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NBC Investigation: San Jose Pension Estimates Questioned

San Jose Pension Estimates Questioned

Have San Jose officials used fuzzy math to estimate future pension costs?
February 11, 2012
By Jenna Susko, Julie Putnam and Mark Villarreal

Description: Internal emails and documents show some fuzzy math behind pension cost projections used to sell a fiscal disaster in San Jose.

Internal emails and documents show some fuzzy math behind pension cost projections used to sell a fiscal disaster in San Jose.

In the city of San Jose, ‘budget’ is the word on the street and echoing through City Hall.

Salaries have been slashed, services cut and employees have been shown the door over the past year.

It's all in a valiant effort to dodge a potential financial crisis.

But is it an exaggeration?

The NBC Bay Area Investigative Unit obtained internal emails, memos and documents which reveal city leaders have not been straightforward when it comes to projected retirement pension costs for San Jose.

Our investigation found the math behind the headlines isn’t adding up.

In the 10th largest city in the country, it’s not surprising that retirement costs are predicted to increase in the next few years.

Mayor Chuck Reed has made sure the public is aware of the urgency in taking action to prevent these future financial burdens.

In his February state of the city address, he says, reforms are needed to " avert fiscal disaster."

Mayor Reed made the media rounds over the last year on TV and in articles like this one, in magazines like Vanity Fair, where he is quoted as saying the projected retirement costs for the city of San Jose could reach $650 million by 2015.

He called the budget “public enemy number one,” in his state of the city. In September he said “San Jose is in a crisis. We have a fiscal emergency a service-level emergency, all driven by sky-rocketing retirement costs.”

He said in multiple press releases, that retirement costs could soar to $650 million by 2015

The mayor took steps to declare a fiscal emergency, which meant pension reform could then head to the ballot.

That sent unions to the bargaining table to decide on the details of how much they would be willing to cut from their pensions to save the city from going under.

“Just devastated and in shock that we could have gone into that much debt in such a short period of time,” Local 21 member Phyllis Dawkins-Thames tells NBC Bay Area.

Dawkins-Thames has worked for the city of San Jose for 30 years and serves on the union negotiating team for Local 21.

She tells us, her union agrees pension reform is needed, but says the figure $650,000,000 had a powerful effect on unions' bargaining, forcing union leaders to consider deeper concessions when it came to their retirement pensions.

"It put a great deal more pressure on us to take further from the employees of San Jose,” Dawkins-Thames says.

But he city’s official projection for retirement costs in 2015 stood at $400 million.

So where did the mayor get the figure $650 million?

He got that figure from Russell Crosby, the City of San Jose’s Retirement Services Director.

He attributed the number to an off-hand comment he made in a meeting earlier that year.

A comment, that had no calculations or hard numbers to back it up.

“It was a rough estimate,” City of San Jose Retirement Services Director, Russell Crosby tells NBC Bay Area.

“Boy, was I wrong," Crosby says.

It was a comment  that he says was taken too far.

"That was a number off the top of my head," Crosby told us.

When asked if it was "Off the top of your head?"

“Yes, of course," Crosby replied.

When we asked if  he ever  said to the mayor "look, I don’t really have anything to back this up?"

"Yes,” he repeats, “Yes. His staff yes."

Crosby tells NBC Bay Area he quickly realized he had miscalculated the number and immediately informed the city.

"The mayor was told not to use that number, that the number was 400, that was the projection,” Crosby insists.

But Mayor Chuck Reed tells us, "I don’t recall anyone ever saying not to use that number.”

We asked him, "Nobody ever told you not to use $650 million as a projection?”

"I don't know. I don't remember anyone saying, ‘don't ever use that,’" Mayor Reed replied.

We asked if Crosby was lying.  He said, "I don't know.  I didn’t have the conversation with him."

The mayor also doesn’t know how Crosby came up with the projection, one that’s more than a quarter billion dollars higher than the city’s official projection.

"Do you think you should have sat down with him to find out where he was getting this number instead of just quoting him from a meeting?" we asked the Mayor.

“No,” Mayor Reed replied.  “I understood it was a rough estimate off the top of his head,” he says.

That rough estimate was being questioned behind the scenes.

We obtained thousands of internal city emails.  In one correspondence from Russell Crosby to the City of San Jose’s actuary, Crosby refers to comments made about “no back-up for 650” adding, “let’s do damage control.”

Crosby tells us he wrote that email because he believes 650 should never have been used in the first place.

“Is it wise to use the number 650 million dollars when you really don’t have any hard numbers to back that up?” we asked the Mayor.

“I think you have to be cautious.  ”As the Mayor you have to look out for the taxpayers and citizens of my city and I don’t think you can ignore something like that,”  he tells us.

Around the same time, Crosby asked Cheiron, the external actuary hired by the City of San Jose Retirement Board to come up with a new projection.

Internal emails show Cheiron was instructed to follow certain rules, including using out-dated numbers that did not factor in the pay-cuts and massive layoffs that had taken place earlier in the year.

These calculations became the new projection and pushed the official number up about $30 million- the new projections became $430 million dollars for retirement costs by the year 2015.

“The numbers were accurate with the data that was available at the time,” Crosby tells us in response to that new projection.

However, the Mayor kept selling the projection as $650 million, like at this conference at Stanford University last August.

Remember, unions were still negotiating the details and exact amounts of their concessions regarding pension reform that would be put on the ballot.

Dawkins-Thames, the union representative we spoke with, tells NBC Bay Area she had no idea the number being tossed around was not based on real data.

“I would really like to believe that they wanted to negotiate in good faith, but all the facts right now show it to be that it was done deliberately,” she says.

“I think the number was used to convince the citizens of San Jose that we need to do a very extreme reform on pensions,” Dawkins-Thames continues, “I really believe that this calls for an investigation so that the facts can come out.”

If you factor in pay-cuts and layoffs, it appears San Jose’s pension costs will reach about $300 million by 2015. That’s $350 million less than the figure the Mayor used to sell a fiscal disaster.

“We are trying to avoid a disaster and certainly a $650 million number would be a disaster,” Mayor Reed tells NBC Bay Area.

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 http://www.nbcbayarea.com/news/local/Guessing-Pensions-138981764.html