Whom do you trust?

All right, dear readers, the Merry-Go-Round has a question for you:

Suppose you wanted an authoritative evaluation of the impact on the City’s financial condition of a proposed deal between the City and its public safety unions that establishes a new trust to pay retiree health benefits.  Whom would you look to:

A Certified Financial Planner and a Certified Public Accountant who have been studying the City’s liability for pensions and “Other Post Employment Benefits” since 2008?

Or politicians who, by their public comments, reveal that they either don’t understand or don’t care about the financial repercussions of the proposed contracts?

We know whom we’d pick.

But, of course, we’d be wrong.  The only thing Kevin Kennedy, the City Treasurer (he’s the CFP) and Kevin Kearney, the City Auditor (he’s the CPA) are allowed to do is to perform the narrow functions of their offices – which do not include analyzing the financial effects of public safety union contracts.

You didn’t know this?  Why, it’s right there in the City Charter!

Or so City Attorney Janet Kern, egged on by outgoing City Manager John Russo, would have you believe.

At Wednesday’s Council meeting, Mayor Trish Spencer called upon Messrs. Kennedy and Kearney even before summoning the assembled gaggle of current and former legislators to the podium.  What the Treasurer and the Auditor had to say wasn’t what staff – or an audience full of union members from inside and outside Alameda – wanted to hear.  Having now had all of two weeks to review the contracts after Mr. Russo first disclosed their terms, the Treasurer and Auditor identified potential flaws in the MOUs that ought to be examined before Council approved deals that would bind the City and the unions for the next six years (and, in some instances, even beyond).

During their remarks, both Mr. Kennedy and Mr. Kearney commented on what they saw as their mission.

“This situation has been very difficult for the auditor and me,” Mr. Kennedy said, “because we’ve been basically working on a very, very short time frame to try to give you what you expect and what the public expects from us, which is financial guidance on probably the biggest issue the City faces.”

Added Mr. Kearney:

We’re the people with financial expertise.  We got elected to comment on things.  We don’t comment on Del Monte, or about the development of the base, or the golf course, or how many parks we need to have.  About the [only] things we can actually say we’re experts on are finances:  the budget, OPEB, anything to do with liabilities, those kind of things that are financial things.

Sound reasonable to you?  It did to us:  Not only do Messrs. Kennedy and Kearney have the training and expertise to analyze financial issues generally, but both of them had served as co-chairs of the Fiscal Sustainability Task Force appointed by Council in 2008 and the Pension/OPEB Task Force appointed by Mr. Russo in 2011.  If there were any two people whom Alamedans could turn to for an appraisal of the financial consequences of the proposed contracts, it’s the two guys they’ve been electing, and re-electing, Treasurer and Auditor every four years since the year 2000.

But that wasn’t the way staff saw it.

We knew something was up when Mr. Russo, in his opening remarks, described how he had negotiated the contracts “in my role under the Charter” as City Manager.  What was the point of the reference to the Charter?  It became clear when, several hours later, Ms. Kern interrupted the public comment period to make “one further clarification” about the “roles” of the City Manager, City Treasurer, and City Auditor (an issue about which no public speaker previously had expressed any bewilderment).

She began with a lecture about the Charter, whose provisions, she declared, were “very specific”:  “the City Treasurer is to produce an annual audit and the City Auditor gives advice on investment policy.”  (This was actually a paraphrase of the language in the Charter, and Ms. Kern got the roles of the Treasurer and Auditor reversed.  But no matter.  As she said when Councilwoman Marilyn Ezzy Ashcraft caught her mistake, the hour was late).

She then came to the heart of her argument:  “Just to be clear,” she said, the Treasurer and the Auditor “are not designated in the Charter to be members of the negotiating team, so any of their advice beyond investment advice and auditing is really above and beyond what they are authorized to do.” (emphasis supplied).

