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Grand jury finds flaws in vote approving pension increases

By BRETT WILKISON
THE PRESS DEMOCRAT

The Sonoma County grand jury has picked up on the contention of a local pension system critic that the Board of Supervisors did not follow legal requirements when it approved enhanced retirement benefits for county employees a decade ago.

Ken Churchill, a Santa Rosa winemaker and former solar energy firm owner, claims those actions were willful on the part of county leaders at the time and could be grounds for rolling back the higher pension formulas now received by more than 1,000 county retirees — and promised to thousands more current workers.

The grand jury said his claim of procedural mistakes may have some merit, raising the question of whether the more generous pensions were legally approved.

The jury’s two-page report, which summarizes its months-long investigation, is titled “Sonoma County Pension Increases in 2002 — Legal or Not?”

The report triggers a formal process that requires a response from the Board of Supervisors. Supervisor Shirlee Zane, the board chairwoman, said a county inquiry and response, due back July 31, was already under way.

But the grand jury’s central question — and Churchill’s by proxy — may have no ultimate consequence, according to one leading public sector retirement law expert.

Under the two key sections of state law governing how local legislative bodies change benefits for public employees, any procedural missteps by the county would not invalidate its decisions, said Harvey Leiderman, a San Francisco attorney who advises the state’s largest public retirement funds.

“There’s no punishment in those sections. There may be an argument elsewhere under the law,” said Leiderman. He doubted however that any legal trigger would be sufficient to roll back public employee benefits, which enjoy strong legal protection in the state.

Still, the grand jury report advances a case Churchill has made in public forums and newspaper columns since last year, hammering county officials over the benefit changes.

The deals granted a higher percentage of compensation for every year worked and lowered the retirement age, to 50 for public safety workers and 60 for all other workers. Along with pension fund stock market losses, the deals have been a significant factor underlying skyrocketing county pension costs, up 401 percent in the past 12 years, to $87.2 million a year.

Echoing fellow critics, Churchill has hit on the apparent self-interest involved in the deals, which were retroactive for workers at the time and extended to management and the Board of Supervisors. A cost-sharing deal with employees designed to pay for the increases has turned out to be woefully inadequate, critics note.

Churchill, 58, has taken aim specifically at the procedural points leading up to the votes. He claims the Board of Supervisors did not retain its own financial expert to evaluate the impact of the benefit increases. The board also failed to provide sufficient notice or properly agendize those votes, Churchill says.

“It was wrong. They knew exactly what they were doing. They robbed the bank on their way out,” he said in an interview Thursday.

The grand jury did not complete its investigation due to time constraints and difficulty tracking down people and documents to verify Churchill’s claims. The investigation did include a review of county documents, actuarial reports, newspaper articles and interviews with county and retirement officials.

According to the report, the jury found:

– No evidence the Board of Supervisors had hired its own actuary — separate from one hired by the county retirement board — or that the actuary had been present at the board votes in 2002.

– No evidence the board had given notice of the votes two weeks prior, as required.

– No evidence that the changes were placed on the regular agenda. Instead, the grand jury said it understood the approvals were made as part of the consent agenda, reserved for routine, non-controversial county business.

The report urged citizens, media and future grand jury members to carry on the investigation.

Zane, the board chairwoman, said county attorneys were conducting an internal inquiry with a plan to respond to the grand jury in writing.

Initial results from the inquiry suggest the county is on safe legal ground, Zane said. County Counsel Bruce Goldstein would not elaborate on her comments.

“We’re absolutely looking into it,” Zane said.

Churchill said the report validated his quest. He called for a larger public inquiry into the pension decisions, including hearings before the Board of Supervisors with leaders involved at the time.

Aside from Supervisor Valerie Brown, who participated in one of the votes, no current board member was serving at that time. Most administrators and fiscal leaders have also moved on or retired.

Churchill did not rule out a legal challenge, including a push to roll back the enhanced benefits.

“It doesn’t seem to me you can let this stand,” he said.

Labor leaders, meanwhile, bristled at the new target on county pensions.

“Our members have been paying into the system for 10 years at higher rates under the expectation of making all of their retirement plans on that (pension),” said Lathe Gill, Santa Rosa-based area director for Local 1021 of Service Employees International Union, the county’s largest labor group. “Undoing that at this point would be unfair.”





