Quitting CalPERS Comes With Price For California Cities

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City officials from a handful of California cities—Canyon Lake, Pacific Grove and, most recently, Villa Park—have publicly weighed the option of leaving the CalPERS system as their memberships become more costly.

But leaving CalPERS got a lot less enticing when the cities learned about the fee that would be levied on them upon their departure—a termination fee that could be as high as $3.6 million for Villa Park alone. From Reuters:

Villa Park fears that pulling out of its contract with the California Public Employees’ Retirement System could be prohibitively expensive because of a termination fee that could exceed the city’s annual budget.

Calpers, America’s biggest public pension fund with assets of $300 billion, last provided the city with a hypothetical termination fee of nearly $3.6 million as of June 2012. The city’s annual budget is $3.5 million.

“Getting out of Calpers is like getting out of jail,” said Rick Barnett, mayor of Villa Park, population 5,800. The City Council will vote next month on a resolution to begin the process of quitting Calpers.

Calpers recently voted to raise rates roughly 50 percent over the next seven years, citing its responsibility to maintain the fiscal soundness of the fund.

Now Villa Park is following the trajectory as California cities who have tried, but ultimately declined, to leave CalPERS in the past. Reuters reports:

Two other California cities, Pacific Grove and Canyon Lake, tried to quit Calpers last year, but both balked when they learned the termination fee.

If a city quits, Calpers continues to administer pension payments for the current and retired workers already on the books at the time of termination.

To do that, Calpers generally asks for an up-front sum to pay for potential future pension costs for all current and retired workers on city rolls.

Canyon Lake, with an annual budget of $3.6 million, was handed a termination bill last year of $1.3 million.

Keith Breskin, Canyon Lake’s city manager, said: “It would have been a serious depletion on our reserves, so the city decided not to proceed.”

If a city quits, Calpers also places that city’s funds in a more conservative risk pool, which lowers the potential return rate on its investments and in turn boosts the termination fee.

Villa Park Mayor Rick Barnett said this week that the termination fee hasn’t completely deterred the city from their plan to leave CalPERS. He did, however, leave open the possibility that the termination fee would be too burdensome to even consider leaving the System.

VP of CalPERS Board Faces Repeated Discipline from State Ethics Panel

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Priya Mathur is the Vice President of the CalPERS Board of Administration, and she is currently seeking re-election to serve a fourth term on the Board. Her tenure requires her to submit semi-annual campaign financial statements and statements of economic interest.

But the Fair Political Practices Commission (FPPC), California’s political watchdog agency, says Mathur failed to submit her campaign financial statements in a timely manner four separate times in 2012 and 2013.

And it’s not the first time Mathur has failed to turn in required documentation in a timely manner—the FPPC has fined Mathur three times in the past for similar offenses after she failed to submit statements on time in 2002, 2007, 2008 and 2010. From the LA Times:

This is not Mathur’s first run-in with the ethics panel. The commission has taken enforcement actions against Mathur three other times in the last nine years, fining her a total of $13,000.

The fines could become an issue in her current reelection campaign, with mail-in balloting running from Aug. 29 to September 29.

“I find it interesting that she feels she doesn’t have to comply with these standards,” said Mathur’s opponent, Leyne Milstein, the finance director of the city of Sacramento. “We all need to be held accountable if we want to represent the public.”

The fine and settlement agreement follow a series of filing lapses by Mathur that were investigated and prosecuted. The commission fined her $3,000 in April 2010, and $4,000 in May of that year for failing to file on time legally required statements of economic interest for 2007 and 2008.

As a result, Mathur’s board colleagues punished her by stripping her of a chairmanship of the health committee and temporarily suspending her travel privileges. However, they subsequently voted to make her vice president of the board.

In 2006, Mathur paid a $6,000 fine for not properly filing financial documents after her initial 2002 election to the CalPERS board.

The FPPC is expected to formally approve the charges against Mathur at its next meeting on August 21. Mathur is not disputing the charges.

Gary Winuk, the FPPC’s chief of enforcement, had this to say:

“Failing to file a campaign statement is a serious violation of the Act because it deprives the public of important information about a candidate’s financial activities,” he told the LA Times.

 

Photo by Blake O’Brien via Flickr CC License