The decision involves a $15 million chunk of Santa Barbara County’s estimated $39 million deficit for 2010.
Its implementation will significantly impact county taxpayers and employee pensions for at least the next 17 years.
An influential Board of Supervisors’ meeting to discuss its finer points happened behind closed doors, a move some contend occurred in violation of the state’s open meetings law.
Intrigued? Read on, but first, some background is in order. Get ready for a lot of words, numbers, and words about numbers:
In the stocks
The issue centers on the amortization—or mortgage schedule—for the county’s Unfunded Actuarial Accrued Liability. That liability is the shortfall in funding for the county’s Employees’ Retirement System (SBCERS), needed to adequately fund retirement benefits for all county employees.
For years, the shortfall has been funded using a 15-year amortization schedule, but since the county’s contribution to the retirement fund is tied to stock market investments, Wall Street’s 2008 hemorrhaging widened the gap.
In fact, the liability has ballooned to $580 million, according to Santa Barbara County Executive Officer Mike Brown, and actuarial figures show retirement costs are scheduled to skyrocket from $76 million in 2009 to $113 million in 2010-11.
In anticipation of this jump, the county began looking at other amortization options in 2009, options designed to cut costs. In July, the county’s SBCERS Board, the 11-member body charged with administering retirement benefits, analyzed five alternate amortization options, which included keeping the 15-year schedule or switching to a new schedule: a 20-year; a 17-year; a 30-year fixed; or a 30-year that would revert to a 15-year when the economy improved.
Though the State Constitution provides the SBCERS Board with the “sole and exclusive power to provide for actuarial services”—including determining the amortization schedule paid by the county—the fiscal emergency prompted members to ask the Board of Supervisors for input and to report back with the preferred schedule.
Unions representing county employees pushed for the 30-year schedule, claiming it would save the county money and protect jobs. The 30-year plan also had the support of several members of the SBCERS Board and the county’s Auditor-Controller Bob Geis, who expressed his support of the option in an e-mail to CEO Mike Brown on Aug. 11, 2009.
A report released the same day by the actuary, Milliman Group, revealed approval of a 17-year amortization schedule would cost the county $14.9 million more than the 30-year option in 2010-11. However, according to the unions, CEO Brown stood steadfast behind the 17-year schedule.
Shortly after the report, Brown met with the Board of Supervisors and reported the results of the meeting to Retirement Board CEO Vincent Brown in a memo dated Aug. 25.
“Although there are no ideal options for helping the County manage its pension related costs, please be advised that the Board of Supervisors has identified Alternative Scenario 2—the 17-year open/rolling amortization method—as the option at this time,” Brown wrote.
Though the final decision on the amortization rested with the SBCERS Board, the supervisors’ selection of the 17-year option had an obvious impact on the vote. When the retirement board asked the county to provide details of the financial impact of the 17-year and 30-year mortgages, a memo from Mike Brown to Vince Brown dated Sept. 2 denied the information.
“Please advise your Board that the County is not requesting the 30-year amortization period based on financial necessity and, therefore, will not be supplying the requested impact analysis,” Mike Brown stated in the memo.
The following day, Auditor-Controller Geis backtracked on his choice, notifying the county that while he initially supported the 30-year schedule, he could also support the 17-year plan. Shortly thereafter, Retirement Board Chair Shawn Terris, who supported the 30-year option, was laid off from the County CEO’s office and replaced as chair on the board by Fourth District Supervisor Joni Gray, who backed the 17-year plan. Terris immediately filed a lawsuit in Santa Barbara County Superior Court claiming the county wrongfully terminated her because of her work on the Retirement Board.
On Sept. 23, the Retirement Board unanimously approved the 17-year amortization option. Then in October, CEO Mike Brown presented the supervisors with the county’s 2010-11 Budget Principles, a report revealing the severe impact of the decision on the budget for 2010-11.
At the meeting, Mike Brown stated the county’s General Fund would only cover 5 percent of the 29 percent increase in retirement costs as a result of the 17-year schedule. The total impact to the county is projected at $15 million in 2010, nearly 40 percent of the entire deficit.
Supervisors Gray, Joe Centeno, and Salud Carbajal voted to adopt the Budget Principles. Supervisors Janet Wolf and Doreen Farr voted against. The SBCERS Board approved the rate change in November, and in December, the Board of Supervisors announced Mike Brown, who had previously announced his retirement, would stay on board as county CEO.
“Mr. Brown will stay at the helm until October 31, 2010, and we are depending on him to help lead us out of this financial quagmire,” Fifth District Supervisor Centeno said in a Dec. 2 press release.
