State Auditor Calls Worst-Case Scenario ‘Unsupported and Likely Overstated’

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.

Josh Koehn is a former managing editor for San Jose Inside and Metro Silicon Valley.

11 Comments

  1. I would like to see some common sense out of the city leadership and the unions. One would think that the city might offer increased taxes and the unions would in return go with increased contributions and eliminate or reduce COLAS until pensions reach an agreed level of funding.  They could agree to set benchmarks that allow gradually reduced contributions and increasing COLAS. Something concrete, instead of this nebulous “fiscal emergency” criteria. This Mayor seems to be intent on leading the City toward another financial crisis, (San Jose will lose in court regarding the COLAS and possibly the vested rights of current employees) since he takes a position of “my way or the highway”. They are going also going to lose the current court case on the sick leave payout for sick leave that was earned.  Elimination without negotiation was stupid.  They could have frozen current levels, allowed employees to use sick leave to retire early after signing a waver not to be part of a lawsuit or possibly negotiated a percentage reduction in payout.  Now they will pay more because they don’t negotiate when they should negotiate.  Courts aren’t stupid.  Pity there isn’t a real political leader around.  This Mayor reminds me too much of Lieutenant Commander Phillip Queeg out of the movie “The Caine Mutiny”.  The guy on this council that should be leading negotiations is Liccardo (a very smart cookie) but he must have his reasons for following Reeds lead. I’m not a big fan of his but I do respect him. It seems like too many of same people that preached they could build a new City Hall for free are still a majority of San Jose’s political leaders. I try not to engage in personal invectives but after several years of observation in the Mayors “Queeg” style of negotiating and public relations I’ve had enough.

  2. Campos suggesting San Jose get help from the Highway Patrol and then the state auditor findings.

    Bad news day for Mayor Reed.

  3. Actuarial tools, used properly by those who understand them, are reasonably accurate.  In this endeavor, Fig-One and her band of jamokes were about as effective as a Ouija Board… but what else is new?!

  4. Hey Mayor Reed if you still in denial that you lied repeatedly,,, we can show you newspaper clips, magazine articles, video from news media. Your Stanford study showed you showing a slide of the 650 million projection. We can show you slides from when you are at city hall showing the 650 million…

    How about letting the officer that protects you go back to the street… we only at 30 homicides and the understaffed PD could use some help.

  5. This is more than lying about 650 its about bond holders and ratings.. Be nervous Chuck Reed and all the blind follower because the Securities and Exchange Commission may be calling you soon to answer some tough questions. I thought Liccardo was smarter than this. Its too late for him to distance himself from this mad man. He has follower Reed with his nose up his posterior for too long…. The voters are gonna have an ugly taste in their mouths for this pretty boy. And lets not get started on Rose Herrera. This woman is still sniveling how the police dept turned their back on her. Another self serving lunatic ….

  6. Nice… taxoayers money wasted to comfirm what many of us knew and have beed repeating on this website and others,  to to reporters at the Merc ans elsewhere, and to pretty much anyone anywhere when we could get a word in edgewihere…

    Mayor Reed is a LIAR!  He lies about big things when there are accepted methods of examination to refute his “unsubtantiations and overstatements…”  With that in mind one has to wonder what else he has been or currently is lying about.

    Reed cannot even tell the truth about the words published in the State auditor’s report.  A liar is a liar is a liar…

    Josh and Dan… you could have been way out front on this instead another “Drudge and the blue dress” moment passes “reporters” by.

    What’s the latest on your newsracks?

  7. well even though I believe the Mayor deserves every name you can call a lying crook. He isn’t the only idiot you still have Pete Constant and oliverio just to name a few. My focus is on the media that supported measure B. it appears that the FLY just got swatted. There are a lot of good people that supported this garbage measure because of what you people told them.
    I hope you enjoy what is happening in San Jose. make no mistake this isn’t a crime spree,it’s the beginning.
    I’ll ask you this do you still think pro-active COPS don’t make a difference. just look around no pro active cops 32 homicides and counting.

  8. Looks like Reeds attempt to get Measure B into federal court just got its legs cut off.  The California courts just handed their first decision to the SJPOA by denying the citys motion.  In addition, the SJPOA will get their money back for that first fight and the city will not.

    Off the top of my head…that’s going to cost Reed’s funding groups about 100K.  Open up your checkbooks boys because, based off what the California authorities are putting out, Reed’s going to get his ass handed to him in California Courts.

    Like we all knew, Measure B is going get decided in the courts, not at the polls.

    • The court ruled the same for AFSCME. The City tried to get a stay…DENIED. If the City were smart, they would simply cancel Measure B and try to negotiate fairly, but the mayor’s stubborn streak is too great. He will take the City down rather than give in. Look how many top people in top places who warned him…other mayors, lawyers and more, and it did not do any good. He was hell bent on trying to make a name and it backfired. I wonder if all those magazines and radio stations are letting the nation know about the failings. They were so intent on finding out what was going to happen in San Jose. Now they know.

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