Mendo Island Journal — Timely. Useful. Sometimes Cranky.

Janie Sheppard: Vote Yes on Measure C (Updated)

In Around Mendo Island on October 12, 2010 at 9:10 pm


From JANIE SHEPPARD
Mendocino County

[As a local retailer who will be negatively affected by Measure C, I am voting for Measure C as a citizen. -DS]

A vote against Measure C, which, if passed would increase the sales tax by ½ % to pay for county services, is not going to bring to justice any wrongdoers in connection with the county pension fund, as John Dickerson (YourPublicMoney.com) would have us believe (see John Dickerson’s argument below, and the rebuttal by John McCowen).

A taxpayer lawsuit would, however, accomplish that.

Meanwhile, the county needs revenue to provide services.

The issues are separate. Don’t get confused.

Vote Yes on Measure C and encourage John Dickerson to bring a taxpayer lawsuit. That way the county can have much-needed revenue and justice can be served.
~

[UPDATE]

From JOHN DICKERSON

I understand that the Mendocino County Democratic Central Committee will be reconsidering whether or not to endorse Measure C.

I spent all day writing the attached paper trying to lay out why – as a lifelong Democrat – I oppose Measure C.

In re-reading it I believe it comes across as being too “all encompassing” in casting blame across all County officials responsible for the County’s finances. I believe just about every official who was elected and took the oath of office and who had significant financial responsibility bears some responsibility for the very dangerous financial situation our County is in. But I think I’ve not made enough distinctions and allowances in this paper.

To be clear – after three years of pretty intensively studying this situation my firm conclusion is the individual most responsible for the County’s very dangerous debt is former County Treasurer-Tax Collector Tim Knudsen. I’ve said all along I’m a money-hound. My nose is to the ground and I’m following the money. If I come to a rock I’ll flip it over and see if anything crawls out. I’m not going to spend a lot of time hypothesizing where I think the trail is going to lead me – I’m just going to continue sniffing and following the money.

Up until a year ago I specifically stated I had seen nothing to suggest any significant laws were broken. Then last September – more  than a year ago – I told the Board of Supervisors that even given the deeply politically fraudulent definition of “Pension Fund Excess Earnings” in the 1937 County Employees Retirement Act, my analysis led me to conclude that there weren’t enough so called Excess Earnings to have funded all the retiree healthcare payments that had been made over the past 10 years.

I strongly urged the BOS to demand that MCERA produce a report showing exactly how it conformed to the requirements of the 1937 Act in paying for retiree healthcare from Pension Fund Excess Earnings as defined in the law. I said at that point I didn’t think MCERA conformed to the law.

John McCowen takes offense that I say the Board ignores things I say. Well … the Board did nothing about this I can see.

Then the most reformist member of the Retirement Board (at least that’s what he looks like to me) Randy Goodman demanded that report be provided to the Retirement Board. Tim Knudsen plainly stated that from 2004 through 2006 the Retirement Board diverted $6.1 million directly out of the County’s contributions to the Pension Fund that was intended to fund the part of future pension payments being earned by employees that year. The money was used to pay retiree healthcare. As Knudsen said “we didn’t have any Excess Earnings but we had health insurance to pay”.

That appears to me to be a direct violation of the provision in the 1937 Act that states the Retirement Board must put all the money contributed by the County to the Pension Fund for each year’s pensions being earned into the Pension Fund – period. No exceptions.

Then in 2006 MCERA “discovered” it might be violating the law and so they “paid the County back”. With what? The money was gone. They gave credit to the County for having paid its full required contributions during 2004 – 2006, but that was just a bookkeeping entry. No money went into the Pension Fund. The law doesn’t say the County should be credited for having paid its full contribution – it says the full contribution must be deposited into the Pension Fund. It’s the money that counts.