The Brown Act and its consequences
The closed-door meeting between CEO Mike Brown and the Board of Supervisors to discuss the amortization schedule has lawyers familiar with the Ralph M. Brown Act calling the discussion’s legality into question.
The California State Legislature passed the Brown Act in 1953; it’s an open meetings law intended to put an end to undisclosed meetings by elected officials. According to Peter Scheer, a lawyer and executive director of San Rafael’s First Amendment Coalition, the law is designed to keep important official decisions in public view at times when governments would prefer to keep them under wraps.
“When it’s followed, it gives voters a much better, more complete set of information on the decisions of a legislative entity,” Scheer said. “The biggest violation of the Brown Act is conducting business in closed session that really should be in open session, so the press is there and members of the public are there.”
Under provisions of the Brown Act, each meeting of the Board of Supervisors is required to be conducted with written published notice of the meeting, usually posted on the county’s website. Notices must specifically state items discussed at public meetings and in closed session, along with the justification for a closed session. Even in the event of closed sessions, public notice must be given on any action taken.
Attending a meeting where action is taken in violation of the Brown Act is a criminal misdemeanor, but, according to Scheer, the Brown Act is largely un-enforced. Violations must be submitted within 30 days of an open session or 90 days in the case of a closed or secret meeting. Even then, enforcement requires a heavy burden of proof for prosecutors.
According to state law governing SBCERS, actuary evaluations aren’t subject to “meet and confer” provisions of the Brown Act. However, the law also stipulates supervisors must meet with “representatives of recognized employee organizations prior to determining a course of action with respect to the recommendations contained in the actuarial valuation.”
In short, only after rates have been adopted can supervisors legally work with unions to address the impact of the increased costs.
The SBCERS Board didn’t adopt the retirement rates until Nov. 18, months after county supervisors say they discussed the amortization schedules behind closed doors.
“It was definitely made in closed session,” Second District Supervisor Wolf told the Sun of the decision to choose the 17-year schedule. “I don’t know when.”
Supervisor Gray acknowledged the Board of Supervisors met to discuss the options, but couldn’t pinpoint when or where the meeting occurred.
“I can’t remember,” she said. “We have meetings all the time.”
Gray deferred to County Counsel Dennis Marshall, who likewise couldn’t recall details of the meeting.
“There have been so many discussions about retirements,” Marshall said. “I don’t remember when that was discussed or whether that may have been discussed in the context of labor negotiations.”
Marshall explained if the supervisors had met for a closed session, amortization would have been an appropriate—and legal—topic for a confidential discussion.
“It would not be a violation of the Brown Act in the context of labor negotiations or employer-employee relations,” Marshall said. “There would be an appropriate basis for a closed session under employee-employer relations to discuss that issue, which is of interest to employee groups.”
First Amendment Coalition’s Scheer disagreed with Marshall’s justification for a closed session, calling it a “strong inference” that the Board of Supervisors violated the state’s open meetings law at least twice.
“If they didn’t have notice and they didn’t report out the action after the closed session, those are already two violations of the Brown Act,” he said. “They certainly should have had this discussion in open public session. They’re talking about fundamental issues about the county’s financial and fiscal status that will affect budgets, taxes, government staffing, and services in every way for years, and you’re going to do that in secret? That’s exactly what Brown Act is all about: forcing government to make the most important issues public.”
Scheer said the law allows for retirement benefit levels to be negotiated in closed session in the context of employer-employee relations, but how the county finances the benefits doesn’t sit under that umbrella. He called Marshall’s justification “a radical and dangerous notion.”
“Under [Marshall’s] rationale, everything would be in closed session: how much to raise taxes, what services the city should provide, and whether to discontinue garbage collection and fire services,” he said. “The most important things you could think of would be fair game in confidential closed sessions because they would relate in some way to, or impact in some way, labor management negotiations.
“If [Marshall] is correct, then the most important issues before the county government in which the voters have the greatest possible interest would all be decided in secrecy,” he continued. “We might as well cancel elections and forget about trying to conduct government as a democracy at a local level.”
Terry Francke, general counsel for Californians Aware, a nonprofit dealing with public forum rights, agreed with Scheer. He said the issue of amortization would have had to be on the bargaining table to be discussed legally in a closed session.
“If it was not under negotiation at the time, then there was no basis for a closed session,” Francke said. “The Brown Act allows closed sessions on certain topics under certain circumstances. When it comes to employee negotiations, there have to be negotiations going on. It’s not just a cover for keeping secret a discussion about something that may later become a topic of negotiations.”
Francke called CEO Brown’s Aug. 25 memo to the SBCERS Board “highly unusual” and “strongly suggestive” there were no labor negotiations taking place at the time.
Union representatives for county employees confirmed they were never involved in any labor talks regarding the amortization schedule.
