O.C. Watchdog: The Voter Empowerment Initiative would require voter approval for guaranteed pensions for new public workers, as well as voter approval for pension increases for current workers

O.C. Watchdog: Even though public workers paying more into their pensions, shortfall still growing

Public workers are kicking in more to fund their retirements, helping to stabilize the burden borne by California’s cities.

The gaping hole at the bottom of California’s public pension funds grew monstrously nonetheless.

New figures from the state controller show glimmers of light escaping from an otherwise oppressively dark cloud. California’s 470-plus cities spent just a half-percent more on retirement costs in 2014 than they did in 2011, almost entirely because cities drastically reduced what they paid to pick up their employees’ required share of pension costs.

That’s the fruit of union contracts where workers agreed to shoulder more of the load.

“No one cares more about the sustainability of retirement funds than the state’s teachers, firefighters and other public workers,” said Steven Maviglio, spokesman for Californians for Retirement Security, a coalition of public employee unions. “They are paying more for benefits than ever, while seeing them scaled back.”

But, despite such efforts, the gap between what public agencies have promised to pay workers upon retirement, and what we actually have, continued to grow.

The hole is called “unfunded liabilities” in accountant-speak. And the total for all of California’s public pension systems skyrocketed 3,710 percent in just a dozen years – from $6.3 billion in 2003 to $241.4 billion in 2014, according to the latest figures from the state controller.

The hole grew nearly 22 percent between 2013 and 2014 alone.

“What a record!” said Chuck Reed, Democrat and former mayor of San Jose, who is aiming a pension reform initiative at the 2016 ballot.

Reformers argue that this hole matters to all Californians, because if it isn’t filled up with meatier investment earnings and heftier contributions from public workers and employers alike, taxpayers will have to fill it directly.

Why? Because in California, the promises made to public workers on Day One of their employment can never, ever be broken – at least, not outside of federal bankruptcy court. And even in court, officials from Vallejo and Stockton and San Bernardino did not ask to scale back these burdens, fearing they’d have trouble attracting and retaining workers.


Public labor unions bemoan the “pension bogeyman,” and argue that unfunded liabilities can be misleading.

Those are not hard-and-fast numbers reflecting fixed debt, Maviglio has said. They change, depending on many moving parts and assumptions, including how long people are expected to live and projected annual returns on investments.

When the market booms, returns are great and liabilities get smaller. When the market tanks, returns shrink and liabilities grow.

“Cropping the picture for one or even three years always is dangerous,” Maviglio said. “As any financial advisor will tell you, you need to look at the big picture. And if you do that, returns and expenses are relatively stable.”

California’s pension systems are, indeed, starting to factor for longer lives and less-stellar investment returns: Public agencies – and workers – are paying 30 to 50 percent more a year into the pension kitty now than they were just a few years ago, and will keep paying at this rate for years to come.

The numbers will be subtracted from public agencies’ balance sheets beginning next year. Some city officials in particular are bracing for this, as it could make a few municipalities appear insolvent. That is, their total liabilities will exceed their total assets, at least on paper.

The expected shock of this exercise might work to the pension reformers’ end.


A pair of initiatives by Reed and former San Diego councilman Carl DeMaio, aiming for the November 2016 ballot, try to address the problems.

The Voter Empowerment Initiative would require voter approval for guaranteed pensions for new public workers, as well as voter approval for pension increases for current workers.

The Government Pension Cap Act would limit public agency contributions to new workers’ retirement accounts to 11 percent of base compensation, up to 13 percent for public safety workers. Many agencies now pay about 20 percent for regular workers, and more than 50 percent for public safety workers.

Reed and DeMaio say local governments need more tools to help rein in unsustainable pension costs that siphon dollars away from services for regular citizens. Opponents say they would gut public pensions and eliminate guaranteed retirements across the board.

Reformers keep playing an initiative cat-and-mouse game with the Attorney General, who keeps giving the measures titles and summaries that they consider the kiss of death. They only plan to put one initiative on the ballot. Supporters have six months to submit signatures to qualify for November’s ballot.

In a survey released in September, the nonpartisan Public Policy Institute of California found that the majority of voters favor changing the pension system for new public workers – 72 percent of likely voters said the amount of money spent on public pensions is a problem, and 70 percent said voters should have a hand in pension decisions at the ballot box.

But pollster and political consultant David Binder Research found that support for the two initiatives was far lower, around 42 percent. Binder surveyed likely voters, and released results last week.

Dave Low, chair of the union coalition Californians for Retirement Security, pronounced the reform initiatives “dead in the water.”

