Contra Costa Taxpayers Association Presentation

Bill Pollacek, Contra Costa County Treasurer/Tax Collector

Comments made April 23, 2010

Good Morning everyone, and thank you for attending the 73rd Annual
Meeting of the Contra Costa Taxpayers Association… and I
personally want to thank Kris Hunt and the Board of Directors for
selecting me as your speaker as I begin what is now being called “My
Farewell Tour” as I will be retiring and leaving office on Monday,
January 3rd at noon…as if I am not already counting the days.

Serving as your Treasurer-Tax Collector for the past 12 years has

been an honor, and I am pleased to say I am leaving an office that is
in very good shape, which is more than I can say for the County. This
is due to having an outstanding staff who do more with less led by my
Chief Deputy Treasurer-Tax Collector, Russell Watts, whom I have
endorsed to succeed me.

As Treasurer for the County, its 18 school districts, Board of

Education, Community College District, and 20 Special Districts who
are voluntary pool participants, we manage approximately $2 billion
dollars. I am pleased to report our pool has been rated AAAf/S1+ by
Standard and Poor’s. This is their highest credit rating for credit
quality and the best rating for volatility meaning low sensitivity to
changing market conditions.

1
We experienced no problems or losses like some government pools
during the 2008 credit meltdown. We avoided risky securities,
structured investment vehicles, Lehman Brothers and Merrill Lynch
because of a conservative investment policy, good credit analysis,
and the advice of a superb Treasury Oversight Committee.

In 2003 I took the lead with two other county Treasurers to help form
CalTRUST, a program established by public agencies in California for
the purpose of pooling and investing local agency funds, operating
reserves, as well as bond proceeds. Today, the program has grown
to 89 participating agencies investing $1.1 billion. I continue to serve
on the CalTRUST Board of Trustees as a founding Trustee and as
Board Treasurer.

On the tax collection side, I am the Tax Collector for 206 taxing
agencies in the county collecting over $2 billion in secured and
supplemental property taxes; unitary, pipeline, and railroad taxes;
unsecured taxes: and business licenses in the unincorporated areas
of the County.

Over the past decade we have improved the information and

payment processes which have saved taxpayers hundreds of
thousands of dollars. All you need to do is go to our website for all
the information you ever wanted plus review the various electronic
payment methods via the use of credit card and e-commerce check
options. You can even sign up for an e-mail reminder to pay your
property taxes. In addition, last year we were one of the first counties

2
to develop and install an electronic deposit permit system which
saves Treasury depositors thousands of hours in manual processing
time and the Auditor-Controller’s Office hundreds of thousands of
dollars in data entry costs. And I am proud to say we are an office
that always puts customer service first.

None of this would have been possible without the leadership and
experience of my Chief Deputy Treasurer-Tax Collector, Russell
Watts, who developed many innovative ideas, concepts, and
systems. Counties from around the state continually call us wanting
information on our latest innovations which are freely shared at our
annual Treasurer-Tax Collector and education conferences. Working
together all counties improve their processes which benefits all
taxpayers across the state. Contra Costa County has been a leader
in the California Association of County Treasurers and Tax Collectors.

As County Treasurer, I am also an ex-officio member of the Board of

Trustees of the Contra Costa County Employee’s Retirement
Association, and currently serve as Board Chair. As you are all well
aware, the Retirement Board has been in the news quite a bit over
the years, and I could talk about the issues and problems for hours,
but that is for another time. I have carried out my fiduciary duties to
the best of my ability which has led to greater transparency and lifting
the veil of secrecy that allowed for many abuses to become public
knowledge ….and thanks to Mr. Borenstein’s Sunday columns in the
Contra Costa Times.

3
When I became County Treasurer in 1999, Contra Costa County was
considered in the upper tier financially for large counties. Today, we
are second from the bottom just behind Sacramento County. Most of
this can be attributed to adopting four consecutive structurally
unbalanced budgets beginning in 2002, which only ended up
balanced by drawing down reserves, and the retroactive approval of
the 3% at 50 for Safety and 2% at 55 for General Members retirement
benefits. In addition there were very generous labor contracts
approved during this period.

