What a way to go!

This week, a majority of Council decided to make it possible for departing City Manager John Russo to bolster his reputation – and to burnish his resume – before he leaves for his new job in Riverside.  In so doing, the majority made it less likely that the proposal made by Mr. Russo to cap his Alameda career – a “partial solution” to the “Other Post-Employment Benefits” problem –  will get the public scrutiny it deserves.

Billed as simply an “update” of a July 2013 staff report, the OPEB item on the Council agenda Tuesday turned into much more:  At the end of his presentation, Mr. Russo announced that he had reached agreement with the police and firefighters’ unions on new five-year contracts incorporating OPEB provisions that, he said, will “provide years of breathing room” and “save the city tens of millions of dollars.”

Mr. Russo didn’t hand out copies of the new contracts.  Nor did he offer any details about his proposed OPEB solution, other than saying it involved the previously established trust fund.  But he concluded by saying that his proposal would not solve the OPEB problem forever, or even for 30 years, just for the “near term.”

Mr. Russo then announced that staff would make the contracts (and supporting data) available next Tuesday, April 14 – and that Council would vote on them at a special meeting on April 29 (the shortest notice allowed under the Sunshine Ordinance).  Later on, it came out that, in a closed session before the regular meeting, a majority of Council had agreed to that hurry-up timetable.  (Mayor Trish Spencer dissented; Councilman Tony Daysog abstained).

Why April 29?

To hear Mr. Russo tell it, the date was selected solely for reasons of administrative efficiency:  a special meeting on the budget already was scheduled for April 29, and, since the new contracts affected the budget, it made sense to put them up for approval at the same meeting.  But, in response to questions from Mayor Spencer, Mr. Russo acknowledged that another special budget meeting was set for the second week in May.  If the idea was to review the public safety union contracts in the context of the budget, why not do it then?

Councilman Jim Oddie, who, for some reason, was especially cantankerous Tuesday, had the answer:  That’s too long to wait!  During the campaign, Mr. Oddie said, he had learned that the OPEB problem “is a priority that some people told us they wanted fixed.” Turning to Vice Mayor Frank Matarrese for confirmation, he went on:  “We spent an hour sweating at the Oakland Tribune going over these numbers.”  (Later, Mr. Oddie told the audience that contemplating the unfunded OPEB liability “keeps me awake at night”).

Missing from the Councilman’s argument was any reason that the public safety union contracts containing the proposed OPEB solution needed to be approved by April 29.  The existing contracts don’t expire until June 24, 2017, more than two years from now.  Sure, if the new contracts really will save the City money, the sooner they go into effect, the better.  But exactly how much in potential savings would the City be giving up if Council took another month to review the new contracts before voting on them?  Mr. Oddie didn’t say.

Which causes us to ask:  Just what’s so all-fired magical about April 29 anyway?

Nothing – other than that it may be Mr. Russo’s last day as City Manager.  (According to The Alamedan, he’s expected to start his new job in Riverside on May 4).  Could it be that the Council majority wanted to arrange to give Mr. Russo a farewell gift by approving the public safety union contracts before he exited the Alameda scene?  Absent any other plausible explanation for the timing (and we’ve heard none), Holmesian logic tells us that’s the only conclusion to draw.

(Conspiracy theorists can speculate all they want about the firefighters’ union believing they had to close a deal while they still had a friend running the show at City Hall.  For our part, we know of no evidence that Mr. Russo’s successor, Interim City Manager Liz Warmerdam, would be any less – or more – obliging toward the unions than he was).

If Mr. Russo wanted to make adoption of contracts incorporating his OPEB proposal the crowning achievement of his four years as City Manager, the Merry-Go-Round doesn’t begrudge Council desiring to grant his wish.  But we are concerned that, although fast-track approval by Council is a nice parting gesture – and it certainly beats a gold watch – it may not serve the City’s best interests.

