Report: Stockton Losing Experienced Officers

KCRA News reports the City of Stockton is facing a new problems after filing for bankruptcy.  According the report, "experienced police officers are leaving in droves."  A big part of the problem is that the "new cuts in the bankruptcy, essentially eliminating Senior Officer Pay, are causing a flight of officers, the veteran officers that you want to keep: they know the streets, they know the crime," according to Mastagni Law partner David E. Mastagni.  The recent attention to the flight of officer comes after bond holders argued employees aren't paying their fair share in the bankruptcy.  However, "I think if anybody's not bearing their fair share, it's the bond market," Mastagni said. "The cops are the ones out there jumping fences and putting their lives on the line."  Watch the full report here.

More Details Emerge About Pension Deal

Yesterday, Governor Brown and legislative leaders announced a sweeping deal to alter pension benefits.  The full text of the bill, AB 340, is now available.  The Legislature will vote on the 60-page bill Friday.

Statewide public safety groups have been critical of the bill.  PORAC President Ron Cottingham noted, "This attack on middle class families, including public safety employees, is unacceptable."  CPF President Lou Paulson stated, "these proposals go far beyond “reform”. Instead they threaten basic retirement security for generations of front line first responders and their families."

Brown, Legislature Announce Sweeping Pension Deal

Governor Jerry Brown and legislative leaders announced a sweeping pension deal that, if passed, would dramatically reshape public-sector pensions in California.  The so-called Public Employee Pension Reform Act of 2012 would eliminate 3 @ 50, introduce a 2.7 @ 57 formula for public safety, require employees to pay more of their salaries into pension funds and require new caps on pensionable salaries.  Several elements of the proposal are facing stiff criticism from labor.  For example, the pensionable salary component is a cap on  how much of a salary counts for credit, not a cap on pension benefits, penalizing people with high compensation, but low service credit.

According to the Governor, "If the Legislature approves these reforms, public retirement benefits will be lower than when I took office in 1975."  The Governor's Office put out the following summary of the deal:

Public Employee Pension Reform Act of 2012

Caps Pensionable Salaries

·         Caps pensionable salaries at the Social Security contribution and wage base of $110,100 (or 120 percent of that amount for employees not covered by Social Security).

Establishes Equal Sharing of Pension Costs as the Standard

·         California state employees are leading the way and are paying for at least 50 percent of normal costs of their pension benefits. Requires new employees to contribute at least half of normal costs, and sets a similar target for current employees, subject to bargaining.

·         Eliminates current restrictions that impede local employers from having their employees help pay for pension liabilities.

·         Permits employers to develop plans that are lower cost and lower risk if certified by the system’s actuary and approved by the legislature.

·         Provides additional authority to local employers to require employees to pay for a greater share of pension costs through impasse proceedings if they are unsuccessful in achieving the goal of 50-50 cost sharing in 5 years.

·         Directs state savings from cost sharing toward additional payments to reduce the state’s unfunded liability.

Unilaterally Rolls Back Retirement Ages and Formulas

·         Increases retirement ages by two years or more for all new public employees.

·         Rolls back the unsustainable retirement benefit increases granted in 1999 and reduces the benefits below the levels in effect for decades.

·         Eliminates all 3 percent formulas going forward.

·         For local miscellaneous employees: 2.5 percent at 55 changes to 2 percent at 62; with a maximum of 2.5 percent at 67.

·         For local fire and police employees: 3 percent at 50 changes to 2.7 percent at 57.

·         Establishes consistent formulas for all new employees going forward.

Ends Abuses

·         Requires three-year final compensation to stop spiking for all new employees.

·         Calculates benefits based on regular, recurring pay to stop spiking for all new employees.

·         Limits post-retirement employment for all employees.

·         Felons will forfeit pension benefits.

·         Prohibits retroactive pension increases for all employees.

·         Prohibits pension holidays for all employees and employers.

·         Prohibits purchases of service credit for all employees.

Court Limits Protections for Peace Officers Accusing Other Officers of Misconduct

In Dahlia v. Rodriguez (9th Cir., Aug. 7, 2012, 10-55978) 2012 WL 3185693, the Ninth Circuit decided the First Amendment does not protect a police officer who told an outside agency some of his colleagues went too far during interrogations.

Angelo Dahlia, a detective for the Burbank Police Department, accused other officers of excessive interrogation tactics. He told the Los Angeles Sheriff's Department that officers squeezed a suspect’s throat and placing the barrel of a gun directly under the suspect’s eye. Dahlia also claimed he heard noises coming from the interrogation rooms including yelling and the sounds of someone being hit. Dahlia was later placed in administrative leave.

Dahlia filed a federal civil rights lawsuit alleging unconstitutional retaliation. The Court concluded Dahlia's actions, as a part of his public employment, were not protected by the First Amendment because he failed to establish that: 1) his speech was “spoken in the capacity of a private citizen and not a public employee”; and 2) that placement on administrative leave constitutes an adverse employment action. The Court relied heavily on Huppert v. City of Pittsburg, (9th Cir. 2009) 574 F.3d 696.