Today the County faces significant financial challenges. On Tuesday

CAO David Twa’s recommended budget included $41.2 million in
cuts in addition to the $139.4 million in cuts over the last two years.
Next year, FY 2011/12 will be worse with a deficit of over $78.5
million that will have to be closed by more cuts or increased revenues
and this does not include the State cuts yet to come. Based upon
current projections, we probably won’t hit bottom until 2014 or 2015.
When you look at the FY 2010/11 recommended budget, it includes
$42.8 million in one time funds including $19.3 in federal stimulus
funds and $15.1 million in reserves and other one time only funds.

Economically, the economic data and projections look grim.

California’s unemployment rate is 12.6% and a Beacon Economic’s
employment study for the East Bay projects we will not reach
2007-2008 employment levels until 2015. Total employment in
California is not forecasted to reach its 2007 peak levels for several

4
years and unemployment will remain in the double digits through
2011.

Even though California faces a $20.6 billion budget deficit over the
next fiscal year, State Controller John Chang predicts the worst of
California’s budget crisis is still to come…the bad year is 2012 as:
1. Temporary tax hikes expire.
2. Federal stimulus funds will be gone.
3. Funds “raided” from local governments will come due.
4. State owes its own “special state funds” $20 billion.
5. State employee health and pension benefits are not
adequately budgeted.
In other words, financially, California has become the Greece of the
new world.

Nationally, the unemployment rate is 9.7% with 15 million workers

unemployed, and over 6.5 million have been out of work 6 months or
longer. When you include the underemployed and those who have
just dropped out of the labor market, the true unemployment rate is
closer to 20%. Since the beginning of the recession, we have lost 8.4
million jobs, almost all of them in the private sector, and many of them
will never come back.

Employment, both in Contra Costa County and the nation, will not
begin to recover until there is a greater confidence in the economic
outlook and the Obama administration. We also need greater credit
for qualified small businesses and we need to work through the

5
residential and commercial real estate debacle. And we need elected
officials at the national, state, and local levels to get real, and get
serious in their dealings with the public employee unions.

Let me give you three quotes.

Ron Seeling, Chief Actuary for CalPERS, “The level of retirement

benefits is unsustainable,”

Willie Brown:
“If we as a state want to make a New Year’s resolution, I suggest
taking a good look at the California we have created. From our out-
of-sync tax system to our out-of-control civil service, it’s time for
politicians to begin an honest dialogue about what we’ve become.

Take the civil service.

The system was set up so politicians like me couldn’t come in and fire
the people (relatives) hired by the guy they beat and replace them
with their own friends and relatives.

Over the years, however, the civil service system has changed from
one that protects jobs to one that runs the show.

The deal used to be that civil servants were paid less than private
sector workers in exchange for an understanding that they had job
security for life.

6
But we politicians, pushed by our friends in labor, gradually expanded
pay and benefits to private-sector levels while keeping the job
protections and layering on incredibly generous retirement packages
that pay ex-workers almost as much as current workers.

Talking about this is politically unpopular and potentially even career

suicide for most officeholders. But at some point, someone is going
to have to get honest about the fact that 80 percent of the state,
county, and city budget deficits are due to employee costs.

Either we do something about it at the ballot box, or a judge will do

something about it in Bankruptcy Court. And if you think I’m kidding,
just look at Vallejo.”

State Treasurer Bill Lockyer: “It’s impossible for this Legislature to

reform the pension system, and if we don’t, we bankrupt the state.
And I don’t think anyone can do that here because of who elected
you.”

If we look at Public Sector vs Private Sector Compensation, we find

that in 2009 Average Compensation for State and Local Government
workers was $39.66/ hour while the Private Sector was $27.42/ hour.
In other words, Public Sector employees make 45% more in salary
and benefits than private sector employees. (Source: U.S. Bureau of
Labor Statistics)

7
As Steven Frates, Senior Fellow at the Rose Institute of State and
Local Government at the Claremont McKenna College said, “Private
sector employees are going to have to work far longer than public
sector employees so public employees can retire at age 50 or 55 at
full salary and lifetime healthcare benefits. Soon we are going to
have two classes of retirees; public sector employees and then the
rest of us.”

Since 2002, the Contra Costa County Civil Grand Jury has issued
numerous reports on county finances, pensions, and Other Post
Employment Benefits. Many were received by the County with little
sense of urgency, and in many cases were just plain ignored. One
only has to go back to the days of CAO John Sweeten when he
continually ridiculed their reports.