Mr. Russo’s dedication to remedying the OPEB problem can’t be gainsaid.  Throughout his tenure, he has identified unfunded OPEB liability as one of the major financial issues facing the City.  As he put it in a staff report, “The inadequate funding of OPEB is the largest threat to the long term fiscal stability of the City of Alameda.”  And he has acted accordingly.

On Tuesday, Mr. Russo described his efforts to deal with this threat.  One of his first acts as City Manager was to appoint a 13-member task force to determine whether the City “had an OPEB problem” and, if so, to propose solutions.  After the former Council filed away the task force report without taking any action, Mr. Russo persisted, and in July 2013 staff presented its own report providing another menu of possible action items.  The former Council picked the easiest one – set up a trust – and rejected the rest.

Since then, with Council’s permission, Mr. Russo has been engaging in what Henry Kissinger would call backdoor diplomacy with the police and firefighters’ unions.  By October, he was able to tell the League of Women Voters that he had made progress.  Then came the November election and, three months later, Mr. Russo’s decision to quit as Alameda City Manager with a year remaining on his contract.  We don’t know whether these events lit a fire under Mr. Russo to get a deal done before he left.  But the pace of the talks appears to have accelerated, and by Tuesday Mr. Russo was able to trumpet success.

(We hadn’t thought of Mr. Russo and Secretary of State John Kerry in the same vein until Councilwoman Marilyn Ezzy Ashcraft analogized the OPEB proposal to the U.S.-Iran nuclear agreement.  It isn’t the point Ms. Ashcraft was trying to make, but political commentators have noted that Secretary Kerry may have worked so hard to get a deal with the Iranians because he wanted to secure his legacy as a diplomat.  It’s possible that Mr. Russo may have felt a similar impulse to cut a bargain with the unions that provided even a partial solution to the OPEB problem).

If the issues involved were simple or mundane, we might not mind Council’s accommodation of Mr. Russo’s departure plans.  But five-year public safety union contracts, and solutions to the OPEB problem, even “near-term” ones, hardly fall into that category.

Spending on police and fire consumes nearly three-quarters of total General Fund revenue.  Making a five-year commitment on wages and benefits will take the option of reducing public safety labor costs off the table as a way to cover the budget shortfall already forecast for that period.  It’s not an alternative to be abandoned lightly.

Likewise, the unfunded OPEB liability stands at $91.2 million as of January 2013.  By Mr. Russo’s own admission, he’s proposing only a partial solution to the OPEB problem.  But which part?  And at what cost?  Every dollar “contributed” by the City from the General Fund to an OPEB trust is a dollar less the City can spend on parks and libraries.

Moreover, as City Treasurer Kevin Kennedy told Council Tuesday, analyzing the financial impact of Mr. Russo’s proposal is no simple task.  Even Mr. Kennedy, an investment adviser and Certified Financial Planner, admitted that reading the actuarial data “made my head swim.”  “This is a huge, huge pile of information, and I’ve spent a lot of time with it [already],” Mr. Kennedy said.  “If I have a concern at this point, it’s that we’ve got a couple of weeks to vet what is a very critical decision for the City, and I hope we’re all up to it.”

And here’s the thing:  We want Mr. Kennedy, and his colleague, City Auditor Kevin Kearney, to be “up to it.”  There are no City officials as qualified as these two men to offer sound advice about the financial consequences of the public safety union contracts and the proposed OPEB solution.

The City Manager apparently kept Messrs. Kennedy and Kearney out of the loop during his negotiations with the police and firefighters’ unions.  (Mr. Kennedy told us he and Mr. Kearney were “unaware of [the] terms” of the deal until Monday, when Mr. Russo briefed them “at my request”).  Now, after the deal is done, he is allowing them to jump in.  But they will be given the same 15 days as the rest of us to analyze the issues.  (As of Friday, Mr. Kennedy told us, he hadn’t seen the contracts).

And, oh, by the way, this is crunch time in tax season, and Mr. Kearney, a CPA, undoubtedly is facing a host of deadlines already.

