Napa Valley (CA) Register
Sunday, June 29, 2008
Napa risks bankruptcy unless pensions, benefits reduced
Grand jury report critical of city, county post-employee benefits
packages
By Jillian Jones
The city and county of Napa could
risk bankruptcy if they do not reduce their generous pensions and
post-employment benefits, according to a report by the Napa County
Grand Jury.
In order to avoid a fiscal situation like that of Vallejo, which
recently filed for bankruptcy, the grand jury said Napa County and
the city of Napa must reduce the escalating costs of employee
benefits.
The grand jury report also cites a conflict of interest on the part
of the Napa County Board of Supervisors and Napa City Council, who
are involved in compensation negotiations from which they directly
benefit.
According to the report, the city of Napa and Napa County pay 80
percent and 54 percent of their annual budgets respectively for
wages and benefits. The total cost to Napa County taxpayers for
county employee benefits over the next two years will be more than
$39 million, the report concluded. The estimated cost to fund city
employees' pension benefits is $44 million over the next six years.
The city of Napa has a budget of $60 million for 2008, and the Napa
County budget for 2008 is $247 million. "This commitment
significantly impacts the services that can be provided by these
local governmental agencies," the report said.
And these costs continue to rise, the grand jury found. The current
annual cost to provide medical benefits to retired employees, for
example, is $1.4 million, a more than six-fold increase since 2002.
The grand jury cites a $3.9 million funding gap for the city of Napa
during the fiscal year 2007-2008, and $3.7 million for 2008-2009, as
examples of the cost impact of employee benefits on other
governmental services.
Cuts being considered by the city, for example, could range from the
elimination of police positions to a reduction in economic
development, D.A.R.E. and library hours, according to the report.
"The grand jury sees two basic problems that need to be addressed to
avoid replicating the financial situation in Vallejo," the report
said.
When the Vallejo crisis reached its peak, city of Napa officials
said they believe the city is in a much better place.
City Manager Mike Parness acknowledged that retirement and public
safety costs are high in both cities. But he added that city
revenues exceeded expectations last year, and that the area's
tourist-based economy has weathered the current economic turbulence
fairly well.
Carole Wilson, Napa's finance director, said in March the city has a
$7 million operating reserve and is increasing funds to pay for the
long-term medical costs of retirees.
"This is a good cushion," Wilson said of the $7 million operating
reserve. "Vallejo drained off every last dollar" of its reserves,
she said.
Napa County has also managed its finances and obligations more
predictably and safely than did Vallejo.
Steps to take
First, the grand jury recommended, the city and county must reduce
costly pensions and post-employee benefits, which continue to
balloon exponentially. Second, they must address the problem of
mounting unfunded liability for both pensions and retiree health
benefits.
The report cites Napa County's unfunded liability of $52.5 million
for pension benefits and $34 million for health care.
The city of Napa has an unfunded pension liability of $49 million
and $2.8 million for health care, according to the report.
"This liability will continue to grow and if left unchecked can
adversely impact the financial integrity and borrowing ability of
the county and the city," the report said.
As baby boomers retire, the cost to taxpayers will continue to
increase, said the report. There are currently 322 retired Napa
County employees, according to the report, and the county estimates
that another 273 will retire in the next 10 years; there are
currently 318 retired city of Napa employees, and the city estimates
that another 54 will retire within the next five years.
To allay these costs, the grand jury recommends that both the county
and the city switch from a defined-benefit plan for pension benefits
to a defined-contribution plan for new employees, thereby reducing
the benefits they provide.
"Surveys disclose that on average, the governmental agencies pay
more in wages and salaries than the private sector but have not
correspondingly reduced their pensions and other benefits," the
grand jury wrote.
Further, the grand jury recommends that the county and city work
with unions to reduce the terms of pension plans which allow
employees to retire well before age 65 at a high percentage of their
salaries.
The grand jury also criticized the city and county for their methods
of negotiation.
While the report acknowledges that elected officials' involvement in
benefit negotiations is legally permissible, the grand jury claims
it is a conflict of interest for those who negotiate and ultimately
approve agreements with unions to benefit from those same
negotiations.
The Grand Jury recommends that the county retain an outside agency
to advise on wages and benefits for the Napa County Board of
Supervisors.
"Otherwise, conflict of interest concerns will cloud virtually every
wage and benefit action taken by the Napa County Board of
Supervisors," the report stated.
As with the county, the report recommends the city contract with an
outside entity to advice on wages and benefits for the Napa City
Council.
The city and the county, like all agencies studied by the grand
jury, must offer a formal response to the findings in the coming
months.
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