MCERA set up what clearly appears to me to be a “fake receivable” for $6.1 million that was essentially a claim against future Pension Fund Excess Earnings if and when they may occur. I can tell you with 100% assurance that does not satisfy the requirements of being an asset. You can’t put the money you think you’re going to make in the future on your balance sheet as an asset – it isn’t an asset until you earn it.

And – the Retirement Board then took another $3.5 million out of the Pension Fund because it still didn’t have enough Excess Earnings to fund retiree healthcare – so this “fake asset” was $9.6 million.

And now the Retirement Board just voted to “write off” that $9.6 million as a “complete loss” – frankly, because it was never a real asset. It was air.

My training and experience makes me think that really looks both fraudulent and an extreme violation of fiduciary duty to the beneficiaries of the Pension Fund. Nearly $10 million was taken out of the Pension Fund most of which was contributed to fund future pensions of current employees and used to pay a benefit current employees can never receive.

But I can’t be sure – I’m not a lawyer and the law governing governments is far more “relaxed” about these things that that governing private sector organizations (with which I am fairly familiar).

My point is this – this is clearly enough evidence to suggest significant laws may well have been broken at a cost of over $10 million to the people of Mendocino County and further placing future pension payments for current employees at risk.

And yet … has there been any effort on behalf of County officials to determine the facts and the law – to hold one of their fellow electeds accountable?

No. Or – at least nothing the public can see.

Instead … they want us to raise our taxes and do – what – regarding holding other electeds accountable?

A big reason I’m a Democrat is it pisses me off to see working people getting clobbered while the guys at the top of the money-power pyramid skip away unscathed. Isn’t that probably what has happened in our County?

How can the Central Committee of the Democratic Party not demand accountability on behalf of the people of our County and the employees who are losing their livelihoods?

And yet that appears to be what many of you are prepared to do.

Am  I wrong? if so, how?

That’s not my main argument against C – but it’s still important to me. How can the Democratic party refuse to hold “its” elected officials accountable?

At any rate – sorry for the rant. I submit my argument for your consideration.
~

From JOHN McCOWEN

I realize that we are all busy and have limited time for this discussion. I confess that my eyes start to glaze over when I start reading this stuff, so I won’t fault you if you skip over this. Suffice it to say, I agree with Joe Louis Wildman and Rachel Binah. The issue of the debt really is separate from the duty of the County to provide public services. John Dickerson is using the debt as a proxy to attack and defeat Measure C. For his sake, I hope he fails. Otherwise, the legacy of this self-proclaimed “lifelong Democrat” will be diminished public safety, diminished public health services, further deterioration of public infrastructure and fewer hours of operation for libraries and other vital public services.

That said, no one deserves more credit than John Dickerson for bringing to light issues related to the County’s pension liability – issues which absolutely must be dealt with. Unfortunately, John is blind to the fact that he has been heard and that both the Retirement Board and Board of Supervisors have responded in significant ways to address the issues he has raised. Sadly, his triumph has become his tragedy as he blindly lashes out in an attempt to defeat Measure C and hamstring the ability of the County to provide vital services at a time when revenue is shrinking and the need for services is increasing.

When I ran for Supervisor two years ago, I was quite taken with Mr. Dickerson’s “analysis” of County debt issues. His assertions were alarming. Clearly there was a problem of major proportions. And no one seemed to be listening.  In retrospect, no one seemed to be listening to John.  Now I know why.

At some point after I got elected I began suggesting to John that he tone down his inflammatory rhetoric, that it was counter productive and that he would gain more credibility if he let the facts speak for themselves. Instead, the super heated rhetoric continued to escalate, as it does to this day.

I also realized that John was consistently misrepresenting the roles and responsibilities of the Board of Supervisors and the Retirement Board, creating confusion on the part of the public about who has the power to do what. I have challenged John on this point, but he persists. I can only conclude that blaming the Board of Supervisors for things beyond their control is more important to him than accuracy.