It was a typically legalistic interpretation by Ms. Kern, but the message was unmistakable:  Rather than giving Council and the public the benefit of their experience and expertise, the uppity Mr. Kennedy and Mr. Kearney should confine themselves to checking out investments and reviewing the books.  If they stuck their noses into other areas affecting the City’s finances, they’d be exceeding their authority and, by implication, abusing their power.

To which we say:  Balderdash.  Going “above and beyond the call of duty” used to be a compliment; now, apparently, it’s a crime.

Except that it’s not.  An itemization of responsibilities – which is what the Charter provides for City officers – is not the same as a limitation on authority.  If Ms. Kern were right, Mr. Russo has been violating the Charter every time he gives his “State of the City” speech to the Alameda Democratic Club or the League of Women Voters.  After all, informing the public about municipal affairs is not one of the duties specified by the Charter for the City Manager.  Yet does anyone really doubt that Mr. Russo’s “authority” extends to making such public reports?

(Ms. Kern’s argument reminds us of the so-called “strict constructionist” view of the U.S. Constitution.  Under this interpretation, President Lincoln committed an unconstitutional act when he issued the Emancipation Proclamation, since freeing the slaves went “really above and beyond what he was authorized to do” by Article II.  Other than Justices Scalia and Thomas, you won’t find many adherents to this view these days.  The former Constitutional law professor currently occupying the White House surely doesn’t subscribe to it.)

In any event, if providing expert advice about matters vital to the financial health of the City is not part of the job description for the City Treasurer or the City Auditor, then whose job is it?  Under Ms. Kern’s view, apparently no one’s.  But if we can’t hear from, and rely on, Mr. Kennedy and Mr. Kearney, we’ll just have to trust that the politicians sitting on the dais will be able to figure out these complex financial deals on their own.  And that, as Council’s discussion of the proposed public safety contracts showed, is a truly disconcerting prospect.

Take, for example, Councilman Jim Oddie.

Six days before Council was scheduled to vote on the new MOUs, the Alameda Sun published an op-ed written by Mr. Oddie endorsing them.  Since the Councilman is the fair-haired boy of the firefighters’ union, this was hardly surprising.  But Mr. Oddie argued that the contracts were a good deal for the City as well.  “If the City Council agrees to the contract extensions,” he wrote, “the city’s $91 million OPEB liability will be reduced by $47 million over the next 30 years due to this partnership — all at a small cost to the city.”

Unfortunately, this statement contained not one, but two, misrepresentations.

As the staff report made clear (at least to most readers), the $47 million figure referred to a reduction in annual OPEB payments, not in unfunded OPEB liability. And, in fact, the deal does not reduce the City’s unfunded OPEB liability by anywhere near $47 million.

After one of the speakers at Wednesday’s meeting – an aide to Alameda County Supervisor Wilma Chan – repeated Mr. Oddie’s claim, Vice Mayor Frank Matarrese finally put the matter to rest.  He asked staff for “clarification”:  Was it true that the proposed contracts reduced the $91 million unfunded liability by $47 million?  No, it wasn’t true, Mr. Russo replied.  The impact of the contracts on the unfunded liability was “minimal.”  He then turned to Interim City Manager Liz Warmerdam for a more precise answer.  We estimate the impact on unfunded liability to be about $5 million, she said – a tenth of the benefit claimed by Mr. Oddie.

The other part of Mr. Oddie’s statement – that the proposed contracts imposed only a “small cost” on the City – also was wrong.  In his op-ed, Mr. Oddie pegged the minimum salary and benefit increases over the term of the new MOUs at $1.2 million.  At Wednesday’s meeting, Mr. Russo displayed a slide that showed the salary and benefit increases in each of the years from FY 2015-16 to FY 2019-20 if public safety employees received either the minimum (“Min BRI”) or maximum (“Max BRI”) raises.  The “Sal[ary]/Ben[efit] increase over 5-Year (incl[uding] PERS)” for the minimum raise scenario is $6.25 million – five times the amount claimed by Mr. Oddie.

