A worried Herald Fire Protection District board discussed the possibility last week that the fee for leaving CalPERS may be around $400,000, an amount some members fear could push the small district in southern Sacramento County into bankruptcy.

Earlier this month, Transparent California reported that the suburban Sacramento Metropolitan Fire District has 216 retirees receiving annual pensions of $100,000 or more, and a dozen of those are $200,000 or more.

Sacramento Metropolitan was formed from 16 smaller fire districts, several in rural areas similar to Herald. How the large consolidated district and tiny Herald evolved in such drastically different ways might make a good case study of local government efficiency.

Now Sacramento Metropolitan provides some of the most generous pensions in the state. The Herald district, which approved a $655,000 budget last week, filed to leave CalPERS in January 2016 because pension costs were becoming unaffordable.

On the Transparent California list of the 25 local governments with the most annual pensions of $100,000 or more, Sacramento Metropolitan ranks above the city of Sacramento, which is 13th with 167 pensions. The highest is former police chief Rick Braziel at $198,412.

Sacramento Metropolitan also ranks above two large regional districts. The Metropolitan Water District of Southern California is 15th with 159 pensions of $100,000 or more, a half dozen above $200,000. The highest is Gilbert Ivey, $298,233.

The San Francisco Bay Area Rapid Transit District is 24th with 133 retirees receiving pensions of $100,000 or more. Three of the pensions are above $200,000, topped by Gary Gee, $218,666.

Sacramento Metropolitan says it’s the seventh largest fire agency in the state. The only other fire district on the top 25 list, Alameda County, ranked 25th with 126 pensions of $100,000 or more, led by Daniel Berfield, $172,475.

The Alameda County Fire Distict has a smaller staff than Sacramento Metropolitan, 450 compared to 700. But it covers a higher-cost area, particularly for housing, that includes San Leandro, Newark, Union City, Emeryville, Dublin and the unincorporated area of the county.

Sacramento Metropolitan covers eastern and northern Sacramento County and a tiny piece of Placer County. It’s 358 square-mile service area has a population of 738,000 and includes Rio Linda, Citrus Heights, Orangevale, Fair Oaks, Carmichael, and Rancho Cordova.

So, why does Sacramento Metropolitan have what seems to be an unusually large number of retirees with high pensions: 216 receiving $100,000 or more a year, and the top dozen receiving $200,000 or more?

A spokesman said Sacramento Metropolitan firefighters tend to work a full career of three decades. “We do have a higher percentage of employees who reach that level,” Capt. Chris Vestal said in a brief interview, cut short.

Five years ago, a former Sacramento Metropolitan Fire chief, Kurt Henke, was among the local officials who successfully urged the CalPERS board to phase in a lower investment earnings forecast over two years, softening the impact of an employer rate increase.

Henke told the CalPERS board that Sacramento Metropolitan had closed six of 42 fire stations, cut the budget from $159 million to $132 million, and obtained $28 million in labor concessions.

He said the proposed rate increase would cost his agency $2 million to $2.5 million, adding to an expected loss of $6 million in revenue as Sacramento area property values continue to drop.

“You have a lot of local agencies that are on the verge of economic hardship and/or bankruptcy, and to implement this in one fell swoop would push a lot of those entities over the edge,” Henke said.

Top Sacramento Metropolitan pensions (Transparent California)

Herald has told the California Public Employees Retirement System that a termination fee of around $400,000 might push the small fire district into bankruptcy, said Lindsey Liebig, the Herald board chairwoman.

After filing to leave CalPERS last year, Herald waited the mandatory year before completing the exit in January. Liebig said the district was told to expect a final termination fee in four to six weeks.

But Herald is still waiting for the termination fee that could determine its future. The district has retained an attorney and is contesting some of the seven or eight former employees CalPERS thinks are eligible for a pension.

A CalPERS spokeswoman, Amy Morgan, said via email: “The District found some discrepancies for the termination valuation data (i.e., contesting employment classifications, compensation, and dates of employment) that CalPERS is validating in order to issue an accurate final termination valuation.”

Presumably, CalPERS is proceeding wtih caution because it recently cut pensions for the first time when termination fees were not paid by a tiny Sierra town, Loyalton, and a disbanded job-training agency, LA Works.

Herald could be the third round of CalPERS pension cuts, compounded this time by putting a small fire district out of business. But letting Herald off the hook could set a precedent at a time when local governments are struggling with rising pension costs.

The termination fee, due in a lump sum, is controversial. Employers and employees no longer contribute to a terminated pension plan. So CalPERS says the fee must be large enough to invest and cover all of the future costs of pensions.

If the termination fee is not paid, CalPERS cuts the pensions to the amount covered by the employer’s pension fund. The Loyalton pensions were cut by about 60 percent, currently being replaced by city payments, and LA Works pensions were cut by 63 percent, not being replaced.

In 2011 CalPERS sharply increased termination fees. The investment earnings forecast used to calculate the fee was dropped from the regular forecast, now 7 percent, to a risk-free bond rate, now 2 to 3 percent in the termination fee estimates in annual plan valuations.

Several cities, notably Villa Park, considered exiting CalPERS but balked at the high termination fee. The judge in the Stockton bankruptcy called the fee a “poison pill.” Others refer to the old “Hotel California” pop song: You can check in, but you can’t check out.

With new leadership, the Herald district is still responding to a county grand jury report in 2014. “A Firestorm Raging in Herald” said the close-knit community had been torn apart by two years of criticism of the district.

The grand jury said a bank account was not revealed to the county finance department or auditors. Firefighters were not given due process. Staff did not respond to a subpoena for financial information. And the board did not candidly respond to the public at meetings.

Last week, Liebig said a grand jury followup in June criticized the district for not budgeting money for the CalPERS termination fee. She said that would be difficult when the fee amount is uncertain and the district is continuing to spend to make more improvements.

Herald now has only one full-time employee, an administrative assistant, said Liebig. About 30 volunteer firefighters are paid by shift and per call, providing 24-hour staffing with one to three firefighters depending on the shift.

Previously, she said, three full-time firefighters only provided staffing Monday through Friday from 8 a.m. to 5 p.m. Last month the district, which has a 96 square mile service area, responded to 45 calls.

In discussions with CalPERS, Liebig said, estimates of the CalPERS termination fee have ranged from zero to about $400,000. She said the district is in “limbo” while waiting for a fee that may determine whether it continues to operate, closes, or merges with another district.

“I wish they would give us some sort of news, whether it’s good, bad or ugly,” Liebig said.

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Originally posted at Cal Pensions.