MOORLACH UPDATE — SB 671/Prepayment — May 14, 2017

Governor Brown’s proposal this past week, to use funds earning less than one percent to pay down a debt that is accruing currently at 7.5 percent, is the talk of the town. The LA Times has a regular Sunday column that covers the Capitol and the topic dominated the first piece below. It even included a reference to SB 671 (also see MOORLACH UPDATE — Repealing the Cap — May 7, 2017 may 7, 2017 john moorlach).

I’ve been challenged to submit the reasons for my support of this $6 billion prepayment in an editorial, so expect to see it in the next few days.

Sometimes I receive media calls on random topics where I may be of assistance. I told the San Francisco Chronicle reporter that the individual featured in the second piece below should have been promoted to management, then there would not have been an overtime concern. This was not mentioned. But, you’ll love how Oakland’s sloppy management team tries to rationalize what occurred. You won’t believe how absurd the subject matter is, so I had to inject some reality into the discussion.

Political Road Map: Here’s how (and why) the state is making a $12-billion pension payment next year

By John Myers

http://www.latimes.com/politics/la-pol-sac-road-map-california-pensions-payment-20170514-story.html

http://www.sandiegouniontribune.com/news/us-politics/la-pol-sac-road-map-california-pensions-payment-20170514-story,amp.html

If you’re a homeowner, you’ve likely had someone suggest that the easiest way to lower your long-term debt is to make an extra mortgage payment. Thanks to the miracle of compound interest, your total costs in the long run go down.

Last week, Gov. Jerry Brown essentially decided that it was worth applying the same principle to the state government’s debt for the pensions of its employees.

To do so, the governor’s newly revised state budget includes an almost $12- billion payment in the coming fiscal year to the California Public Employees’ Retirement System (CalPERS). Part of that amount is mandatory: a $5.8- billion payment required by law to cover retirement promises that were made to workers, in some cases, decades ago.

The mandatory portion is about 75% more than what the state was paying just five years ago. And for all of the complexity involved with pensions, there’s a simplicity to the math. There are only three pots of money from which to pay pension commitments: employee contributions; employer contributions (which is the state government and, thus, means taxpayer money); and investment returns on CalPERS’ $320-billion portfolio.

Those pension investments have failed to live up to expectations. Last fall, CalPERS directors officially lowered the fund’s profit predictions, which triggered a bigger invoice being sent to Brown and lawmakers. Smaller, but still serious challenges exist for the California State Teachers Retirement System (CalSTRS).

Brown’s budget team said last week that a $12-billion infusion of cash now will result in a savings to taxpayers of $11 billion over the next 20 years. A similar prepayment idea to improve the bottom line for county retirement systems has been introduced in the Legislature by state Sen. John Moorlach (R-Costa Mesa).

Though it may be fiscally prudent to do so, making an extra payment amounts to a lot of money — in this case, equal to almost 10% of total general fund revenues in the coming year, and close to double the state’s combined contribution to the University of California and Cal State University systems.

CalPERS trims its investment expectations, raising costs to taxpayers »

So where does the extra money come from? It’s a loan from an obscure surplus cash account, and not from current government services and programs. In all, $6 billion will be borrowed from the Surplus Money Investment Fund for a supersized pension payment.

“It doesn’t take from child care, it doesn’t take from any other programs,” Brown told reporters last week.

The surplus fund is managed by state Treasurer John Chiang, and is essentially money waiting to be spent by various state agencies. Now totaling $50 billion, it’s larger than ever before. The loan gets paid back through the money earmarked for debt payments under Proposition 2, the ballot measure approved by voters in 2014 that also strengthened California’s rainy-day fund.

"It reduces the burden of unfunded pension liabilities that would otherwise be passed along to future generations of Californians," Chiang, who is running for governor, said in a statement.

To the outside observer, all of this may seem an overly complicated way of just shuffling around what — at the end of the day — are still all public funds. That’s true, though it likely earns bonus points for trying to creatively use cash that otherwise can’t be commingled.