33 Responses to “Grand jury finds flaws in vote approving pension increases”

  1. Lets be Reasonable says:

    @RC – my point is that regardless of what you may think about the pensions, it is wrong of Brett to choose dates for comparison that exaggerates the the increase.
    .
    @Accountable – just because an organization is liberal does not mean that it can’t be fair. It may not always be the case, but I’ve found the CBPP to be quite reasonable, and they cite their facts, and their sources tend to be reliable. I would put PBS Newshour in the same category. They have folks from both sides of an issue and let them debate. Pew Research is conservative, and I think that they are also fairly unbiased.

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  2. Accountable says:

    @Juvenal – sounds like you decided to discount the information before you even read Churchill’s document, so there’s no point debating with you. I’m a blue dog democrat, who uses facts to make an informed decision. I disagree with Churchill about per capita debt. Mendocino County has the most per capita debt in the State. Sonoma has the second most. (I actually checked). But, Churchill does address how the county successfully funded pensions from the 1940’s to 2000:

    Only 30% of the fund’s assets could be invested in stocks and the earnings were based upon a conservative rate of return of 5%. This allocation and return protected the County from investment swings and stock market losses which they are responsible to pay for. In 1985 the cap on stocks in the investment portfolio was increased to 65%
    State law capped pension rates at 2% per year of service.

    Retroactive increases to benefits were not allowed.

    Retirement ages were 60 for Safety employees and 65 for General employees.

    The County and the employees shared equally in the funding of the plan, each contributing about 7% of payroll.

    Salaries were reasonable and adjusted annually at about the rate of inflation.

    Pensionable compensation was based upon base, not gross pay.

    Be careful when believing Think Tank information. I look suspiciously at information from both liberal and conservative Think Tanks. Center on Budget and Policy Priorities is a liberal Think Tank http://think-tanks.findthedata.org/. Their information is also not specific to Sonoma County, but they even concurred that “states making news for having inadequately funded plans…either failed to make regular contributions to their future pension costs even in good economic times or increased benefits retroactively without funding those increases. In these states, more drastic measures will likely be needed, such as significantly increased contributions in the near future or significant reductions in pension benefits.” Try asking Sonoma County residents to increase taxes to cover the increased contributions, and see what the response is.

    Girard Miller is known nationally as an authority on public funds investment and has a moderate voice. I would recommend reading his writings for those people who want a moderate take on the pension situation http://www.governing.com/columns/public-money/col-Pension-Puffery.html.

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  3. GAJ says:

    LBR’s link assumes States/Cities need to act now…but here in California, there is very little progress on any of the suggested remedies.

    It also assumes rates of return for the next 25 years that mirror those of the past 25 years.

    I for one do not believe that stock market returns moving forward will be anywhere near what we’ve seen in the past 25.

    But if the result of any grand jury investigation is a significant increase in employee contributions then at least that would be a start.

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  4. Reality Check says:

    If LBR’s point is that had the county continued to contribute when the stock market was roaring, letting the fund become over funded, the problem today would be less, I agree. But that mistake is minor compared to others made in the past.

    Whatever, we are left with a pension system that makes sense only if one assumes blue-sky stock market returns forever. And if they don’t occur, the shortfall falls entirely on taxpayers to make up.

    A fix is needed. Revisiting past errors is worthwhile, but it doesn’t change anything.

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  5. Jackson says:

    So the Grand Jury is now the enemy because they raise an issue of serious concern of which we are all now aware, but no one in a position of power is willing to address? I for one am happy that there is an independent watchdog organization to continue to surface and push for meaningful change. It is clear the Board and County Administration are not going to take action unless and until the public is sufficiently outraged, and the only way for that to happen is for the issue to remain in the public eye.

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  6. Juvenal says:

    @Accountable

    “Lets be Reasonable asks Brett to do the research about pension funding prior to 2000. You can find that information on page 2 of the above document.”

    Accountable, I took your advice and checked page 2 of Mr. Churchill’s long-winded screed: in point of fact, what Lets Be Reasonable asked for–a history of County contributions toward pensions over the long term, 20 or 30 years, is NOT there, neither on page 2 nor in any other section of the document.

    What one finds everywhere in the document are the “cherry-picked” statistics about which LBR complains.

    Why must we begin charting employer contributions from the height of the tech bubble? Why must we begin figuring percent increases in SCERA’s overall funding level from the same height of the tech bubble.

    As Mark Twain said, there are lies, damn lies, and statistics.

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  7. Juvenal says:

    I have just read the article behind the link provided by Let’s Be Reasonable. It is the most balanced and informative piece on the pension issue I have read in a long time. Any poster who is interested in more than just slinging insults should take the time to read the article.