But Messrs. Kennedy and Kearney aren’t only the experts whose input would be valuable. We’d also like to see an analysis of the OPEB proposal by an expert with a background specifically in the financial aspects of retiree benefit plans.  Are the assumptions reasonable?  Are the goals realistic?  How big of a reduction in long-term OPEB liability will the proposal really produce?

These are the type of questions that an actuarial firm is well-positioned to address.  Since the City’s long-time actuaries, Bartel & Associates, apparently were involved in the design of Mr. Russo’s proposal, it may be wise to engage an independent firm for this purpose.  In any event, when Ms. Ashcraft asked Tuesday about Bartel’s availability to weigh in by April 29, the firm’s representative stated that it was in the middle of preparing the biennial valuation and needed another four to six weeks to finish that job.

Of course, there’s always staff and the public.  Ms. Ashcraft admonished staff to be sure to include “the good, the bad, and the ugly” in its report for the April 29 meeting.  “We don’t want just happy talk,” she said.  And both Ms. Ashcraft and Vice Mayor Matarrese urged citizens to study the contracts and the OPEB proposal and to call or email their favorite Council member with their thoughts.  The implication was that, if the public just spent a little time on the matter, they’d be able to render insightful comments at the April 29 Council meeting.

Sure thing.  As Mr. Kennedy pointed out, involving the public only at the stage of final approval isn’t a very effective way to get useful input.  “We’re in a spot where the public’s opinion, quite honestly, has been rendered moot because this deal basically has been put together,” he said.  “So really what it’s falling down to at this point is:  are the five of you comfortable with where this goes and your understanding of it?”

No, the April 29 meeting probably will resemble the last one at which the former Council approved public safety union contracts.  The unions will send representatives to praise the deal, laud Mr. Russo for showing them appropriate respect, and commend their members for making enormous sacrifices.  (We’d even wager we’ll see a guest appearance by State Assemblyman Rob Bonta to add his blessing).  With Mayor Spencer in the chair, any opponents who show up are likely to get their say – but Mr. Russo will be sure to dispute their mastery of the facts.

On Tuesday, Ms. Ashcraft challenged anyone who questioned the need for haste to tell her what they’d do instead.  So we will.  We’d take the public safety union contracts off the April 29 agenda.  We’d then give the contracts and the OPEB proposal to Messrs. Kennedy and Kearney and ask them to prepare, within a month (or as soon as is reasonably convenient for them), a written evaluation of the impact of both on the City’s financial condition.  We’d also give the OPEB proposal to an independent actuarial firm and ask them to prepare a written analysis of its effectiveness.  In addition, we’d ask the actuaries to do what Councilman Daysog requested two years ago (but which apparently was never done):  analyze the financial impact of the other remedial actions recommended by the OPEB task force and/or suggested by staff – there were nine of them – compared to Mr. Russo’s proposal.

(If we could get someone in authority to read the cases we cited in our last column in which appellate courts sanctioned changes made by government employers to retiree health benefits, we’d ask Council to add to the list an examination of the financial impact of capping OPEB payments to retirees at a fixed amount.  But when the City Manager prefers to ignore recent federal and state cases and instead relies for his legal conclusions on a 12-year-old arbitration decision issued by an Oakland lawyer, as Mr. Russo did Tuesday, we’re not optimistic that the politicians ever will get the message).

Then, and only then, would we schedule a Council meeting to decide whether to approve the contracts and the OPEB proposal.  If Council votes, Yes, we’ll volunteer to fly down to Riverside at our own expense and present Mr. Russo with an embossed copy of the Council resolution.

Is any of this going to happen?  Not a chance.  On Tuesday, even the hint of changing the schedule provoked indignation on the dais.  A brief dialogue between Mr. Russo and Mr. Oddie captured the consensus.  “To the extent that there’s any suggestion that this is being frog-marched through the process, it really isn’t,” Mr. Russo said, which prompted Mr. Oddie to interject:  “It’s irresponsible to say that it is.”  Replied Mr. Russo: “I’m not prepared to use that term.”