By law, the Retirement Board has sole authority for management of the retirement fund. How the funds are invested, the assumed rate of return, the annual contribution rates, the amortization schedule for the unfunded liability, and a host of other investment and actuarial decisions are made by the Retirement Board, not the County Board of Supervisors.

I finally realized that something else was missing from John’s analysis – a clear statement of what the County should do to fix the problem. I began challenging John in these terms: “John, you are great at saying what the problem is, but what is the solution? There must be some obvious thing staring us in the face that we should do. What is it?” I never got a specific answer. When asked for a solution at the candidate’s forum October 5th, John still had no answer.

Mistakes were made. In better economic times, the County increased the number of employees, their total compensation and their retirement benefits to levels that were not sustainable. Safety employees in particular were given enhanced retirement benefits. Probation employees were also added to safety retirement. These changes may have made sense from a collective bargaining standpoint, but in hindsight no one considered the long term effect on the retirement fund. That mistake will not be made again.

John Dickerson has stated that the policy of using “excess earnings” to fund retiree health was the single biggest factor in creating the unfunded liability, but fails to acknowledge that the practice has been ended. The Retirement Board has adopted a policy that prevents the diversion of “excess earnings” out of the retirement fund. Further, the County will no longer pay for retiree health, so there is no longer a place to divert the funds to. But John continues to beat up the County and the Retirement Board over the excess earnings policy as if it was still an operative practice. In fact, the last diversion out of the retirement fund took place years ago. The number one thing that John complains about has been resolved, but you will not hear that from Mr. Dickerson.

The Retirement Board has also hired an independent administrator, hired a new investment advisor, created a website to better inform the retirees and the public, facilitated televising of the meetings, and hired an independent auditor to audit the findings of their actuary. In fact they hired the same auditor that raised questions about the work of the same actuary in Stanislaus County. You will also not hear about any of this from Mr. Dickerson.

The County is doing everything it can to contain costs. In recent years, the County has cut 400 jobs from the payroll, more than a 25% reduction, including over 200 in the last two years. Salaries are being cut 10% or more. Many administrative positions have been cut. Programs have been eliminated. The County is successfully negotiating the right to establish a lower tier for retirement benefits for new hires. Again, you will not hear any of this from Mr. Dickerson.

John is a master at using data and rhetoric in a very biased way to prove his point. By mixing apples and oranges, by confusing roles and responsibilities, and by failing to acknowledge that any action has been taken to address debt issues, John is able to paint a worst case scenario.  Sadly, by presenting selective and misleading information, the man who implores others to “tell the truth,”  seems incapable of doing so himself.

Mr. Dickerson also fails to acknowledge that public and private pension funds nationwide have been rocked by the greatest financial meltdown in 80 years. Ironically, the housing bubble, which precipitated the meltdown, was driven by private sector profiteers who are the first to complain about government regulation and oversight. Locally, people with the same kind of anti-government mindset, who see government as the enemy, and who want to “starve the beast” are exploiting the pension fund issue in an effort to defeat Measure C and force further draconian cuts in services.

Ross Liberty, who is bankrolling the campaign  against Measure C, does not believe government should provide school lunches for poor children. Because Ross is a wholesaler, who does not pay sales tax on the materials he uses or the products he produces, Measure C will have little financial impact on him. But from an ideological standpoint he welcomes the thought of starving the County into further cutting services.

Just for example, the County is considering ending family planning and all public health prevention programs for next year. I also got an email over the weekend that the County librarian wants to eliminate County staffing for the Coast Community Library in Point Arena. The remaining libraries may also be faced with further cuts in hours. I believe these types of cuts are only the tip of the iceberg if Measure C fails.