But lawmakers probably shouldn’t celebrate their cleverness too long. Even with this extra cash, California’s pension funds face an enormous challenge over the next two decades. The proposal is unlikely to face any opposition. If anything, given how it highlights the benefit of compound interest, someone will likely start to wonder what other sources of cash could eventually be tapped to ease the state’s future pension pressures.

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Oakland backlog cited in engineer’s record overtime

By Kimberly Veklerov

http://www.sfchronicle.com/bayarea/article/Oakland-backlog-cited-in-engineer-s-record-11144342.php

The time cards Oakland city worker Kenny Lau turned in last year paint a stunning, if not improbable, picture of one man’s work ethic.

Lau, a civil engineer, often started his days at 10 a.m. and clocked out at 4 a.m., only to get back to work at 10 a.m. for another marathon day. He never took a sick day. He worked every weekend and took no vacation days.

He worked every holiday, including the most popular ones that shut down much of the nation’s businesses: 12 hours on Thanksgiving and eight hours on Christmas.

In fact, his time cards show he worked all 366 days of the leap year, at times putting in 90-plus-hour workweeks. He worked so much that he quadrupled his salary. His regular compensation and overtime pay — including benefits, $485,275 — made him the city’s highest-paid worker and the fourth-highest overtime earner of California public employees in 2016.

And, as incredible as it sounds, his bosses say he really did work all those days and hours. They describe Lau as a highly respected and dedicated worker in his field whose services are often demanded by developers looking to take advantage of Oakland’s booming economy and need for housing.

“Overtime is not required of any staff,” Gary Lim, Lau’s supervisor, said in an email. “It is Ken’s choice to work these hours.”

Lau and half a dozen other civil engineers work in the city’s Building Permit Center, where they scrutinize sheaves of plans for private developments ranging from the construction of high-rise luxury condos to the redevelopment of historic buildings. They check for compliance with local and state building codes and review surveys, site plans, grading plans, shoring plans, site improvements, historical features and energy compliance, Lim said.

Lim signed off on most of the time cards and approved Lau’s overtime in advance, according to the records. He did so apparently with little worry about the extra costs. The reason is simple: the Building Permit Center has an immense backlog of work — so much that developers who want their plans expedited can do so by paying the city engineer’s overtime. Thus, the city is compensated for those overtime costs.

Still, even developers’ requests for overtime jobs are backlogged.

Work efficiency experts say that round-the-clock tasks — like those seen in this case — raise troubling questions of oversight, workplace efficiency and resource allocation. And government accountability watchdogs say an auditor ought to examine cases of excessive overtime. One lawmaker told The Chronicle such high overtime pay to public employees erodes the public’s trust in their government.

“It’s important that the public have confidence in their public institutions and the use of their tax dollars. So when you have cases like this, whether it’s in Oakland or BART, it erodes the public confidence that’s so important to these institutions,” said state Sen. Steve Glazer, D-Orinda. “In this case, I don’t blame the employee as long as he’s correctly counting his hours. I do blame the supervisors and governing board for what appears to be an abuse of taxpayer dollars.”

The department’s workload is well known to top city officials. Assistant City Administrator Claudia Cappio said that Oakland hired three more plan-check engineers in recent months but that the demand for building permits outpaces what employees can approve on a weekly basis.

Cappio declined to discuss Lau’s overtime, instead releasing a statement, which read in part that city management “recognizes the heavy workload faced by our exceptional staff.”

“The reality is, Oakland has a multitude of development projects we need to get done,” said Councilman Noel Gallo. “And we’re understaffed in the development building.”

State Treasurer John Chiang, a gubernatorial candidate who created an online database of government employee salaries when he served as state controller, said that besides efficiency, cases of lengthy overtime raise questions for managers about the health of their workers.

Indeed, Lau’s co-workers agreed that stress is high in the department because of the work backlog.

At the second-floor office of the Building Permit Center at 250 Frank Ogawa Plaza, workers said they have been requesting a larger staff to handle the backlog for years.