Bruce Corsaw, chapter president of Service Employees International Union 620, the union representing a majority of Santa Barbara County employees, said his group wasn’t asked to participate in any discussions regarding amortization. SEIU 721’s Assistant to the President Bart Diener concurred. He said his group advocated for various funding options but was never part of negotiations regarding amortization.
“It’s not a matter that’s subject to bargaining. It’s not something the county controls,” Diener said. “They can advocate, but it’s an SBCERS retirement board that decides funding policies, so there were no negotiations.”
According to Scheer, even if the Board’s meeting violated provisions of the Brown Act, it’s unlikely State Attorney General Jerry Brown would investigate the action.
In an e-mail, Evan Westrup, deputy press secretary for Attorney General Brown, said his office wouldn’t speculate on any possible violations. Typically, Westrup wrote, Brown Act complaints are filed through the District Attorney’s Office or pursued through a private lawsuit.
Repeated calls to CEO Mike Brown’s office were not returned.
Budget stokes fears for retirement’s future
The amortization issue and the broader topic of funding for SBCERS doesn’t appear to be going away anytime soon.
The county’s actuary is scheduled to conduct a three-year experience study in the summer, analyzing various economic and demographic factors to determine retirement policies and rates of return.
At that point, SEIU’s Diener said, the topic will likely come up again.
“We’re looking at this issue becoming a serious one for the county to be looking at sometime at the end of summer,” he said. “We don’t see these policy changes as kicking the can down the road, as critics sometimes describe. We see it as the responsible way to manage an extraordinary occurrence.”
County CEO Mike Brown and Retirement Board CEO Vince Brown have publicly stated the unfunded costs of employees’ pensions could reach $1 billion in the coming years.
Retirement Board trustee Darryl Scheck disputes the figure and said it’s too premature to determine what the future holds for retirement funding.
“I feel at this point that billion dollar figure is up for some scrutiny,” Scheck said. “I would definitely like to see some proof of that. I’m not going to say it’s exaggerated, but there’s a possibility that the number could be inaccurate.”
Scheck said the SBCERS Board was set to discuss whether the 30-year option would better serve the county at a March 24 meeting. Scheck motioned for the board to send a memo to supervisors requesting they revisit the amortization schedule, but the motion was defeated by a vote of 5-4.
Scheck said he supported the 30-year plan, adding it would help temporarily alleviate the county’s fiscal distress.
“The 30-year option in the short term would save the county a significant amount of money,” Scheck said. “We’re in a time of great fiscal distress. Things haven’t turned around quickly. Once revenue recovers, at that point in time you can go back… to a more conservative schedule.”
Scheck said he’s also asked Supervisor Gray to direct him to where the Board of Supervisors discussed the various options. He said Gray agreed to provide the information, but so far, he’s yet to receive anything.
For her part, Gray disputed the budget figures in Milliman’s actuarial report. She said the 30-year option wouldn’t make much of a difference in the long run and isn’t worth the risk. The county, she explained, must generate higher sales and property taxes and maintain at least a 10-percent return on investments to keep its fiscal situation from worsening.
“We studied and read and worked, and the reason that we picked the 17-year is because there was no possible way to do a 30-year amortization and ever get it paid off,” she said. “It would be in debt forever.”
Gray added the 17-year plan represents a balance between protecting the jobs of veteran employees with those of more recent county hires.
“A little bit of pain is better than just being devastated,” she said.
To further examine retirement issues, on March 23, Gray and the rest of the Board of Supervisors unanimously approved a proposal for an independent Retirement Advisory Board committee and a $50,000 budget. Supervisors will each appoint a commission member with no ties to SBCERS and no county employment, though when the commission will be formed is yet to be determined.
According to Gray, there’s no danger of current employees losing their retirement benefits. Once county workers are paying into the retirement system, they’re in.
“We’d have to sell the county courthouse first to pay the retirement benefits,” Gray said. “Right now the law says once you’re vested in California, you’re vested. It can’t be taken away.”
Union leaders fear otherwise. SEIU 620’s Corsaw said he thinks the county is heading toward a two-tiered retirement system, one for longtime employees and another for newer hires. Corsaw said his organization has already done its part, recently reaching a tentative agreement with the county to defer employee salaries, saving the county $8.4 million. He supports the 30-year amortization, but questioned why county employees should shoulder the burden of the deficit in the first place.
“When you’re looking at budget shortfalls, people start looking at the lower paid individuals to pick up the tab,” he said. “If they had been putting the money where they were supposed to, we would not have had to take this big of a hit.”
Contact Staff Writer Jeremy Thomas at jthomas@santamariasun.com.
This article appears in Apr 8-15, 2010.