When the Grand Jury issued its report, County Finances in Jeopardy
in 2002, then Supervisor DeSaulnier said, “I seriously doubt there is
anything new here. The Grand Jury has members who are very
conservative and don’t have a full understanding about how county
finances work.”

Frankly, I found the Grand Jury had a much better understanding of

County finances than the Board of Supervisors and history has
proven this true. Many Grand Jury members came from the business
community and had very successful careers in finance, accounting
and management. They are to be commended for a job well done.
The County never would have addressed the OPEB issue had it not

8
been for numerous Grand Jury reports and GASB 43 & 45. Now the
County needs to address retirement and pension issues. If they
don’t, I only need to refer you to CAO David Twa’s Key Issues for
2010/11 presentation to the Board of Supervisors this past January.
Looking at pension funding for 2010-2015, he states, “Absent new
revenues or significant changes in pension benefits, we would need
to eliminate 25% of our employees.”

But this is not happening just in Contra Costa County. It is happening

across the state and across most of the nation. I suggest you read
Steve Malanga’s article, “The Beholden State, How public-sector
unions broke California” in the Spring 2010 edition of City Journal. It
is a great article on the history of how the public employee unions
have become the dominant force in California politics and dictates
who gets elected and who doesn’t.

As city and county layoffs mount and services shrink, pension and
retiree health care payouts soar, consuming a grossly
disproportionate share of local government budgets. In Contra Costa
County, projected retirement expense increases from $206 million in
FY 2009-10 to $278 million in 2013-14 assuming CCCERA earns just
its assumed investment rate of 7.75%

The old joke is that General Motors is just a health insurance

company that makes cars on the side. My concern is that the county
government is becoming a pension and health care provider that
provides government services on the side.

9
Newspapers around the state are now beginning to report
aggressively on the huge number of public employees retiring at age
50 or 55 on pensions exceeding $100,000 and the number continues
to grow. Just last week the California Foundation for Fiscal
Responsibility has updated its CalPERS $100,000 pension club and
the list has increased in size by almost 50%- to over 9,100 members-
compared to just a little over one year ago.

Mr. Frates also stated, “There has been a wealth transfer. It has
gone from the citizens to the people in government.” And he goes on
to say, “You often hear people in government cry that there are going
to be cuts and we’re hurting the poor and little children. The fact of
the matter is the citizens of the state, county and city are making life
better, not necessarily for school children or people in need, but for
the government employees.” I call it the greatest wealth transfer in
the history of mankind.

An L.A. Daily News editorial said it best. “No one denies that public
employees should be paid fairly for their service, but the current
pension system affords them benefits unheard of to most of the
hardworking Californians who pay the bills. And the purpose of
government shouldn’t be to enrich a lucky few, but to benefit all.”

When I am asked how did this all happen, I like to use an analogy.
Think back in California history to the late 1800’s and early 1900’s
when the railroads, led by Southern Pacific, controlled the state.

10
Through their money and political influence, the railroads controlled
the Governor’s office and the State Legislature. The power of the
railroads was eventually broken when Hiram Johnson, who led a
reform movement, was elected Governor in 1912.

Fast-forward a hundred years later to the 1990’s and today. Once

again most of the state government and the State Legislature are
dominated by a strong special interest…only this time it is the public
employee unions. Nothing is enacted into law unless the public
employee unions approve of it… and when it came to new and
enhanced retirement benefits, it was a done deal. This is probably
one of the most “under reported” stories of the news media over the
past decade, but it is gaining traction with most of the state’s
newspapers.

So where does it all end…Bill Lockyer said it all. There will be many
more Vallejo’s across the state and government agencies will become
a pension and benefit provider that provides government services on
the side. Unless there are some dramatic developments very quickly,
I expect to see several ballot initiatives in 2012 which will dramatically
change the public pension plans in California from defined benefit to
defined contribution.

With that, I want to thank the voters and taxpayers of Contra Costa
County for allowing me to serve you. It has been a great honor, and I
hope I have made a difference. And to the Taxpayers Association,
keep up the good work and hold our elected officials accountable.

11
Remember they work for us…not the special interests that elected
them.

And with that, I’ll take your questions.

BP.Speech.TaxpayrsAssoc.4.15.10

12