Lau, who began working for Oakland in 1975, was in his office when The Chronicle showed up Friday afternoon but declined to speak with a reporter. He also did not respond to previous requests for interviews. His co-workers, who asked for anonymity, lauded Lau for his expertise, saying he knows the building codes backward and forward and can quote entire sections. He helps less senior engineers when they have questions, and is known to stay in the office until midnight, they said.

The Chronicle examined Lau’s 2016 time cards after Transparent California, a conservative think tank, spotlighted Lau in a recent report.

Although city officials and a representative for Lau’s union point to the work backlog in that office to defend the high overtime pay, his workload doesn’t appear to be anomalous or solely a product of the current building boom. He was regularly a top overtime earner as far back as 2002.

Robert Pozen, author of the book “Extreme Productivity,” said his research shows that in most organizations, the median hours worked per week is 45. But 10 to 15 percent of a typical workforce spends more than 65 hours at the office.

“Some of them are control freaks. They can’t delegate anything,” said Pozen, a senior lecturer at the Massachusetts Institute of Technology Sloan School of Management. “There are some people who take great pride in the hours they work and it’s a great part of their identity. And some people don’t want to go home.”

Pozen said his most important finding is that people clocking hours at the highest end of the spectrum tend to have ineffective and unproductive habits. Workers will “burn out if they have no chance to come up for breath,” he said.

At least one developer, John Protopappas, president of Madison Park Financial Corp., said that trend doesn’t seem to be the case with Lau.

“You can tell he’s working day and night because we’ll get emails from him at 3, 4 in the morning on weekends,” said Protopappas, who has been building in Oakland for four decades and regularly asks for his firm’s plans to be reviewed by Lau. “He’s got an incredible work ethic, and I hope he doesn’t retire.”

Even under the expedited process, in which developers pay for city plan checkers like Lau to work overtime, Protopappas said, it can take 16 months to get a permit. The city needs to hire more people to speed up the process, he said.

“Everyone wonders, ‘Why do we have a housing crisis?’ Part of it is because it takes so long to get a building permit,” Protopappas said. “Everyone’s trying to get their project done before the market cools off or there’s a recession or funding dries up.”

The Bay Area’s two largest cities have starkly different practices when it comes to building permit approvals and overtime — it either doesn’t exist or it’s rare.

Cheryl Wessling, spokeswoman for San Jose’s Department of Planning, Building and Code Enforcement, said no one doing building plan reviews can work overtime because they are all on salary. Bill Strawn, spokesman for San Francisco’s Department of Building Inspection, said overtime for people in those roles is rarely allowed because of the way the contract with the union was negotiated. In the few instances it’s authorized, the employees take compensatory time off instead of extra pay, he said.

State Sen. John Moorlach, a certified public accountant and former treasurer-tax collector for Orange County, questioned why Oakland doesn’t hire more workers.

“Managing manpower is not a difficult thing to do,” said Moorlach, R-Costa Mesa. “You look at the work and quantify it. If it well exceeds 40 hours per week per person, you have to hire someone else. Why would I pay someone at the top scale at time and a half when I can get an entry-level person to do the same work?

“This guy doesn’t have time to shower or shave or sleep,” he added. “The sad part of this is he’s had no time to enjoy the money. He’s got to have a monster bank account and no R&R.”

City budgeting sometimes makes it easier or less costly to allow overtime than to add staff, said Sylvia Allegretto of the UC Berkeley Institute for Research on Labor and Employment. The idea that government employees are overpaid compared with their private sector counterparts is a misconception, she added.

“When the population is growing and public sector workers are a smaller share of a larger population, you’re going to have some demand problems,” Allegretto said. “It’s really easy for people to think that public sector workers are the problem.”

Many areas of the public sector remain understaffed and underfunded compared with prerecession levels, she said.

There are still, however, concerns about the wisdom of working so much.

“I appreciate the dedication of our staff, but for anyone, regardless of your department, it’s not healthy to work so many hours,” said Councilman Abel Guillén. “After that amount of time, you can make mistakes and get hurt.”

Kimberly Veklerov is a San Francisco Chronicle staff writer. Email: kveklerovTwitter: @kveklerov

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