Reformers disagree.

“Of course the unions opposing pension reform will manufacture inaccurate polling numbers to distract from our momentum,” DeMaio said. “Our internal polling – and all publicly available polling by independent third parties – show California voters overwhelmingly favor pension reform.”

Workers pitch in

California’s 470-plus cities are picking up less of the workers’ share of pension costs as workers pick up more. But unfunded liabilities in California’s public pension systems continue to skyrocket.

Contact the writer: tsforza@ocregister.com


Participation Certificates – Bonds – and the “Shadow Banking” System – Hocus-Pocus Financing – Demystified.

The shadow banking system is a term for the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks. Former Federal Reserve Chair Ben Bernanke provided a definition in April 2012: “Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions–but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper (ABCP) conduits, money market mutual funds, markets for repurchase agreements (repos), investment banks, and mortgage companies.” Shadow banking has grown in importance to rival traditional depository banking and was a primary factor in the subprime mortgage crisis of 2007-2008 and global recession that followed.[1]


A Participation Certificate (PC) (also known as a Certificate of Participation) is a financial instrument, a form of financing, used by municipal or government entities which allows an individual to buy a share of the lease revenue of an agreement made by these entities. It is different from a bond issued by these agencies since participation certificates are secured by lease revenues. Municipal and government entities use this instrument to circumvent restrictions that might exist on the amount of debt in other forms they are able to take on.

Participation certificates are a new form of credit instrument whereby banks can raise funds from other banks and other central bank approved financial institutions to ease liquidity. In this case banks have the option to share their credit asset(s) with other banks by issuing participation certificates. With this participation approach, banks and financial institutions come together either on risk sharing or non-risk sharing basis. While providing short term funds, participation certificates can also be used to reduce risk. The rate at which these certificates can be issued will be negotiable depending on the interest rate scenario.

On June 14, 2013, the city of Detroit announced, as a policy move to preserve cash during its financial crisis, that it would not be making payments [1] on a certificates of participation it had issued.


At its meeting on October 19, the Tustin City Council approved selling bonds in an amount not to exceed $45 million dollars to complete financing Tustin Ranch Road from Walnut Avenue south to Warner Avenue.

The bonds will have no financial impact on the City’s budget, as all
payments of principal and interest will be paid solely from revenues generated by development at Tustin Legacy. The bonds will also be used to fund other major infrastructure projects at Tustin Legacy.

Funds to complete the road will come from a variety of funding sources,
including these bond proceeds and funds from the City of Irvine allocated to mitigate traffic impacts from its adjacent development, the Irvine Business Complex. No monies from the general fund will be used.


To provide for business start-up opportunities and expansion of existing businesses, the Tustin Community Redevelopment Agency provides access to a variety of financing programs authorized by either the federal or state government, as well as programs provided by other private, public and non-profit agencies. The Agency also provides technical assistance, educational support and other similar needs of a non-financial nature to the business community. A brief summary of the possible assistance and incentive programs that can be made available are as follows:
Zoning incentives to encourage economic development through:

Floor area ratio bonuses
Allowance for mixed use projects
Combining of public and private uses
Planned Unit Developments
Density bonuses
Assistance in land assembly:
Land banking
Eminent domain
Land swaps
Land write downs
Assistance with construction of infrastructure improvements.
Provision of technical assistance.
Provision of developer unique financing opportunities, consisting of:
Tax Increment Financing
20% Housing Set-Aside Funds
Special Purpose Financing Districts
1911, 1913, 1915 Acts
Mello Roos Community Facilities Act of 1982
Landscape and Lighting District of 1972
Revenue bonds
Lease Revenue bonds
Tax Allocation bonds
Lease Purchase financing
Industrial Development bonds
Certificates of Participation
Mortgage Revenue Bonds
Loans and Advances
Land Disposition Proceeds
Rental Payments
Participation in future cash flows


Certificates of Participation (COPs). A form of lease revenue bond that permits the investor to participate in a stream of lease payments, installment payments or loan payments relating to the acquisition or construction of specific equipment, land or facilities. In theory the certificate holder could foreclose on the equipment or facility financed in the event of default, but so far no investor has ended up owning a piece of a school house or a storm drainage system. A very popular financing device in California since Proposition 13 because COP issuance does not require voter approval. COPs are not viewed legally as “debt” because payment is tied to an annual appropriation by the government body. As a result, COPs are seen by investors as providing weaker security and often carry ratings that are a notch or two below an agency’s general obligation rating.