Editorial: Moraga-Orinda Fire District case is poster child for public pension reform MediaNews editorial Posted: 08/10/2009 12:18:32 PM PDT Updated: 08/10/2009 01:04:54 PM PDT The Contra Costa district attorney, grand jury and county retirement officials should investigate the actions of the Moraga-Orinda Fire District board that enabled Chief Peter Nowicki, who was earning $185,000 a year, to draw an annual pension of $241,000. And the directors of the fire district board need to stop blaming the state for all their pension problems and acknowledge that their own actions have exacerbated the situation. We're tired of hearing them say that their hands are tied after they, not the state, granted an outrageous golden handshake to their retiring chief. The full extent of their duplicity became clear with the acknowledgement of three board members that they knew Nowicki planned to retire when they approved a last-minute contract amendment that enabled him to spike his pension by as much as $40,000 a year. Fire board members have been trying to rationalize their action by saying that it was an equity move to put Nowicki's benefits on par with his battalion chiefs. That ignores that Nowicki was already earning more than his subordinates and that the new benefits were more generous than those provided the battalion chiefs. Moreover, it ignores that Nowicki and the board had previously negotiated a generous contract. The reason to give raises is to encourage the recruitment and retention of talented leaders. Even then, public agencies need to acknowledge that there are limits to how much they can spend. The sky is not the limit. And granting new benefits to departing employees makes no sense at all. It appears to be a gift of public funds. To add insult to taxpayer injury, the conduct of some of the board members as this information has come to light has been appalling. They're suddenly giving lip service to wanting to control retirement benefits. But they don't seem to understand the retirement system themselves and they've turned for guidance to, of all people, the chief, Nowicki. That's right, after helping Nowicki retire with a sweetheart pension, the board has turned around and hired him back as a contract employee at an additional $176,400 a year — on top of his $241,000 yearly retirement. For his part, Nowicki has, not surprisingly, dragged his feet on helping the board seriously examine the pension system that will allow him to live like a king the rest of his life. Clearly, it's past time for Nowicki to go. He should be fired immediately. At the same time, the board members have tried to duck public scrutiny. Director Brook Macinelli said he didn't have time to answer our questions. Director Fred Weil, with one brief exception, did not respond to telephone and e-mail inquiries. And Director Pete Wilson says he sees nothing wrong with the last-minute contract amendment. At least Directors Frank Sperling and John Wyro show some sign of concern about what has transpired — although Sperling continues to circulate inaccurate information to the public that grossly understates the financial effects of the board's action. There is no question that elected officials trying to navigate the public employee pension maze face a complex set of state laws and court rulings. There is no question that changes are needed at the state level. But it's simply a lie to claim that there's little that can be done at the local level to improve the situation. If the board members, and any other public officials, can't take the time to understand the pension system and won't act in the public interest, they should step aside or be recalled. And there's no excuse for becoming co-conspirators helping public employees — especially highly paid managers — become wealthy at taxpayer expense. Retirement officials should disallow the increases to Nowicki's pension that were created by the contract amendment. And the district attorney (who, unfortunately, is also a double- dipper) and grand jury should determine whether any laws were broken. It's time to get serious about pension reform. The Nowicki case is a good place to start. Daniel Borenstein: Fire board aided chief's pension spike By Daniel Borenstein Staff columnist Posted: 08/09/2009 12:01:00 AM PDT Updated: 08/09/2009 10:52:10 AM PDT Moraga Orinda Fire District Fire Chief Pete Nowicki poses... (Nader Khouri/Contra Costa Times, File) THREE DAYS BEFORE the chief of the Moraga-Orinda Fire District announced his retirement, the Board of Directors approved benefit changes to his contract that had the effect of spiking his pension by as much as 20 percent, increasing his annual retirement pay by about $40,000 to $241,000 a year. According to three board members, the directors knew when they approved the contract amendment on Dec. 10, 2008, that Chief Pete Nowicki was planning to retire. Indeed, Director Pete Wilson said the board members deliberately made the changes to help Nowicki increase his pension and that the chief presented them with calculations documenting the effect. One might understand giving the chief what amounts to a raise to retain him. But boosting his compensation when he was headed out the door is unconscionable. Director John Wyro told me that the directors never saw calculations of the financial effect of the changes they were approving. Their goal, he said, was to give Nowicki benefits that his battalion chiefs already enjoyed. In fact, they gave him much more. It all raises questions that District Attorney Robert Kochly and