As a percentage of total revenue, the city of San Rafael leads all other cities and counties in California in the amount it spends on pensions, according to a nonprofit watchdog organization.
The city’s pension contribution-to-revenue rate is more than 18 percent, the California Policy Center reported in a study last week. It marks the second consecutive year that the policy center has ranked San Rafael No. 1 in this category.
“A government’s budget is a finite resource,” said Marc Joffe, the center’s research director, who wrote the report. “Money that goes to one thing can’t go to another thing, so if you’re spending almost $1 out of $5 on pension payments, that is a lot less money available for tangible public services such as filling potholes, keeping the library open and making sure there is sufficient police protection.”
In 2016, San Rafael made more than $19 million in pension contributions while collecting nearly $106 million in revenue.
A San Rafael finance official said the high ratio is a function of the city’s aggressive moves to retire its pension obligations. And the policy center, while critical of the city, noted in an analysis last year that San Rafael’s payment plan is a move toward “fiscal sustainability” and that the city is taking steps to reduce benefits for new employees.
Revenue ratios
The Tustin-based policy center describes itself as an educational nonprofit; the Center for Media and Democracy, a nonprofit watchdog and advocacy organization based in Madison, Wisconsin, says the center is part of a network of state pressure groups that promote conservative agendas in statehouses nationwide.
San Rafael is among 20 cities and counties that the policy center identified as having contribution-to-revenue ratios exceeding 10 percent.
“Anything over 10 percent is something to worry about,” Joffe said.
The city of San Jose was ranked second with a contribution-to-revenue ratio of more than 13 percent. The rankings were based on 2015-16 audited financial reports.
According to the policy center’s analysis, Marin County had a contribution-to-revenue ratio of a little over 7 percent, which Joffe said is about average for jurisdictions across the state. The Marin municipality with the second-highest ratio was Ross at more than 8 percent. San Anselmo had the lowest ratio: 1.52 percent.
Pension load
Members of Citizens for Sustainable Pension Plans, a Marin-based public pension reform group, said the contribution-to-revenue ratio is just one of the gauges they use when evaluating a jurisdiction’s pension load.
Richard Tait of Mill Valley said San Rafael’s pension contributions amount to 94 percent of the city’s total property taxes collected in 2016.
Bob Bunnell, another core member of the citizens group, said San Rafael’s pension contributions amount to 61 percent of salaries. That means for every dollar in payroll, the city is setting aside another 61 cents for employee pensions.
“Most private industry employer contribution rates range between 5 percent and 15 percent of payroll,” Bunnell said. “San Rafael’s 61 percent figure is offensive.”
But when the policy center ranked San Rafael’s contribution-to-revenue ratio the highest in the state last year, it provided some detailed analysis that suggested that perhaps things aren’t as bad as they seem.
Generous benefits
First, the analysis said that cities that have responsibility for both safety and non-safety employee pensions, such as San Rafael, have the highest burdens.
Next, it pointed out that the Marin County Employee Retirement Agency, of which San Rafael is a member, is taking an aggressive approach to paying down its unfunded liabilities. It said that while most cities and counties are amortizing their unfunded balances over a 30-year period, MCERA has implemented a 17-year amortization period.
The analysis stated more rapid amortization “promotes fiscal sustainability, so, at least to this extent, San Rafael’s high pension contributions could be seen as positive.”
The policy center said that San Rafael’s heavy burden was partially a legacy of generous retirement benefits. At one time, police officers and firefighters were entitled to pensions equal to 3 percent of salary per year employed with a retirement age of 55. And miscellaneous employees — those who are not uniformed public safety officers — received 2.7 percent per year at age 55.
Changes made
The analysis stated that more recently, however, some of these benefits have been reduced for new employees.
In 2011, San Rafael lowered the benefit for new miscellaneous employees from 2.7 percent to 2 percent. It did not reduce the benefit rate for new public safety employees, but shrank their cost of living allowance in retirement from 3 percent to 2 percent. San Rafael also altered the way it calculated pension benefits, switching to an average of the employee’s final three years’ salary instead of using the last year’s salary — thus reducing opportunities for pension spiking.
In addition, the analysis said that San Rafael further reduced new employee benefits in 2013 following implementation of California’s Public Employees’ Pension Reform Act. The city increased the minimum age for new miscellaneous employees to receive benefits to 62. The city also increased the retirement age for new safety employees from 55 to 57 and reduced the benefit rate from 3 percent to 2.7 percent.
The city’s unfunded pension liability, the cost of benefits promised by elected officials but for which no money has been banked, was $141 million last year.
‘Runaway costs’
Mark Moses, San Rafael’s finance director, said, “The city of San Rafael, through MCERA, is retiring its pension obligations at a significantly more aggressive pace than the California Public Employees’ Retirement System. This is reflected in the relative contribution rates reported in the ranking.”
But Bunnell, of Citizens for Sustainable Pension Plans, said, “The justification that they are using 17-year amortization instead of 30 and that they have a high percentage of safety workers is ridiculous. San Rafael is the prime example of runaway pension costs with public leaders who refuse to admit it and do nothing to support pension reform.”
Tait said that state pension reform act didn’t go far enough; he hopes the California Supreme Court will set a new precedent that will allow jurisdictions to reduce the pension benefits of current employees, when it hears an appeal by the Marin Association of Public Employees International Union 1021 and the Marin County Fire Department Firefighters Association of a decision by the 1st District Court of Appeal in San Francisco.
The unions sued after MCERA responded to the adoption of the state reform act by excluding standby pay, administrative response pay, callback pay and cash payments for waiving health insurance from the calculation of members’ final compensation.
Center criticized
Responding to the policy center’s new report, Rollie Katz, executive director of the Marin Association of Public Employees, said, “The so-called California Policy Center is a conservative, anti-worker, anti-union organization, so we don’t pay much attention to their so-called reports. It would be a breath of fresh air if they spend some time addressing how we can ensure that all working people can have a decent retirement.
“They might highlight how much an office assistant who works for the county, a custodian or food service worker who works for a school district or a landscape worker or library assistant who works for the city will have in their pensions when they retire after a career of public service,” Katz said.
Joffe said pension liabilities could be reduced without cutting the pensions of government workers with modest salaries. He said a tax could be imposed on beneficiaries earning more than $100,000 a year and a 401(k)-style plan substituted for defined benefits for high-paid managers earning over $200,000 annually.