* City of Pacific Grove says Calpers overcharging
* Wants to lower payments, other cities could follow
* Calpers says it provides detailed calculations each year
By Tim Reid
LOS ANGELES, March 26 Officials of a tiny
California city say they believe overbilling by state pension
system Calpers has pushed up municipal debt to unsustainable
levels, and they have hired a bankruptcy attorney to explore
ways to lower payments to the system.
Municipal bankruptcy experts said other cash-strapped
California cities and towns will be watching Pacific Grove, a
coastal city of 15,000 south of San Francisco, to see how it
resolves its issues with the California Public Employees'
Pension Fund (Calpers), the largest U.S. pension system.
Calpers, which manages $254 billion in assets, said it will
provide the additional information Pacific Grove has asked for
by April 15. But the pension fund also said it has calculated
city pension payments carefully and provided Pacific Grove with
detailed calculations and accounting methods in yearly reports.
"We can't afford to keep paying Calpers at the current rates
- and we can't afford to get out," said Bill Kampe, Pacific
Grove's mayor. "Fundamentally, we want to pay less to Calpers."
The Pacific Grove city council last week voted to "fully
explore" ways in which it believes Calpers has "artificially
inflated the City's liabilities." It hired an actuary as well as
Karol Denniston, a San Francisco lawyer at Schiff Hardin who
helped draft California's bankruptcy process law.
"I am aware of many other cities that are taking a hard look
at how to manage their pension debt, which is usually the
largest liability they have," Denniston said. "And the first
port of call is going to be negotiating with Calpers."
Like many cities in the early 2000s, Pacific Grove awarded
more-generous pension deals to police, firefighters and other
workers. Funding such deals became much more difficult after the
2008 financial crisis and the recession that followed.
Pacific Grove budget chief Tony McFarlane said the city's
annual payment to Calpers soared to about $1.5 million last year
from just $97,000 in 2002, which at the time was less than 1
percent of its $12.5 million general fund.
On top of the $1.5 million payment last year, Pacific Grove
also had to come up with $1.65 million to finance a $19 million
pension obligation bond that the city issued in 2004. That bond
money was paid to Calpers the same year. Last year's total
pension-related payments of $3.15 million were about 20 percent
of the annual city budget of $15.6 million.
HARD LOOK AT PENSION DEBT
City officials said, and Calpers has confirmed, that the
cost to terminate its obligations to the pension fund would
surpass $70 million, a figure the city says it cannot afford.
"We have kept cutting and cutting city services just to keep
up our payments to Calpers, and to fund the pension bond," said
Thomas Frutchey, the city manager.
Calpers has said it has little leeway to renegotiate debt
with member cities, citing its responsibility to keep the
pension fund financially sound. A Calpers spokesman said the
city could reduce its pension liability through steps such as
lowering benefits to new hires and requiring existing workers to
pay a bigger share of pension costs.
In August, San Bernardino stopped payments to Calpers when
it filed for bankruptcy protection. Kampe said Pacific Grove's
finance committee looked at the bankruptcy option four years
ago, but dismissed the idea because of the costs involved.
Budget chief McFarlane said rising pension costs have
prompted Pacific Grove to cut its workforce to 65 employees from
100 in 2004. Firefighting has been contracted out to nearby
Monterey, and the police force has been cut from 22 to 14.
James Spiotto, a municipal bankruptcy specialist and a
partner at Chapman & Cutler in Chicago, said it is only a matter
of time before other California cities take on Calpers.
"If you keep on forcing people to do something they can't
afford, they will strike back," Spiotto said.