the Contra Costa County Grand Jury should investigate about whether the contract amendment constituted an illegal gift of public funds. Moreover, the Contra Costa County Employee Retirement Association, which administers the fire district's retirement plan, should review Nowicki's pension. Finally, there's the question of whether Nowicki hoodwinked the board. "Did I fully understand ... the full impact to his pension? I did not fully understand the impact," Director Frank Sperling said. "I wouldn't say we were taken by the chief. I would agree the chief understood the pension system better than I did." Wyro and Wilson added that the board members relied on Nowicki's representations that the contract amendments would put his benefits on par with his top subordinates, the battalion chiefs. They never independently verified his claims. That's pretty amazing: While negotiating a contract with their fire chief, the board members relied on that very person for their information. The board unanimously approved the contract amendment. Nowicki and Director Fred Weil did not respond to telephone and e-mail inquiries. Director Brook Mancinelli said he didn't have time to answer questions. Nowicki's tenure as chief began in 2006, when he and the district agreed to his original contract. That document was amended in February 2008 and then again in December. The negotiations between the chief and the board over the second amendment lasted several months, during which time Nowicki revealed his plans to retire. Nevertheless, Sperling said, "My intention of approving the second amendment to the contract was to provide for appropriate current compensation and I did not take into consideration pension implications." The amount of Nowicki's exorbitant pension has been known for months. I reported in April that he had converted a $185,000 annual salary ($194,400 with adjustments) into a $241,000 yearly pension. I spelled out the spiking methods, which included selling back unused vacation and holidays hours. He not only received cash for the unused time, the payments were applied to his final year's salary used for his pension calculation. What's new is that much of sell-back was made possible by the second amendment to his contract. The amendment was first uncovered in July by the local firefighters union and was subsequently mentioned by The Wall Street Journal in a recent article on pension spiking that featured the Nowicki case. Until now, however, it was not publicly known that the directors were aware of Nowicki's retirement plans when they approved the contract amendment. And there has been no public calculation of the effect of the amendment on his pension payments. Exactly how much it increased his pension has been difficult to determine because Nowicki and the district have stalled responses to specific questions and records requests. That said, most of the financial effect can be calculated by examining the contract amendments and records on file with the retirement association: Vacation buyback. In the February 2008 contract amendment, Nowicki was granted a one-time buyback of 200 hours of vacation leave. But in the December 2008 contract amendment, that amount was increased to 260 and allowed annually. (In contrast, battalion chiefs are allowed 196 hours annually.) The effect was to allow Nowicki to sell back an additional 320 hours of vacation. The income from those sales counted toward final-year salary when calculating his pension, thereby boosting his annual retirement pay by $25,280. Administrative leave. In his original contract, Nowicki, like his battalion chiefs, was specifically prohibited from carrying over from year to year his 80 hours of administrative leave. It was "use it or lose it." But in the December 2008 amendment, that was specifically changed to allow him to accrue administrative leave and convert it to vacation leave. It's unclear from the contract amendment whether Nowicki was entitled to convert 80 or 160 hours when he retired. But if he converted 80 hours to vacation and then received a payout for it upon retirement, that would have added $6,320 to his annual pension. Floating holiday. In his original contract, Nowicki was granted the same 10 paid holidays each year as other administrative and clerical positions. In the December 2008 contract amendment, Nowicki was increased to the 13 holidays granted to battalion chiefs. More significantly, under the original contract, if he worked the holiday he was entitled to take a different day off within two months. He could not accrue the time beyond that. Under the amendment, he was entitled to accrue a year's worth of holidays, retroactive until January 2008, which he could cash out upon leaving. When Nowicki's pension was calculated, he was credited for all 13 holidays. The effect of this was to add $8,216 to his annual pension. Wyro said he was "shocked" to learn from me that the changes spiked Nowicki's pension by 20 percent. "It would have been better to know what that number was going in so we could have made a more-informed decision." Wilson, on the other hand, was unmoved by the figure. "Yeah, so what's the problem?" he said. Three days after the board agreed to the contract changes that had implications Nowicki apparently understood better than the directors, the chief sent out an e-mail announcing his official retirement. In an amazing display of hypocrisy, Nowicki bemoaned the system that paid him more to retire than to keep working. "The concept is akin to the government paying farmers not to