By JEREMY HAY
THE PRESS DEMOCRAT
In 2007, Rohnert Park officials cut in half the amount the city needed to cover the costs of retiree medical benefits it offered its employees.
Overnight, the city’s unfunded liability went from $56 million to $27 million - at least on paper.
But that gain has since evaporated. Today, the unfunded liability stands at $53.2 million – principally because the city failed to start putting away money it had promised its retirees and those still employed.
“There’s just been this perfectly awful combination of revenues down and what we’re seeing with medical costs going up,” said Councilman Jake Mackenzie, who was on the 2007 council. He said the economic slump prevented the city from saving money as planned.
But former politicians who worked alongside Mackenzie to reduce the liability, and employees who took benefit cuts to help achieve that goal, say the city missed a rare chance to substantially improve its long-term fiscal health.
“I’m deeply disappointed that what we had accomplished was dropped,” said Tim Smith, a councilman at the time and a former Rohnert Park mayor.
“Even understanding that the economy took a turn, nonetheless, it’s deeply disappointing that this … was allowed to slip away,” Smith said.
The daunting gap between what the city is on the long-term hook for and what it has in the bank is just one of several steep fiscal challenges it now faces.
The city confronts a liability in its employee retirement plan program of $45.5 million at last count. Like that of the retiree medical benefits, the liability is the difference between what it has paid into the state public employees’ retirement system and what actuarial studies show it will owe.
At the same time, the city has a $1.5 million budget deficit, although it has made progress on that front, cutting it from a projected $6 million a year ago.
Rohnert Park Police Sgt. Dale Utecht said employees agreed to the benefit cuts - as they had in 1993, when the city also tried to tackle the liability - with the understanding that the city would set aside money to fund the health costs.
“Because nothing was done by the city to improve the situation, it’s continued to grow. It’s definitely frustrating,” said Utecht, president of the Public Safety Officers Association, the city’s biggest public employees’ union.
Prior to 2007, when employees with 25 or more years of employment retired, the city covered 100 percent of their and their family members’ health insurance costs for life.
Post-2007, 80 percent of the employee’s insurance costs plus one dependent are covered upon their retirement. But employees have to work for the city for longer to qualify. And for new hires, the city makes monthly payments into a medical savings account, which eliminates any future liability.
Those measures saved about $8 million.
Employees agreed to them, but unhappily.
“They’d already done the work and now they weren’t going to get paid for it,” said Dave Stubblebine, a now-retired police officer who was involved in the negotiations that led to the 2007 benefit changes.
But the bulk of the savings achieved in 2007 were based on the promise of good intentions.
The plan assumed the city would put $4.7 million a year into a state-managed trust fund to pay for its current and future benefit obligations and that the fund would earn a higher interest rate than the city’s general investment portfolio.
Of the $29 million reduction in the liability, $18 million was from a projected jump in interest rate income, said Sandy Lipitz, the city’s finance director.
The city, however, did not put the money away and thus, did not get those earnings. The economic crash also flattened the city’s second-largest income source, sales tax revenue.
Since 2007, Rohnert Park has been paying $1.5 million a year to cover benefits for 109 retired employees - leaving its contribution $3.2 million short of that once planned for. The city has 118 current employees whose contracts entitle them to to retiree medical benefits.
“We just didn’t have the money” to put into the fund, said Councilwoman Pam Stafford, who was on the council in 2007.
Smith said a formal process to save the money was never created.
“The agreement to set up the mechanism was never implemented, and because of that … it’s now ballooned,” he said.
There was little point in setting up such a system, Stafford said: “You can set up any kind of mechanism you want, but we didn’t have the money to put in there.”
Now employees who agreed in 2007 to benefit cuts believe they are once again in the bullseye. Contract negotiations are under way and retiree benefits are expected to be on the table.
“My benefit is about a third of what it was five years ago, it’s not anywhere near the promise that I signed on for,” said Jim McIntyre, a public works mechanic who has worked for the city for 30 years.
Like other employees and retirees, McIntyre acknowledges a real problem with the liability. But he said the city has to do better this time.
“They’re not going to get out of this thing free. They have to reduce their risk, but I’m not going to give up something I have coming,” he said.
The city says its options are limited.
Officials believe they cannot adjust the benefits of retired employees, said Interim Assistant City Manager John Dunn.
That means the city can cut benefits for existing employees or start to fund the benefits trust fund, Lipitz said. The latter seems doubtful in the short term, at least, with the city facing a $1.5 million budget deficit.
“We just have to get the point where we can start doing that,” said Stafford.
“Clearly, intellectually you do that, you establish a lock box, you put the stuff in the lock box and there it sits,” said Mackenzie.
“In terms of dealing with immediate problems in terms of balancing the budget, you have to take more pragmatic steps in the short term,” he said.
McIntyre and Stubblebine concede the city needs to act. “I understand why the City Council wants to be on top of it,” Stubblebine said. But both said the problem is being overstated.
McIntyre, who worries that the city may try to eliminate the retirement benefit altogether, said, in a nod to its current leadership, that the city is headed in the right direction by encouraging economic development. That would boost its finances and allow it to make up some lost ground in the liability, he said.
“There will be money, in time there will be money. The economy’s only going to be bad for so long, and I do like our leadership,” he said. “To completely remove a benefit when things will probably be fine in five, six, seven years…”
Stubblebine argued that the entire $53 million liability will never be due at once, reducing the need for benefit cuts.
“They don’t have to have that much on hand, they never will,” he said. “They need to have what the annual bill is.”
In the meantime, he said, the city should concentrate on raising revenue, some of which could be put away to reduce the liability.
“”They’re paying a lot of attention to how money is spent and how to reduce that,” he said, “and not paying enough attention to how much is earned and how that is increased. If they had done that they wouldn’t have this problem.”
At a January council meeting at which the issue was raised, Stubblebine, vice president of the Association of Retired Employees of the City of Rohnert Park, asked the council to remember that many workers joined the city partly for the benefits offered.
“Tread as lightly as you can,” he said. “This obligation…represents promises made to a lot of good, very hardworking people.”
Then Lipitz outlined the extent of the liability. Mackenzie responded, “To ask us to tread lightly, is, I think, not possible.”