Now look at the bottom of the “Min BRI”column.  During the same period in which public safety employees will be getting an additional $6.25 million in salary and benefits, the estimated revenue increase in the four categories used in the salary formula is only $4,934,660 – i.e., $1,315,340 less than the total amount of the expense increase.  So from the slide it would appear that if the City hits its budgeted revenue targets, every penny of the additional revenue in the next five fiscal years will go to pay salary and benefits to the cops and firefighters – and the City will still have to find another $1.3 million to cover the rest of the tab.

We suppose that, even if Mr. Oddie had gotten his facts right, he still might have pooh-poohed a $6.25 million impact on the bottom line.  But remember:  The City also is being required to pay $7.5 million ($5 million upfront and $250,000 per year for 10 years) to fund the trust.  $13.75 million is a “small cost to the City”?  If you say so, Jim.

Mr. Oddie thus got both parts of the cost-benefit analysis wrong:  He overstated the benefits and understated the costs.  But his colleagues didn’t distinguish themselves, either.

At Wednesday’s meeting, Mayor Spencer was the only one on the dais to display any concern about the costs imposed by the proposed contracts.  “I don’t believe that it is appropriate to enter into a long-term agreement that takes us through 2022 prior to going through the budget process,” she said.  She stopped short of saying whether she believed the City could afford to take money out of the General Fund to fund the trust upfront and then incur additional multi-million-dollar expenses for salary and benefit increases over the next five fiscal years.  But at least she wanted to know how the proposed contracts fit into the overall budgetary picture.  None of her colleagues seemed to care.

But they did appear a bit . . . confused about just where the projected $47 million in “savings” would come from.  Having listened to the discussion, Vice Mayor Matarrese concluded that “the general public and even some knowledgeable speakers here have not understood what the mechanism is, what the liability stands for, and what our trust fund
. . . does to that liability.”  (Mr. Matarrese named no names, but we suspect he was referring to Councilman Tony Daysog, who had remarked that “[m]y sense is that, in using the word ‘savings’ and attributing that to the $47 million, we have to caveat that, I suspect, by saying that is more of an Excel spreadsheet savings as opposed to an actual dollar that we’re going to have.”)

To us at least, a decision of this importance shouldn’t be made in a state of uncertainty.  Unless Council is willing to pay any price and bear any burden to promote what Councilwoman Ashcraft called an “amicable” relationship with the public safety unions, it should want to ensure that the benefit the City is receiving is really worth the cost it is incurring.  In making that determination, the Council members should have not just welcomed but invited input from the Treasurer and the Auditor – even if providing advice about labor contracts isn’t one of their itemized responsibilities.  The right thing to do was to turn to them for analysis, not turn on them for overreaching.

Messrs. Kennedy and Kearney have had a target painted on their backs since March 2011 when they spoke before Council about a five-year forecast projecting that the balance in the General Fund would be exhausted by FY 2013-14.  (This forecast, it should be noted, was prepared by staff, not by the Treasurer or the Auditor).  Not only did Messrs. Kennedy and Kearney urge immediate action, they urged immediate action to cut costs.  And not just costs, but public safety costs.  And not just public safety costs, but maybe even staffing and salaries.

Having just gotten the Gilmore-Bonta-Tam slate elected and then sent away the notoriously tight-fisted Interim City Manager, Ann Marie Gallant, the firefighters’ union leaders were riding high.  They took the message delivered by Messrs. Kennedy and Kearney as a personal insult, and they and their friends in organized labor have gone out of their way to dis the Treasurer and Auditor ever since.

By now, Messrs. Kennedy and Kearney probably are used to having invective hurled at them whenever they don’t jump on the union bandwagon.  Thus far, both have showed they can roll with the punches.  But this latest effort to intimidate them into silence is a low blow.  Here’s what we’d like to know from Ms. Kern:  Where in the Charter does the City Attorney get the authority to lecture two elected officials about how to do their jobs?

Sources:

April 29, 2015 staff report: 2015-04-29 staff report re IAFF contracts

April 29, 2015 staff presentation: 2015-04-29 Presentation – REVISED