Mr. Dickerson claims to be concerned about the negative impact to employees and the public that he says will come about in future years as a result of the debt. His solution seems to be to fire those employees and force the elimination of services right now by defeating Measure C. With all due respect to Mr. Dickerson, he should stay focused on pension and debt issues, not try to cripple the ability of the County to provide services at a time when they are critically needed.
~~

  1. That makes sense. Check out David Brooks article in the Press Democrat this morning. http://www.pressdemocrat.com/article/20101013/OPINION/101019882/1070/opinion04

  2. You may dismiss my comment as irrelevant to this fascinating discussion, but as long as we’re referencing conservative pundits pretending to be liberals, my observation is that the much larger issue everyone seems unwilling to discuss is that our entire system punishes the poor and rewards the landed wealthy. Sales taxes disproportionately hurt poor people and don’t bother rich folks at all. Property taxes, which used to be fair and reasonable in California, are a taboo subject in discussions of how to close revenue gaps. People who own property and feel financially squeezed fear increasing property taxes will force them to sell their homes or go broke. Rich folks, by and large, don’t want to give anybody anything. But in a reasonable world, with everyone paying their fair share, and with consideration of income in the assessment of property taxes owed, we could increase property taxes a per cent or two and have plenty of money for our government (s) to misuse. Combine this with a modest increase in the tax rate on people making over 300,000 dollars a year (imagine!) and we would be swimming in excess dollars. Instead, we’re being asked to squeeze more money out of the already over-squeezed general population. Sounds like business as per usual.

  3. Todd–alas, the county does not have the power to tax income! If it did I would be shouting from the rooftops that the county should impose a graduated income tax on county residents. That way, there would be a higher tax rate for the rich, and a lower tax rate for the poor.

    Keep in mind that at least the sales tax does not apply to food or medicine, essentials for everyone.

    That being the sorry state of the law (which does indeed favor the rich), and county residents in need, (30% of whom have incomes below the poverty line, voting in favor of Measure C, is the right thing to do. IN FACT IT IS THE ONLY THING TO DO.

    VOTE YES ON MEASURE C.

  4. I think much of our disagreement about Measure C comes down to a simple difference of opinion.

    I think Janie, John McCowen, and Antonio fear that too many people will be hurt if C doesn’t pass. I fear far more people will be hurt far worse over a much longer period of time if it does.

    Why do I say that?

    Our County’s pension deficit payments will start going through the roof 3 years from now. Those payments are going to grow from zero last year to at least $10 million by 2015.

    How will the County fill that $6.5 million gap? By cutting vital services and asking for more taxes.

    I can’t see how anyone can look at the record of how our County deals with really hard financial issues and have any reasonable hope the County is going to do what needs to be done before its too late. And if it doesn’t we’ll really find out what financial disaster looks like.

    Not surprisingly I disagree with John McCowen when he says “the issue of the debt really is separate from the duty of the County to provide public services”.

    It takes money to provide services, and such a big debt was built up over the past 20 years that it’s now taking so much money that it’s crowding out services. They are absolutely directly connected.

    You have to understand one key financial truth – the whole theory of the County’s Pension Fund is that the only money the County should ever have to pay to the Pension Fund is it’s “regular yearly contributions” that are only calculated to provide enough money to pay that portion of future pension payments that are being earned by employees that year. The Fund is then supposed to earn its target rate of investment profits (8%) so that with the original yearly contributions will be able to pay future pensions.

    Repeat – the only money the County should ever have to pay to the Pension Fund is its regular yearly contributions.

    But if a pension deficit develops (called unfunded pension obligation or liability) then ONLY THE COUNTY has to pay extra to eliminate it.

    Think about this:

    1996 – Pension Fund develops $40 million deficit – County borrows $35 million.

    2002 – Fund develops another deficit – $80 million. County borrows another $75 million.

    2009 – Fund develops another deficit – this time $130 million based on market value of investments. County decides to pay this debt to the Pension Fund directly over 30 years at an effective 8% yearly interest expense.

    The Pension Fund was supposed to have $400 million as of June 2009. It only had $270 million. That $130 million gap – that deficit or unfunded liability – is a true debt of the County that isn’t supposed to exist.

    At that same time the County still owed about $90 million on the total of $110 million it borrowed in 1996 and 2002 to fill two previous big deficits.

