Two months ago we published a guest column by former La Habra Mayor Tim Shaw regarding the financial dangers facing the city of La Habra. The column prompted the current La Habra councilmembers to unleash a flurry of aggrieved responses – which widely missed the mark.
READ: Could La Habra Be Orange County’s Next Municipal Bankruptcy?
For example, Mayor Jose Medrano posted a video on Facebook alleging Shaw did nothing about the city’s unfunded pension liabilities during his council stint.
Not true.
Back in 2011, Shaw and other members of the city council significantly scaled back pensions, some two years prior to the Public Employee Pension Reform Act (PEPRA) being enacted statewide.
Such factual inaccuracies aside, Medrano’s main argument is La Habra is doing well financially, so nothing to worry about. That’s a bit of a red herring since Shaw did not claim the financial calamities were occurring right now, but that the city’s Pension Obligation Bond (POB) opens the city to massive exposure due to pending $100 million litigation against the city and the approaching sunset of the city’s sales tax in 6 years. These could wreak havoc on the city’s budget. But since the tax hasn’t expired, the lawsuit hasn’t concluded, and the bill from CALPERS hasn’t been sent yet, there is no immediate crisis.
Which brings us back to the wisdom of the La Habra City Council approving a POB in January of 2022, a few month after the Great Inflation began to rage. Since then the Dow has declined by 16%.
Remember that CalPERS put the $72 million check it received from La Habra back in January into its portfolio – which has not been doing well. Indeed, in its the last quarterly report, CalPERS reported a significant loss, with the overall funded status of pensions across the state falling from 82% funded to 71% funded.
The current La Habra council insists the POB will save $20 million over the life of the bond. This is true unless the present portfolio losses create a new unfunded liability, which seems more than a possibility given the economy’s trajectory.
Fortunately for the council incumbents seeking re-election, the pain won’t be felt until the start of the next fiscal year in July 1, 2023, when in all likelihood CALPERS will send a bill for the new liability, in addition to what the city will owe the bondholders for the $72 million bond.
The declining markets are hurting pension funds across the country. Economist Stephen Moore recently wrote, “More traditional pension funds also are getting flattened by inflation. At the beginning of this year, pensions in the US had $27.8 trillion in assets. Now, it’s under $24 trillion, a drop of about 15% that has wiped out the last two years’ worth of gains – nearly $4 trillion. Many union and government pension funds were already facing shortfalls to be able to pay promised benefits. The combination of high inflation and a bear market in stocks means insolvency is a real threat.”
Councilman Daren Nigsarian, who lost two races for city council before being appointed to fill the vacancy created by Shaw’s resignation, has aped Medrano’s argument with a critical exception: Nigsarian admits the council will ask the voters to approve a sales tax measure.
Nigsarian wrote, “Our sales tax expiration won’t take place for six years, and will be returned to the voters before then.”
Placing a tax measure on the ballot requires a 4/5 vote of the council. How can Nigsarian know there will four votes in favor of this? Privately discussing a vote with a majority of your colleagues would naturally be a violation of the Brown Act, the state law that requires transparency.
Putting that aside, what if the voters say no? The loss of that sales tax revenue would be a calamity for the city treasury – as Nigsarian, Medrano and other council scolds have disparaged Shaw for pointing out.
If the loss of the tax could be absorbed without tremendous difficulty, then what is the message to the voters? Vote “yes” on the tax even though we really don’t need it? He’s backed himself into a corner.
Councilman Steve Simonian, however, wins the prize for deepest dive into the sewer. At least Medrano and Nigsarian attempted to grapple with Shaw’s argument. Simonian has eschewed thoughtful debate in favor of ad hominem attacks that don’t merit recounting here. Suffice it to say they speak volumes about Mr. Simonian’s ill-temperament and contempt for dissent, while shedding little light on La Habra city finances.
Perhaps, though, there is a reason Simonian resorts to personal attacks. After all, why did La Habra find itself facing a $72 million unfunded pension liability? Because La Habra councilmembers, like those in virtually every municipality at the time, thought the “Dot Com Boom” of 1999-2000 allowed them to approve wildly-generous pension deals with public employee unions – and that the good times would continue to roll and allow them to avoid politically difficult choices.
When the “Dot Com” bubble burst and pension funds were no longer super-funded, government agencies were on the hook for larger than anticipated pension obligations.
Of the five current members of the La Habra City Council, only one was also on the council way back in 2000 when the council approved these ruinous pension deals: Steve Simonian.
Any thoughtful discussion of “how did we get here?” would have to recount Simonian’s vote to boost city pensions. Naturally, that’s a discussion he’d rather avoid and stick to hurling insults at the one guy asking the uncomfortable but vital questions about La Habra city finances.