grow crops ... ," he wrote. "Nonetheless, I've reached that financial plateau and it's no longer economically feasible to continue in my current capacity." The epilogue to the story is that Nowicki started drawing his pension and the board hired him back as interim chief under a $176,400 annual contract that remains in effect today. Board members say they are concerned about rising pension costs and, believe it or not, have turned to Nowicki to help them understand what to do about it. Borenstein is a staff columnist and editorial writer. Reach him at 925-943- 8248 or email@example.com Daniel Borenstein: Pension spiking out of control By Daniel Borenstein Staff columnist Posted: 08/02/2009 12:01:00 AM PDT NEW DATA RELEASED under court order reveal a shocking pattern of pension spiking by top officials of the San Ramon Valley Fire Protection District that should alarm residents and prompt taxpayers across California to ask whether public employees in their communities are similarly benefiting from broken retirement systems. The numbers show that two fire chiefs, a deputy chief and an assistant chief who all retired in the past seven years are now each bringing home annual pensions of roughly a quarter-million dollars or more. The pensions far exceed the base salaries the officials were earning during the final year of their employment. Specifically: who retired in 2002, currently collects a pension of $249,374 a year. His final year base salary was $196,264. Deputy Chief Christopher Suter, who retired in 2006, currently collects $260,980 a year. His final year base salary was $174,475. Assistant Fire Chief Michael Sylvia, who retired in 2006, currently collects $245,502 a year. His final year base salary was $166,173. And, as I've previously reported, Chief Craig Bowen, who retired in 2008, currently collects $283,958 a year. His final year base salary was $222,507. All four are beneficiaries of a generous retirement formula for police and firefighters that started at the state level with the California Highway Patrol in 1999 and has since spread to local public safety workers throughout the state. On Probert's watch, the San Ramon Valley fire district implemented the change in 2000, less than two years before he walked out the door as a major beneficiary of the policy he strongly advocated. Under the formula, known as "3 percent at 50," employees can retire starting at age 50 with a pension equal to 3 percent of their final year's salaries for every year they worked. Thus, in theory, under the new rules someone who worked 30 years could retire with 90 percent of salary. (For the San Ramon Valley district, the new formula represented a 50 percent boost for people who retired at age 50.) In practice, the benefit is even richer than that, as the new numbers from the San Ramon Valley district demonstrate. By increasing their final year pay and adding in unused sick leave to raise their years of service, the officials were able to further boost, or "spike," their pensions by 24 percent to 49 percent. Those numbers can be calculated from records released after a taxpayer group, California Foundation for Fiscal Responsibility, sought the names of pensioners who are receiving $100,000 or more annually from the Contra Costa County Employees' Retirement Association. The San Ramon Valley district is a member of the association. One of the pensioners, a retired captain from the county Sheriff's Office, sought a court order to block the release. The Contra Costa Times, Los Angeles Times and the California Newspaper Publishers Association joined the taxpayer group in successfully arguing for disclosure. The data revealed that 432 of the retirement association's 7,012 pensioners receive $100,000 or more annually and 10 collect more than $200,000. The four retired San Ramon Valley fire district officials top the list. It's not just the pension amounts that are startling; it's also the details of how they grew. The pensions increase quickly in part because for every dollar of salary added to final year pay, almost a full dollar is tacked on to the retirement benefit each subsequent year. Thus a $1,000 raise in the final year could translate to $30,000 in additional pension benefits over a retiree's remaining life. The salaries used for computation of Suter's, Sylvia's and Bowen's pensions were each increased by enhancements such as management pay and standby pay. These are redundant benefits that essentially provide extra compensation for performing work that is fundamental to the job. They are unnecessary and should be eliminated, especially because, once implemented, they live on permanently as part of the employees' pensions. Bowen also spiked his pension by selling back unused vacation. The sell-back policy was established on his watch as chief and he promptly took advantage of it. When he sold vacation twice during his final year of employment, it counted each time toward his income for his pension calculation. Vacation sell-back is a policy that should also be rescinded. Employees should be told to take their vacation or lose it. The same can be said for the auto allowance, a policy that was also established on Bowen's watch. Paying Bowen annually for using his own car rather than providing him one owned by the district means that he will be able to collect that amount each year for the life of his pension. In essence, the district is providing him money for a free car in retirement as well. The biggest spikes to the pensions of all four officials were their termination payouts