Unable to keep up with their payments, the Herald Fire Protection District Board of Directors voted unanimously on June 21 to terminate their contract with the California Public Employees’ Retirement System, which manages public employee pensions.
Lindsey Liebig, president of Herald Fire’s board of directors, said the final decision came after more than a year of negotiations with CalPERS failed to result in a payment plan that the fire district could afford.
“We had been working with CalPERS on an actual payment plan since we received the final evaluation in December 2017. However we had been asking for a payment plan since our initial vote to terminate in January 2016,” Liebig said.
CalPERS spokeswoman Amy Morgan said in an email that fewer than 100 agencies have ended their CalPERS contracts in the 80 years that CalPERS has existed, many of them small local agencies or districts such as Herald Fire.
“CalPERS contracts with nearly 3,000 public agency, school and state employers that represent more than 1.8 million members,” Morgan said. “CalPERS fully works with our contracted employers on many levels to provide them support and education about their pension costs ... Additionally, we also notify and communicate with the employers’ employees when an agency may possibly terminate their contract with us, so they have information about what may impact their retirement payments.”
When an agency terminates a contract with CalPERS, Morgan said, they must still make all payments required by said contract to fund pension benefits that were accrued before being released.
In order to pay the $437,966 in termination costs, known as “determination fees,” Herald Fire borrowed $460,000 from Five Star Bank, Liebig said, that includes a 15-year payment plan.
“We are very fortunate Five Star Bank was willing to invest in our district and community because now we have the ability to accurately plan for the future of our district and the needs of our community,” Liebig said.
The loan will be re-evaluated every five years, Liebig said, and Herald Fire can pay more than the minimum amount if they choose.
“We see no effects to taxpayers. By obtaining a loan at this repayment rate we can keep services to the district intact,” Liebig said. “Had we taken the payment plan offered by CalPERS our annual payment would have doubled and we would have been forced to make staffing cuts to our stations, which would have had a direct impact on our taxpayers. We have carefully budgeted to absorb this payment so that it maintains our current staffing model, training programs and operational needs.”
Susan Shelley, vice president of communications for the Howard Jarvis Taxpayers Association, said that the costs of pensions and other post-employment benefits have been rising in California because CalPERS promised more benefits than they can deliver, which has caused government agencies such as Herald Fire to end their contracts with CalPERS rather than raise taxes.
“Budgets are being squeezed. There’s a crowd-out effect that’s causing these agencies to either cut services or raise taxes,” Shelley said. “So, without knowing too much about this particular case, it would appear that (Herald Fire) decided it would be better for taxpayers to pay the determination fee.”
Taxpayers should contact their local elected officials to ask about CalPERS costs, Shelley said, and whether it would cost them more money to stay with CalPERS or end their contracts like Herald Fire did.