Ah, go ahead, John.  We don’t mind.  You’ve called us worse.

Sources:

October 30, 2012 staff report: 2012-10-30 staff memo re pension task force report

July 23, 2013 staff report: 2013-07-23 staff report re OPEB

April 7, 2013 staff report: 2015-04-07 staff report re OPEB

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Council, Firefighters, Pensions and tagged , , , , , , , , , , . Bookmark the permalink.

4 Responses to What a way to go!

  1. Irene says:

    It’s a good idea for the city to get an independent actuarial firm to prepare a written analysis on the effectiveness the OPEB proposal. I’d rather see the city spend some money on that rather than spending its money on a consultant for yet another transportation plan, which the council just voted to pursue.

  2. richard94501 says:

    Your recommendations for vetting the proposed five-year contracts are sound. If City Treasurer Kevin Kennedy’s head is swimming in the actuarial data, who’s the lifeguard? Jim Oddie? He has a degree in finance. Anyone else on the council trained to analyze the swimming pool full of data?

    So, only one voting elected representative has any training to analyze the data. And the elected and paid individuals who possess advanced financial expertise for advising the council – the Treasurer and Auditor – have no vote and only a couple of weeks to vet the proposal.

  3. Denise Lai says:

    City Council meeting to discuss budget forecast is tonight, 6p. Please crunch the numbers: I have posted the agenda, budget overview slide, plus 2011-2014 city payroll + benefits expenses (in Excel files) here: https://www.dropbox.com/sh/74ywixqpmpunj33/AADIaK-IZKcb7a-h4Ww4TYWRa?dl=0

  4. Not. A. Alamedan says:

    Yeah, shame on Mr. Russo for not solving the OPEB problem in the short time he’s been on board! But wait, how many others, either paid city staff or elected officials, have done ANYTHING at all to solve this problem? None. In fact, the past Councils have just compounded the problem by approving public safety contracts without question, right? I don’t mean to slam the public safety members by saying this; they do a darn good and important job for us, and deserve to be compensated for the risk they assume every time they come to work for us. At least Mr. Russo has shown some leadership on this issue, unlike the last several City Managers have done. Mr. Russo has negotiated twice now with the public safety unions, and negotiated deals both times that begins to solve the problem going forward. The first negotiation was in the middle of their contract, and I said publicly at the time, “What is their incentive to make concessions now?” Well, Mr. Russo was able to get those concessions, wasn’t he? Yes, the concessions that were negotiated only help us going forward, with our current public safety members. There still remains the $91 million we are facing from past retirees, but Mr. Russo has told us before, this problem was not made overnight, and it will not be solved overnight. Do any of you have any brilliant ideas how the city can come up with $91 million right away? A Kickstarter or GoFundMe campaign perhaps? Or a bake sale? Or maybe sell off the naming rights to the bicycle track on Shoreline Drive? Go ahead and get your ad hoc committees of political cronies or independent actuaries to study the contracts. How can they (the proposed contracts) be anything but good, when the current public safety members will start contributing more to their retirement and benefits (which, duh, means the city has to contribute less). It doesn’t take an actuary to tell you that it does nothing to the $91 million, but it HAS to be a step in the right direction, no? It frees up money that could go toward the $91 million, if it doesn’t get used by the Council for the problem du jour, like a Public Information Officer or funding AAPS or something else equally desirable. You can advocate for putting the decision off til May or June if you wish, I don’t care. But don’t put it off so the public can comment on the deal. You’ve just reported that Mr. Kennedy has said “It makes my head swim.” Well, if he has trouble getting his arms around the numbers, Mr. Average Alameda Publician has no chance of understanding it, and whatever s/he says at the dais will just be blowing smoke, so spare us the 3 or 4 hours of drivel and just make the decision!

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