for unused administrative leave and unused vacation. (In Bowen's case, the termination payout for unused vacation was in addition to the separate, earlier sell-back of additional unused vacation.) Policies that allow counting such termination payments toward pension calculations are essentially gifts of public funds. The state Court of Appeal has said that termination payments need not count toward pension calculations. Public agencies should stop giving the money away. Finally, the other key factor in the pension calculation is the number of years of service. For that, the fire district allows employees to add unused sick leave to their years of service. Each of the four officials had between one and two years of unused sick leave, which enabled them to boost their pensions 4 percent to 6 percent. The application of unused sick leave to retirement calculations is generally unique to the public sector. It's a practice public agencies could, and should, end. In sum, pension payouts in the San Ramon Valley fire district stem from a pension system out of control. Sadly, the district is not unique. However, prompted by my earlier column about the pension of former Chief Bowen, the San Ramon Valley district board is re-examining its retirement benefit policies. The board will hear from consultants it has hired when it meets at 7 p.m. Aug. 25 at the district Administration Building, 1500 Bollinger Canyon Road, San Ramon. Show up if you care. We'll see if directors are serious about reform. As the new data show, they ought to be. Supervisors' negotiation skills take hit By Matthias Gafni Contra Costa Times Article Launched: 05/19/2008 07:43:02 PM PDT For the fifth year in a row, the Contra Costa County grand jury has recommended that county supervisors tackle the mounting unfunded liability for employee health benefits, stressing the need for tough union negotiations. With nearly all the county's 39 union contracts expiring in September, the county must make its move now to chip away at the projected $1.74 billion financial morass, according to the grand jury. In addition, the county's government watchdog is not too sure that the supervisors are up to the challenge, according to its report, released Wednesday. "Supervisors have said that they have learned their lesson, that they will do better, and that they are on the road to fiscal sanity. Their record says otherwise," the report states. In the past several months, the supervisors approved labor contracts with three unions — United Professional Firefighters Local 1230; Contra Costa County Deputy District Attorneys Association; and California Nurses Association — without "any meaningful steps to address out-of-control health benefit costs, attributable largely to the generous union agreements." The report also accused unnamed supervisors of meddling in those negotiations for political reasons. "[Supervisors] that have the best interests of county taxpayers in mind are powerless to accomplish the necessary tasks when other supervisors seem more interested in union political support and its impact on the next election," the report stated. Grand jury foreman Jerry Holcombe declined to specify which supervisors allegedly "undermined" negotiations, nor would he detail how, but he stressed the importance of future dealings with unions. "The problem is so large they literally can't take their eyes off the ball," Holcombe said. The fiscal nightmare stems from the county's retiree health care benefits, referred to as Other Post Employment Benefits. Because of "historically generous health care benefits," retirees and their dependents receive the same medical benefits as active employees and their dependents. With health care costs soaring, employees living longer and retiring earlier, the program was not sustainable for the county's nearly 8,600 active and 5,800 retired employees, according to the grand jury. Supervisors were first briefed by county staff members on the pending crisis in 1994 but did nothing for a decade. Now, the daunting $1.74 billion figure exceeds the county's entire $1.2 billion annual budget and is nearly equal to the unfunded liabilities for Alameda, Orange and San Diego counties combined, according to the grand jury. Two years ago, the estimate was $2.57 billion. But new assumptions along with the supervisors' decision this month to tighten unrepresented workers' health care benefits dropped those projections. The county has been paying health care premium costs on a pay-as-you-go plan, akin to paying the interest only on a credit card bill. This fiscal year, the county decided to earmark $20 million to paying off the unfunded liability, in addition to its pay-as-you-go liability of $130 million. Supervisors said they hoped to pay off 40 percent of the estimated $1.74 billion in 30 years. Some call the 40 percent goal a good start, but the grand jury recommends developing a plan within the next six months to raise the target to 85 percent. "Pre-funding 85 percent would devastate the county's services," said Supervisor Mary Nejedly Piepho, adding that the board already approved more than $50 million in budget cuts to meet the lower target. The long-term fix, according to the report, is to rein in union contracts by taking a "fiscally prudent and tough negotiating position "... and then stick to it." Roland Katz of Public Employees Union Local 1 likened the grand jury report to "saber rattling," claiming that it jeopardized a productive negotiating climate. Contra Costa slashes budget By Sandy Kleffman Staff