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  8. Lets be Reasonable says:

    @RC – in 2002, when most of these new plans came into effect, state and local pension contributions were at their lowest in the last 40 years, at about 2.6% of total spending. This was when the markets were at the highest, and PERS was super-funded. Many local agencies were paying little or nothing towards retirement. In 2008, that figure climbed to 3.8%. In the early 80s, the figure was around 5.4%. These are averages, and California and the County are probably in worse shape. Costs are rising, and adjustments need to be made. But I object to the paper cherry-picking the numbers.
    .
    http://www.cbpp.org/cms/?fa=view&id=3492

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  9. Bob Whittaker says:

    I ma not surprised that Ken Churchill found favor with this grand jury which has been hijacked by right wingers like Mr Churchill. Take a look at who these people are on the Grand Jury.Look for any diversity or representation other than that of old rich white men. They are cronies of people like Churchill and they are a discredit to our county. The Grand Jury should not be used to score political points or settle individual beefs. Who investigates the Grand Jury? Time to look into their shady business if you ask me.

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  10. Still Waters says:

    I’d like to respond to “Follower” and their comment “when has the Government ever exploited & abused it’s employees”. I am currently a public employee field representative and was a Job Steward when I worked for the County many years ago. The abuses of management against line staff are many and horrific. Violating ADA accommodations for workers who return from fighting cancer and need to temporarily work a short work week while they gain back their strength after chemotherapy is a common abuse. Union reps working directly with the County’s HR team have significantly reduced these abuses and have saved the County millions in lawsuits. I have had to step in to hostile work environments where management threaten, curse, scream, and even physically abuse employees. With less staff since the devastating layoffs, management in many departments still expect the same amount of work with as much as 50% less staff. Those who can’t keep up are harassed and persecuted into leaving – some in a stretcher, a few have gone directly to the morgue, literally dying at their desks.

    There are good managers and bad managers. I don’t paint every one of them with the same brush. Unfortunately, when I’m called, I mostly see only the worst of human nature but I can tell you that every employer – whether it’s government or private sector – has bad apples. It’s actually harder to get rid of Sonoma County’s bad management apples than it is to fire a union represented worker. Not because of any legal protections but because of croney-ism. Management already knows how to protect themselves by standing together. The employees have to do the same.

    I have witnessed the dedication of the front-line workers to the most fragile members of our society. Their primary concern is not about losing their jobs. It’s about “who will care for those people if I’m not here to do it?”.

    ALL employees must have a voice and an advocate to protect their rights in the workplace. They are neither slaves nor robots. Yes, Virginia, there is ABUSE in the public employee workplace.

    So stick that in your pipe and smoke it the next time you hallucinate about how good government workers have it.

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  11. Asta says:

    @GAJ

    ““Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of government employees.” (quoting FDR)

    Where is the militancy in the union negotiating a labor agreement and holding to its part of the bargain?

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  12. Juvenal says:

    So the versatile Mr. Churchill can add self-anointed attorney and seat-of-the pants actuary to his already impressive resume.

    I know that “Churchill” is a vintage that we are seldom without in our home.

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  13. Retired Cop says:

    As for abuse of public employees, it is no different than private companys. There are times when there is racial, sexual, gender and other types of abuse and discrimination in the public sector. They are human and therefore flawed. Cities and counties try not to advertise when they lose a lawsuit, and usually lose because they or their manager/supervisor was wrong, but happens with regularity. Monthly the unions have to call the gov’t on breaking the law in many areas. Mostly be over zealous, or incompetent/ignorant managers. The unions also provide many types of services to it’s members the gov’t would not even try to provide anc could care less. Yes, they serve their purpose, even if one of them is collective bargaining the upsets some of you.

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  14. Retired Cop says:

    Oh how history can repeat itself.

    Follower said,
    “If we just BAN Public Employee Unions all these ridiculous, time consuming, resource devouring problems go away and we’re left with a manageable, sustainable Government payroll.”

    Well, for two decades the cities and counties paid nothing towards retirmeent while the union members put their contributions into their retirement and county employees into social security both. The gov’t got a pass from the retirement systems and created a huge gap. The union members paid every dime they were supposed to, or in SRPD’s case, they negotiated for the city to pay it for them, but it got paid.

    I am curious how banning the unions, the ones who paid their required contributions, is going to solve all the problems created by cities and counties not paying their share?

    Since the statement was made, I just thought I would ask.

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  15. inside job says:

    With the wolves guarding the henhouse, what could possibly go wrong?

