San Bernardino Seeks to Stiff the Country’s Largest Pension Plan

By:  Bob Adelmann
11/27/2012
       
San Bernardino Seeks to Stiff the Country’s Largest Pension Plan

The "pendency plan" just passed by the San Bernardino, California, city council includes "renegotiating" its pension liabilities with CalPERS, the country's largest pension plan.

Part of the “pendency plan” that the San Bernardino, California, city council reluctantly passed on Monday includes provisions to “renegotiate” its agreement with CalPERS, the California Public Employees’s Retirement System. It’s not sitting well with the trustees of that system, the largest in the country, and they’re fighting it in court.

Years of excessive spending and impossible promises by the city council came to a head in August when the city almost ran out of money, and decided, at the last possible moment, to declare bankruptcy.

It isn't that the council was caught by surprise or could claim ignorance. They were warned of the impending disaster two years ago, in August 2010, when San Bernardino’s then-city manager, Charles McNeely, gave the council his “Groundhog Day” presentation. McNeely saw what was coming as a result of the council’s continued refusal to face reality. Ignoring the impending impact of falling revenues and rising pension costs, the council sat on its hands. One of those city council members, Tobin Brinker, said McNeely used the Groundhog Day analogy “because the city had every year been doing the same stupid things.”

Even McNeely was late. He based his presentation on a study of the city’s finances done three years earlier by an outside management firm and ignored by the council. In his presentation he even predicted how much the shortfall would be, and when: the middle of 2012 and $40 million. When he left the meeting that day, McNeely said:

I don’t know how you could come out of that meeting not understanding [that] we had a serious problem. I told them, “You’re headed for trouble…. It’s a train wreck…. You can’t keep doing business this way.”

The council refused to recognize the seriousness — the reality — and instead just fiddled around with some minor adjustments such as some pay cuts, modest layoffs, deferring some purchases, tapping some reserves, borrowing funds held by a now-defunct development agency, and selling off some of the city’s assets. It was enough to solve the immediate problem, but didn't address the underlying issue: pension obligations that far exceeded the city’s ability to pay for them.

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