writer Article Launched: 05/06/2008 01:41:20 PM PDT MARTINEZ — A day of tough decisions for Contra Costa supervisors ended Tuesday with unanimous approval of a county budget that will slash nearly $51.7 million from programs serving thousands of residents. The supervisors also decided to clamp down on rising health care costs for nonunion employees and managers by capping premium subsidies beginning in 2010 and making other changes. They acted despite vigorous protests from more than 100 current and retired workers who packed the meeting room. "I understand the pain you're feeling, but ultimately it's a tough balance that we're trying to achieve," Supervisor John Gioia told the crowd. For the first time in a decade, county spending will drop next year. It had been rising by 7 percent annually. But as the economy falters and the housing market implodes, revenue and expenses will dip by 4 percent. All told, that represents an 11 percent shift from a typical budget year. With no changes, the supervisors approved the deep cuts recommended by County Administrator John Cullen in a $1.3 billion budget, including: Closing three mental health clinics in East, West and Central County. Discontinuing county involvement in the Multi Service Senior Program, which provides home visits for the frail elderly. Eliminating 25 beds in a Richmond homeless shelter. Giving county health leaders permission to explore contracting out mental health services at the county hospital and jail, although no final decision was made on this issue. "The bottom line is that everybody we serve is vulnerable in one way or another," Supervisor Mary Piepho said. "These are Solomon-like decisions. Not one of them is easy." The budget will eliminate 192 positions, but most of them have been vacant because of a hiring freeze, Cullen said. Beginning this week, 30 employees will be notified that their jobs will be eliminated. Not all of those workers will be laid off because some will have seniority and be able to obtain other county positions, Cullen said. He could not estimate the number of layoffs. Additional jobs will be lost if health services director Dr. William Walker proceeds to privatize some services. Proposals include contracting out health care and mental health services at the jail, and closing the psychiatric unit at the county hospital and building a new facility nearby that a private organization would run. The supervisors gave Walker permission to seek proposals for such changes but stressed that they will be brought back to the board for a final vote. The budget includes $4 million in savings from such privatization. Critics argued Tuesday that instead of having such services run by a community-based organization, it is likely to go to a large private company that will save money by cutting corners and providing lower pay and benefits. "The $4 million is not a real number," said Rollie Katz, business manager of Public Employees Union Local 1, the county workers' largest union. "You have no idea if you're going to save $4 million." Other speakers argued for maintaining the current mental health services at the jails, saying the county will lose control and the expertise of longtime employees if it contracts out such services. "We are part of the solution and not part of the problem," said Judith Jones, a mental health clinical specialist. The supervisors said they hope to restore some of the cuts by convincing the city of Richmond to help fund the homeless shelter beds, for example, and having the state contract with another organization to run the Multi Service Senior Program. But they also noted that these cuts are just the beginning. The county is bracing for millions of dollars more in losses when lawmakers complete the state budget this summer. The approved budget sets aside $20 million to help lower a large liability for retiree health care. The supervisors took other action Tuesday to reduce employee health costs, including capping premium subsidies for nonunion employees at the 2009 level. These changes will also apply to the supervisors and county managers, including Cullen. Before the cap goes into effect in 2010, a task force will explore ways to revise the benefits package to get the most for the available money, Cullen said. Employees hired after Dec. 31, 2008, will no longer have a county premium subsidy upon retirement. Cullen said these and other changes have helped drop the county's unfunded liability for retiree health care from $2.6 billion to $1.7 billion. He hopes to negotiate similar changes in the plans for union members later this year. Employees called the cuts "draconian" and said it may force people to go without health insurance and seek care in the county hospital's emergency room, a costly way to provide services. "No one (else) is talking about these kind of cuts," said Bob Britton of Professional and Technical Engineers Union, Local 21, which is attempting to organize the county's nonunion workers. "You're racing to the bottom. "... The best employees will leave and you'll be sorry." The supervisors responded that if they don't reduce employee health care costs, they would be forced to make deeper cuts in vital services for the poor. The budget shortfall "has forced us to look at new ways of doing things," Supervisor Gayle Uilkema said. "Right now, this is discouraging. "... But the reality is, the world is going to be brighter from Contra Costa's view if we stop digging a (financial) hole." Reach Sandy Kleffman at 925-943-8249 or firstname.lastname@example.org.