    Thumb up 18 Thumb down 13

  16. Randy Santini says:

    Ken Churchill bears some investigating himself. He and his 1% Cronies (one of whom worked at Chevron) seem to have a problem with people who worked for 30 years being entitled to a decent pension. Meanwhile he and his friends are living in the lap of luxury with government subsidies. Talk about a hypocrite!

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  17. MOCKINGBIRD says:

    GAJ-we agree again. The irony here is that the county is asking SEIU to fork over, over $5M in “concessions” for the rank and file SEIU who took the brunt of layoffs, reduced hours, and other income reductions last time. This figure does not include the other unions’ rank and file who have yet to negotiate. They want those concessions WITHOUT explaining what concessions the management will be forking over-the management that kept all their jobs perks and their pension padding abilities while rank and file were being laid off last time. They are not to be trusted on this with management who, again, has been given control over the process.
    My understanding is that the budget is BALANCED this year with no deficit, so it doesn’t make sense. The county cannot function without the rank and file who provide services to the public.

    I say layoff 40 managers and take away from the rest the pension padding perks and their deferred comp (something like $4M per year cost to the county-lots of money to put towards roads).

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  18. GAJ says:

    Here was FDR’s warning…unheeded. JFK is responsible for allowing the worst predictions to come true:

    “… Meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the government. All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations … The very nature and purposes of Government make it impossible for … officials … to bind the employer … The employer is the whole people, who speak by means of laws enacted by their representatives …

    “Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of government employees. Upon employees in the federal service rests the obligation to serve the whole people … This obligation is paramount … A strike of public employees manifests nothing less than an intent … to prevent or obstruct … Government … Such action, looking toward the paralysis of Government … is unthinkable and intolerable.”

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  19. Follower says:

    If we just BAN Public Employee Unions all these ridiculous, time consuming, resource devouring problems go away and we’re left with a manageable, sustainable Government payroll.
    Private Sector Unions serve to protect employees from employers who would otherwise exploit & abuse their employees and for that reason they MUST remain an option for the private sector work force.
    Since WHEN has the Government EVER exploited & abused it’s employees?
    EVER??!!!
    Public Employee Unions are a bastardization of the term “Union” and if allowed to continue they will eventually turn public opinion against Unions in general.
    If you belong to a Private Sector Union, you support Public Employee Unions at your own peril.

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  20. John says:

    I hope Mr. Churchill thought this through on how this will impact his business. I am sure he just lost a few thousand customers, starting with me and my family and friends.

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  21. Eduardo Luiz says:

    Difficulty tracking people down! Are you kidding me? Bob Deis was the Asst. CAO negotiating the deals, clearing the way for many new Dept. Heads when he took over as CAO the next year. Many of them have recently or are in the process of getting out now with fat pensions. Can’t track Deis down??? Who hasn’t heard about the City of Stockton filing for bankruptcy last Thursday? Their City Manager? You guessed it, Bob Deis! The guy that was run out of town in 2009.

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  22. Reality Check says:

    LBR,

    What difference does your point make? Even if going back 12 years exaggerates the budget strain, the strain is increasing. Go back 5 years, or project 5 years forward, the news is the same, bad.

    I think, no, I know you’re wrong that the percentage of public payroll going to pensions today is not much different from 15-20 years ago. The data isn’t handy just now. Still, pensions are 50% higher today.

    This isn’t a close call. I tracked public employee costs on a city budget committee in Oregon in the 90s for years. Employee compensation as a percentage of the general fund has exploded over the last 20 years.

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  23. Bob Wismer says:

    Perhaps pensions should be tied to a floating index. The example of a “legal train wreck” may say it best; hardly a correct condition.. This is a crisis of agent/principal ethics. Human nature is to look out for #1, and in the public sector it creates moral hazard. As voters (principals) we must pay closer attention to what we allow our agents (elected represenatives) to do.

    Pensions need to be adjusted.

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  24. James Pines says:

    The fundamental flaw that the Grand Jury did not find is the fatal flaw. Public sector unions have no place in public employment.

    Why, because there is an inherent conflict of interest in having the very people, the County Supervisors, approving wages, benefits and pensions, public employees, managers and the supervisors receive.

    There is no check and balance in this scheme.

    It is in the financial interest of the County Supervisors to approve wage and pension increases because they will receive like increases.

    Accountability is non-existance.

    Public unions have to be abolished in California before any meaningful reforms can be made to the pension and public wage structures.

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  25. Steveguy says:

    There were more than a few people that pointed out that it was ‘UNSUSTAINABLE’ a decade ago.

    The powers that be said’ No problem, we are getting ours’….

