will formulate appropriate actions after reviewing the recommendations.

“We will be reviewing it thoroughly, taking into consideration all the Grand Jury’s findings and recommendations and studying each one of them and considering them and making sure that each of them get addressed,” he said.

The full report can be read at Solano.courts.ca.gov/divisions/grand-jury/reports/.

Vacaville Reporter
By NICK SESTANOVICH | nsestanovich@thereporter.com |
May 27, 2021

No comments: