It’s been a while since Mayor Chuck Reed’s opponents won a battle in San Jose’s pension reform war. But a report released Tuesday by the state auditor’s office says that city officials may have played a little too fast and loose when stating the worst-case scenario for San Jose’s unfunded liability for retirement benefits.
In the report, State Auditor Elaine Howle writes that a review of the mayor and other councilmembers’ use of the number $650 million, when discussing the city’s potential liability for retiree pensions and health benefits, was “unsupported and likely overstated.”
The report goes on to say that while San Jose has a very real retirement benefits unfunded liability (about $321 million by 2015-16), the fact that projections changed multiple times between February 2011—when Russell Crosby, director of Retirement Services, said “off the top of his head” that $650 million could be the worst-case scenario—and the end of last year could have confused June primary voters who overwhelmingly approved Measure B.
As a result, the report states, “Reporting multiple retirement cost projections in a short period may have caused confusion among the city’s stakeholders attempting to make informed decisions. For instance, it is unclear which retirement cost projection the voters relied on, if any, when they voted for these changes.”
This set off a tit-for-tat between the state auditor’s office and the city of San Jose’s City Manager Debra Figone, who described the city’s actuarial process as thorough yet constantly in flux over the course of 2011.
In an Aug. 8 letter responding to Howle’s report, Figone thanked the auditor’s office for validating the city’s pension crisis but added that “the city does not agree with the audit’s conclusion that its projections were ‘likely overstated.’
“The $400 million budgetary forecast in early 2011 was less than $431 million reported by an updated actuarial projection made later in 2012,” Figone wrote. “The City’s current actuarial projection of $320 million, approved by the two boards in early 2012, for the first time officially reflected the impacts of the devastating layoffs and salary reductions in June 2010 and June 2011 that combined to reduce overall payroll by 24%.”
The city manager added that “the audit did not present any campaign material that referenced or used any cost projections, and the report did not cite any evidence about speculative voter confusion. It is important to note that Measure B was not premised on any specific cost projection.”
Howle’s office then formed its own “oh, no you didn’t” response to Figone’s letter:
“We did not mischaracterize San Jose’s use of the $650 million retirement cost projection,” the report states. “Further, we disagree with San Jose’s assertion that it only used the $650 million retirement cost projection during a discussion about how high retirement costs could go at a City Council budget study session in February 2011. As we state on page 17, the mayor’s office reported in official city documents, in press releases, during a public presentation, and to news outlets that the city’s annual retirement costs could reach $650 million.”
The real questions now becomes: How will this affect legal challenges to Measure B?
Here is the State Auditor’s Report.