    That is the crux— Unsustainable. Do they understand the definition or not ?

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  26. Martha K. says:

    There is “no penalty” for a government decision that was illegal. Why am I not surprised? Do they ever obey their own laws?

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  27. Sonoma Gone Crazy says:

    Oh now there is a surprise. The County of Sonoma doing something illegal and unethical and anything else you want to gift wrap it in. It was only the beginning and now look at the County and who runs it. From the top down. It’s like some bad rash that never goes away.

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  28. GAJ says:

    Man, can’t believe the two posters before me believe that paying significantly more in retirement than in their average working years makes sense and is sustainable.

    And to defend the WAY it was done, basically under the table, is even more ridiculous.

    The employees’ pay levels in the upper tiers absolutely need to be rolled back and they should pay 3/4 of the cost of their obscene pensions.

    Leave the lower tiers with lower benefits alone.

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  29. Accountable says:

    If Ken Churchill managed a government entity, which derived its revenue from my tax dollars, I would be the first on the list to demand an accountability of his business practices. He is a local, tax paying business owner. Before making accusations, assumptions or unsubstantiated theories, I encourage people to read his report http://www.newsonoma.org/Resources/Documents/The%20Sonoma%20County%20Pension%20Crisis.pdf.

    @Lets be Reasonable asks Brett to do the research about pension funding prior to 2000. You can find that information on page 2 of the above document. The retroactive pension calculations were a big part of the current issue. For instance, if an employee started working in 1972, the County and employee were contributing toward a lifetime pension of 2% of base salary. The BOS made the decision in 2002 to increase the ratio, retroactive to the time of hire. After 30 years of service in 2003, that employee retires at 3% of salary (plus extras). It doesn’t take a rocket scientist to see that there isn’t enough money saved over those 30 years. That employee’s pension is not self-sustainable.

    Governor Brown is moving forward to enact a 12 Pension Plan that will address some of these issues http://gov.ca.gov/docs/Twelve_Point_Pension_Reform_10.27.11.pdf. Pension reform advocates will continue to push the legal position that current employees may be entitled to the pension agreement over the last 10 years, but they are not legally entitled to any future pension yet earned. The future holds no guarantees.

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  30. brown act jack says:

    Get real , folks! As long as the public will not appear at the meeting, as long as the meetings have consent calendars, as long as the politicans have to be voted into office, you will find that the politicans will do things that you find not in your best interest!

    They are not looking out for you, they are looking out for their friends and supporters.

    In this case they were voting themselves, not the board it self, but the employees, raises in their pension benefits.

    Hell, you would have done the same thing if you were in the position to do it!

    What is needed is the ability to stop the board, cc, or the bpu’s , to borrow money on your credit card, and hope to have enough money to pay the balance when it comes due.

    Right at the moment we are at the cusp and perhaps on the downside where we will follow Stockton in the rubbish pits.

    But, again, I do not expect to see you at the agency meetings, as it really is too much of a drain on your precious time, and I know that you think they agency will always do the right thing.

    Or that the government will take care of the problems.

    But, I also know that even if you attend and speak out for, or against, anything the chances of you affecting the votes of the agency are slight, but , sometimes that little bit will make you feel better.

    Nothing said, nothing accomplished, get with the action or stop complaining.

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  31. Oz Like says:

    “Pay no attention to the man behind the curtain”

    Let’s engage in a reasoned conversation about what the Board of Supervisors did or did not do, and what those actions mean in terms of the present fiscal reality.

    why is it that you immediately attack the messengers? Creating a diversion and spectacle will not change the reality that the Board of Supervisors adopted unsustainable benefits.

    What is unknown is whether they intentionally did not follow the rules, or whether they were not given the correct guidance by the administration and legal staff. The Grand Jury or some other independent investigator should make that determination.

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  32. Lets be Reasonable says:

    Brett, again, I ask why are you cherry-picking the numbers? Why choose 12 years for your pension comparison? Many public agencies were paying little or nothing 12 years ago before the .com bust, so of course it would have gone up. What has the average percent of public spending going towards retirements been say 15 and 20 years ago compared to today? wouldn’t be a whole lot different than today, would be my guess, but that wouldn’t make for a good story, would it? It’s your job to write the facts, not to put a slant on it.

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  33. truth in news says:

    I think it is high time we look at the business practices of Ken Churchill. Lets make sure everyone he has hired over the last 10 years has a valid SSI number and is in the states legally. Lets make sure every contract he has been apart of is without flaw. It is time we citizens hold this businessman accountable.

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