    This is the third time such big pension deficits developed that the County has had to commit itself to very large debt payments – money that comes out of local tax revenue that can no longer pay for services.

    And – of the $400 million that was supposed to be in the Pension Fund free and clear – the County (which means you and me) still owed about $220 million.

    Our County didn’t even achieve half its pension funding goals over the past 20 years. As a result it created this debt that must be paid in the future. About a half billion dollars will be extracted out of our weak local economy to pay that debt that was never supposed to have been created. Kids in the second grade will still be paying this debt 30 years from now. And they won’t get one dime’s worth of service for it.

    Last year John McC and the BOS had to cut $7.5 million or so out of the budget – guess what – the County paid $8 million last year on that earlier Pension Bond debt borrowed to eliminate previous pension deficits in 1996 and 2002.

    Now – we’re told we need Measure C to save vital services. Measure C would provide about $3.5 million or maybe a bit more to the County. What are the reasons given? The economy, the state, the stock market, greedy rich people, laws favoring the rich, and on and on.

    Well, this year the County was forced to start making payments to eliminate the $130 million cash deficit in the pension fund that was reported last year – guess what – about $3.5 million.

    ALL the budget cuts of the past 3 years would not have been necessary had this completely unnecessary pension deficit debt not existed.

    John McC claims I say the biggest reason for the pension deficits was the diversion of money out of the underfunded pension fund to pay retiree healthcare. I have never said that. And I have a very broad record of written reports to prove it. That diversion is the 2nd largest reason for our underfunded pension debt – I figure about 20% TO 25%. The biggest reason is the Pension Fund has beEN significantly under its required return on average over the past 16 years. Even before the 08-09 stock market collapse the Pension Fund’s returns were about 25% lower than target – which is 8% a year. That produced about half the total pension deficit debt.

    I’ve identified 4 other significant causes of the County’s pension deficit debt – together that caused the remaining 25% or so of the pension deficit debt.

    But here’s the real kicker in my mind about all this – our County has never performed an analysis on its own to figure out why the debt keeps getting bigger, much less how to stop it.

    Is it the stock market’s collapse in 2008-2009 that’s the cause as John McC says? Well – how does he explain the two previous Pension Fund deficits in 1996 and 2002 that were so large the County had to borrow $110 million to eliminate them?

    I could go on and on a refute every point John McCowen makes – but this is already too long. But I will say one thing – I don’t accept that our County Board of Supervisors and other elected officers are helpless before the Retirement Board. Yes – the Retirement Board is a separate body. But the Supervisors name either 3 or 4 other the members of that body (not sure which). In addition the County Treasurer is a member of that Board.

    The County Board of Supervisors establishes what the retirement benefits will be. If it sees the Retirement Board is underperforming and building up a huge County debt – then the Supes should have either reduced the benefits or increased its payments to the Fund.

    Why didn’t it increase its payments when it became obvious no later than 2002 that the Retirement Board wasn’t getting the job done?

    First – because the County’s financial officials never presented the clear case that was happening. But just as important if not more so – Supervisors wanted to deliver more than they could fund and by allowing a huge unfunded retiree benefit debt to build they could shove about $10 million of yearly costs they couldn’t pay into the future when it wouldn’t be their problem.

    We elect our County Supervisors. We have a direct relationship of accountability with them. We have no direct connection to the Retirement Board. I don’t know about you, but I don’t expect our Supervisors to collapse in a helpless heap when the Retirement Board’s actions are forcing this level of debt on our County.

    I expect them to raise hell – even if that was the only thing they could do – which it isn’t.

    So – why no on C. Because C is nowhere near big enough to stop a much bigger crises not that long in the future, our real problems lie with a very dysfunctional financial management system at the County, and because our County does not move decisively to fix these types of big problems – in fact they put them off as long as they can. If they do that again – and why wouldn’t they – we will hit a much worse financial crisis about 3 years from now.