The Ninth Circuit looked at the precedent setting case of Garcetti v. Ceballos (2006) 547 U.S. 410, which held that "when public employees make statements pursuant to their official duties, the employees are not speaking as citizens for First Amendment purposes, and the Constitution does not insulate their communications from employer discipline." Under Garcetti, the protection of the First Amendment is thus limited where the speech is “part of the core tasks that the employee is ‘paid to perform,’” but not where the speech is merely related to the speaker’s public employment.” Huppert, decided after Garcetti, went further. There, the Court held police officers have a duty to blow the whistle because they must disclose information regarding alleged misconduct and corruption. The Court criticized the Huppert, but it was required to follow the rule. Thus, the Court held Dahlia was acting within his professional duties, and not as a public citizen, when he accused other officers of abusive interrogation tactics, and his speech was not protected under the First Amendment.

The Ninth Circuit did make one favorable ruling to police officers suing for retaliation. The Court decided “under some circumstances, placement on administrative leave can constitute an adverse employment action.”  Importantly, the appeal was just about First Amendment rights. Other parts of the case dealt with state laws that also protect whistleblowers.

Stockton’s Eligibility for Bankruptcy Protection Challenged

On August 8, 2012, National Public Finance Guarantee Corporation filed an objection to the City of Stockton’s qualifications for bankruptcy under Section 109(c) of the Bankruptcy Code. National issued over $93,000,000.00 in lease revenue bonds, lease revenue refunding bonds, and revenue bonds. Today, August 9th, is the deadline for creditors to object to Stockton's eligibility for bankrupcty.

Challenges to eligibility typically involve disputes over insolvency and/or the requirement that the City negotiated with creditors in good faith during the 60-90 days of the AB 506 period. Federal bankruptcy law also requires good faith negotiations with creditors.

National argues the City did not negotiate in good faith with its creditors and did not file its bankruptcy petition in good faith. National accuses the City of “sheltering” its CalPERS pension obligations and not treating creditors equitably. National frames its objections as failing to negotiate in good faith with CalPERS, but argues that the pendency plan does not treat creditors equitably.

National’s claim of inequitable treatment appears premature as the Court must determine the City’s eligibility for bankruptcy, before considering the fairness of the plan of adjustment. In denying retirees facing the complete elimination of retiree medical benefits next year, Judge Klien an August 6, 2012 Opinion holding that “[s]ettled bankruptcy law permits the City to implement interim contractual modification before the confirmation of a chapter 9 plan of adjustment but such revisions do not, as a matter of law, become permanent unless and until made part of a confirmed plan of adjustment or otherwise voluntarily agreed.” Judge Klein noted that the remedy for addressing objections to the pendency plan is negotiating their treatment under a chapter 9 plan. The same reasoning would seem to apply to National’s objection to the treatment of CalPERS.

National’s argument also fails to account for the tens of millions of dollars in wages and benefits withheld from employee since 2010 through purported emergency actions unconstitutionally impairing labor contracts. These additional cuts reduced pension benefits, required employees to contribute up to 9% of their pay towards their pensions, drastically reduced medical coverage. The effect of these cuts is directly reflected in the City’s record breaking homicide rates and inability to retain or recruit police officers.

A status conference before the Judge will be heard on August 23, 2012 at 10:00 a.m. for trial setting for challenges to eligibility.

New Requirements for Governments on Reporting Pension Liability

Recently, GASB (Governmental Accounting Standards Board) approved two new pension accounting and reporting standards that will cause significant changes for how governments report defined benefit pension plans on their financial statements. This will affect all governments that provide benefits through single employer or agent plans as well as governments participating in multi-employer cost sharing plans. Historically, GASB required that governments disclose the amount of unfunded pension obligation in notes accompanying the financial statements. The obligation was not actually recognized on the financial statements themselves.

 Now, under the new standards, governments will be required to report the amount of unfunded pension obligations on their balance sheets. This liability, which equals the total pension liability less the amount of plan assets formally set aside for payment of benefits, will be required to be recorded as of the reporting date. In addition, the annual pension expense which will be based on a measurement of the annual cost of the pension benefits will be recorded on the income statement.

 In the past, the annual required funding amounts was reported. This will also affect governments participating in multi-employer cost-sharing plans on a proportionate basis. Statement No. 67 which affects reporting of pension plans that administer benefits for governments goes into effect after June 15, 2013. Statement No. 68 which relates to pension plan reporting by governments will go into effect after June 15, 2014.

Sacramento Business Journal: Mastagni Law Brings in Muscle to Audit Cities' and Counties' Books

The Sacramento Business Journal reports Mastagni Law has teamed up with forensic accountants to audit the books of cities and counties claiming financial problems.  The article profiles Shayleen O. Mastagni who came in-house at the firm after working as a Senior Vice President at Perry-Smith Accounting and Bridget Sanders, Senior Manager at the accounting firm Wallace Valuation Advisors. According to Shayleen Mastagni,  "The question is are you going broke or blowing smoke with financial obligations not due for 30 years?"  To answer that question, both women scrutinize the books to see if agencies are hiding money or facing legitimate financial problems.

Report: Corrections Furloughs Don't Save Money

A new report on the Oregon state prison system shows why furloughs in public safety don't save money.  The report puts in black and white what most public safety professionals already know: 24-hour operations require back-filling when regular staff are furloughed.  The report compared the cost of correctional staff with the cost of back-filling with extra help and overtime, revealing that furloughs cost the state more money than they save.