Just six months after the Joint Legislative Audit Committee in Sacramento requested the California State Auditor investigate concerns over the City of San José’s operating budget and pension obligations, findings have been disclosed. The report describes the figures cited by city officials and media outlets as ‘likely overstated’ and ‘unsupported.’ The city disagrees with those findings.
Much was said about the state of San José’s finances in the months leading up to a June vote on dramatically altering pensions in the city. That vote was approved by 70 percent of voters. However, the Auditor’s report questioned the information that was given to voters as part of the public debate. The city’s pension boards said the city’s out-year contributions could reach $320 million. The city said that including bond statements, out-year contributions could be as high as $400 million. The mayor and city budget planners cited as much as $650 million.
According to the report:
“The mayor and certain city council members referred to a projection that the city’s annual retirement costs could increase to $650 million by fiscal year 2015–16, a projection that our actuarial consultant determined was unsupported and likely overstated when assumptions approved by the boards of the two retirement plans are considered.”
“The City does not agree with the audit’s conclusion that its projections were “likely overstated,” wrote City Manager Debra Figone in the city’s official response to the audit. “The $400 million budgetary forecast in early 2011 was less than the $431 million reported by an updated actuarial projection made later in 2012.”
Figone went on to assert that the current actuarial projection of $320 million is only the result of an overall reduction of payroll – through layoffs and pay cuts that she described as “devastating.”
Additionally, the City contends that various numbers and calculations were produced for different internal purposes. For instance, the now infamous $650 million figure only became public after a news outlet submitted a public information request. Prior to that, the sum was used as part of a private study session on budgeting to reflect a worst-case scenario.
The auditors did say that in situations where official retirement projections were not used, the City should use accepted standards, and publish the full context of the projections’ use.
They went on to say that the dissemination of the augmented figures could have influenced voters’ choices on Election Day.
The City contested that assertion as well.
“The Audit speculates about what voters did or did not know regarding retirement cost projections when they approved Measure B,” wrote Figone. “However, the audit did not present any campaign material that referenced or used any cost projections, and the report did not cite any evidence about speculative voter confusion.”
To defend the city’s projected costs, Figone referenced a Santa Clara County Grand Jury Report that said that changes in actuarial assumptions could push costs even above the $650 million figure that was called “unsupported” by the Audit.
“The state auditor has confirmed what San Jose residents know from experience: San Jose is facing real financial challenges and increasing retirement costs have forced us to make significant cuts to core city services,” said Mayor Chuck Reed in a statement.
“As city leaders, we must be cognizant of pessimistic and worst-case scenarios, and numerous outside experts have agreed that our retirement costs could grow hundreds of millions of dollars higher than projected if things get worse.”
To that, the State Auditor agreed.
In her letter opening the report, she stated that, “Although we have concerns with some of San José’s projected retirement costs for future years, its actual retirement costs increased significantly from fiscal years 2009–10 through 2011–12.”