    We need reform and a plan – not just a tax increase.

    Frankly – I hope C is defeated and then we can get over being so pissed off and get to work coming up with the reforms our County needs, developing a believable plan for survival, and more money for the County IF they can prove they need it instead of just saying they do.

    One more thing – I believe a major problem is so many folks “on the left” seem unable to see the need for them to hold our County accountable for its financial management of our money. It’s everyone and everything else’s fault other than the County itself. And any criticism of the County’s financial management gets translated into “sounding just like all those evil rich people on the right who just want to destroy government’s progressive programs.”

    Well … seems to me the left’s inability and/or unwillingness to see the need for them to hold our County accountable is what is allowiog those services to be destroyed.

    Whether or not C passes – we’d better hold our County accountable. Because if we don’t it’s going to get a whole lot worse.

    John Dickerson

  5. As my letter was long-winded enough, I’ll respond briefly to a few points on this forum as well:
    1) Yes we have a debt problem in this County;
    2) As a financial planner and money manager who has studied the pension plan liability issue for years, no I was not surprised by the range and depth the pension plan issues in our County;
    3) Pass or fail, Measure C,will not solve our debt problems. What I can say, further crippling County government by taking away its ability to meet its debt obligations will only worsen matters;
    4) Paul Dolan has made important contributions to the wine industry here in Mendocino County and has showed remarkable leadership in addressing the environmental impacts of this crucial industry. And Paul Dolan’s(The comments I made regarding Paul Dolan (who I do not know) applies to all others as well) approach on this issue is dead wrong. If Paul’s serious about this issue, I invite him to roll up his sleeves and work positively for solutions as he has done in other far more intractable areas where he has made progress.

    I don’t come at this from a left or right perspective (I think Paul Dolan’s introduction of himself in his No on C add as a Democrat and Environmentalist really appeals to that divisive us and them framing). I listen to what people have to say rather than locate them on the political spectrum and start from that location.

    Let me take you at your word that you have a plan to address the financial issue and that No on C advocates are willing to fund government services you believe in if the proper pre-conditions are met. I would think it quite challenging for any broad-spectrum group to come to that agreement. Solutions often come from a stake-holder, ground up approach. If you are successful in defeating C, I’ll be interested to see how many of your colleagues will come together to work on this critical issue–and who they will invite to the table.

    But if you were to come up with an agreed-upon approach, it would likely be two years before such a tax increase would be on the ballot for a vote.

    So, what happens in the two year interim? Who gets hurt when the sheriff’s response time to an emergency is two hours rather than 20 minutes? When the couple hundred people waiting for drug and alcohol services don’t get them and so many of those end up in the far more expensive judicial/jail system (to say nothing of the victims of their behavior)? How much of the accumulated and institutional wisdom is lost as County employees flee due to the fallout?

    John, you have the right issue and residents ought to be thankful that you’ve dedicated time and energy to shining a light on our troubled finances. Unfortunately, the No on C approach further divides rather than creates common ground to build from.
    Antonio

  6. I do wish I had thought of this before the election, namely a fact that is relevant to the issue of Measure C being a regressive tax. So is Social Security. Everyone earning a salary pays into Social Security AT EXACTLY THE SAME RATE, no matter how little they earn. It’s unfair, yes, but it gets the job done: everyone who pays in and lives long enough gets a benefit.

    I don’t like regressive taxation. Only the rich do, but in the case of Measure C, a regressive sales tax is the only way the county has to raise revenue.

    Hey Ross Liberty, John Dickerson, John Sakowicz and all those who voted no: PLEASE HELP THE COUNTY COME UP WITH IDEAS TO FUND SERVICES.

    QUESTION: WOULD A TARGETED SALES TAX PASS MUSTER WITH MSSRS LIBERTY, DICKERSON AND SAKOWICZ???? (By targeted, I mean limiting the uses to which the sales tax revenue could be spent.)

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