Housing Groups Oppose Plan for Pension Bailout

A long-term plan to bail the city’s fire and police retirement system out of a $125-million financial crisis has run into opposition from housing advocates, who say the proposal would result in the loss of millions of dollars for low- and middle-income housing.

The plan involves using new property tax revenue generated by downtown redevelopment projects to bolster the retirement system, which could go broke in 10 years and begin draining the city’s treasury.

“The pension fund will go into default in 1997; it needs money as soon as possible,” said Judy Weiss, assistant to City Manager Don McIntyre.

But the city’s rescue plan depends on approval of a special bill, now before the Legislature, that would take part of the tax revenue earmarked for housing and divert it to the retirement fund.

Housing advocates, including the NAACP and the Fair Housing Council of San Gabriel Valley, say as much as $33 million in housing funds could be lost over the next 27 years in the effort to save the retirement system.

Strong Opposition

“Why should the people who can least afford these sacrifices be forced to make them?” asked Jonathan Lehrer-Graiwer of the Western Center on Law and Poverty, a nonprofit advocacy group for the poor that strongly opposes the bailout plan.

Mayor John Crowley agreed that saving the retirement system should not come at the expense of the poor and homeless.

But he said only so much time and money are available to bolster the retirement system before it becomes a major financial drain on the city.

“Everybody should be treated as fairly as possible,” Crowley said. “But we don’t want to kill off the opportunity to solve the fire and police retirement fund problem.”

Several groups have urged the city to try to get voters to approve a tax increase or special assessment to make up the difference, but officials are reluctant to try because previous attempts to get voter approval for other projects have failed.

In a series of meetings over the last few months, city officials and housing advocates have tried to reach a compromise that would use tax revenue for both the retirement system and housing.

But the complexity of the plan and the limited pool of resources available to the city have so far made it impossible for all sides to agree.

“We’re all trying to compromise,” said Saundra Knox, executive director of Pasadena Neighborhood Housing Services, a nonprofit group that funds maintenance and improvements for low-income housing. “But right now we’re in gridlock.”

The retirement fund problem was created in 1969, when voters approved an unlimited cost-of-living increase for retirees, linking their benefits to the consumer price index, said city Finance Director Mary Bradley. Before then, benefits could rise no more than 2% a year.

‘Inflation Went Insane’

“Frankly, I don’t think people realized what could possibly happen,” Bradley said. “There was low inflation at the time, but in the ‘70s inflation went insane.”

The retirement fund was closed to all new employees in 1977, but 451 working and retired police and fire employees are still enrolled in the plan.

The fund has $27 million and is meeting its benefit obligations, but an independent audit last year by the accounting firm of Ernst & Whinney determined that the fund would have to be $125 million larger--$152 million--to generate the investment income needed to pay out a projected total of $781 million before the last worker or family member dies about 80 years from now, Bradley said.

“The firemen are going to be paid and the police are going to be paid,” said William Cathey, a member of the Board of Directors when the plan was unveiled earlier this year. “The city has got to come up with the money or go bankrupt.”

The financial rescue plan was devised by the 33-member Citizens Committee on Public Finance and was presented to the board after two years of study.

One part of the plan, which would provide $60 million for the retirement system, has met no opposition.

City Contribution

That part would shift revenues now earmarked to pay off several construction projects to the retirement system as the projects are paid off, beginning in 1998. In addition, the city has agreed to make an annual $3 million contribution to the retirement system from the city treasury.

But there are major problems with the committee’s proposal to raise the remaining $65 million needed to make the system solvent.

The solution hinges on approval of a bill introduced by state Sen. Newton Russell (R-Glendale) that would allow the city to reimburse itself for $24 million in redevelopment costs that, with interest, would amount to $65 million. The money was spent to build the Pasadena Convention Center in 1974.

No one disputes the city’s claim to the $24 million, but the bill, SB-481, is needed to ensure that the city can reimburse itself for the interest. The bill has been approved in the Senate and is awaiting action in the Assembly.

The city would reimburse itself for the $24 million and the interest by using new property tax revenue generated when an area is improved through redevelopment.

City Keeps Redevelopment Taxes

The county normally collects all property tax money and returns 26% of it to cities, with the rest going to the county and other agencies.

But cities are allowed to keep all new property taxes, called tax increments, generated by redevelopment projects such as the Convention Center until the cities have been reimbursed for their redevelopment costs.

If enough tax-increment money is available, the city must set aside at least 20% of the total tax increment for low- and middle-income housing.

The theory is that low-income housing is often razed to make way for redevelopment projects and that some funds must be set aside to create new housing, said Lehrer-Graiwer.

But if all tax increment funds are used up to pay off redevelopment debts, the city can delay or refuse to pay the 20% earmarked for housing.

Housing advocates oppose Russell’s bill because it would add a substantial new debt--the interest accrued on the $24 million--that would have to be paid off with tax increment funds. As a result, little or no money could be set aside for housing for decades.

“Housing is going down the tubes,” said Marian Breckenridge, a member of the board of the Fair Housing Council of San Gabriel Valley.

Smaller Amount Offered

The city has tried to reach a compromise with the housing groups by promising to set aside a much smaller amount than the usual 20% of tax increment funds for housing.

Under one proposal, instead of delaying or refusing to set aside the entire 20%, the city would provide a total of $7 million in equal annual payments until the year 2014 for low- and middle-income housing projects.

Breckenridge said the proposal has the advantage of giving housing groups a substantial financial boost--$600,000 the first year--now instead of far in the future.

“We’d rather have some money now than some gigantic figure we may or may not get down the line,” Breckenridge said.

But Lehrer-Graiwer of the Western Center on Law and Poverty said the $7 million is much less than the $33 million that a steady 20% housing set-aside could provide.

“Everyone has got to give a little bit,” Knox said. “But if you we’re supposed to have $33 million and someone offered you $7 million, what would you say?”

Lehrer-Graiwer conceded that the city has a problem with its retirement system, but said it is unfair to take money from low- and middle-income residents who would benefit from housing assistance.

Voters Created Problem

He said that the city as a whole should bear the responsibility of funding the retirement system, since voters approved the cost-of-living increase that created the problem.

Lehrer-Graiwer and Knox suggested that voters be asked to approve a property tax increase or special assessment to raise the $125 million for the retirement system.

“No one wants to pay more taxes, but if it is a city debt, we residents should pay for it,” Knox said.

Ab Davis, chairman of the Citizen’s Committee on Public Finance, said that the committee had considered a tax increase but that it would have to be approved by 60% of the voters--a feat he said was politically impossible.

In 1985, the city tried to impose a special assessment to pay for street repairs and maintenance, Davis said, but residents turned out in force to oppose the idea at a series of special hearings, and the city backed off.

Lehrer-Graiwer replied that a tax increase “may be impossible, but it is the straight way to do it, and they haven’t even tried it.”