HUNTINGTON BEACH : City Refuses to Pay State’s Pension Bill

The City Council has refused to pay a $743,632 bill from the state for city employee pensions that the employees and the city inflated through spiking.

The council voted 5 to 0 Monday not to pay the bill the city received from the state Public Employees’ Retirement System. Not voting were Councilman Jim Silva, who arrived late, and Councilman Earle Robitaille, who was absent.

Spiking occurs when an employee gets the city to inflate the worker’s last year’s wages--on which a pension is based--by allowing the employee to forgo vacation days, car allowances and other benefits and take them as wages.

The state retaliated against the practice by billing the city for a portion of the increased cost, which was due to spiking.

The city estimates that pension spiking by city employees could cost $13 million in additional pension benefits and, because those pensions are unfunded, it could become a liability for the city or PERS. City officials believe the city will be billed for some of that by the state.

Council members were angered by the state’s bill, and said that when the city participated in spiking it was a common practice and approved by PERS. Councilman David Sullivan said that because PERS permitted the practice “it’s their responsibility to handle it.”

In refusing the bill, the council also set the stage for suing PERS over the cost of the increased pensions.

At the same meeting, members of the Citizens’ Bureau of Investigation, a group made up of residents investigating waste and abuses of city government, also urged the council to eliminate the spiked portions of the pensions to save taxpayers millions of dollars.

“CBI has been telling them for two months that spiking is illegal and they’re finally realizing it,” CBI director Bill Mello said.

Of the $13 million in unfunded pension liability, Sullivan said that some $3 million covers 39 employees who have already retired. The state bill for $743,632 was to cover a portion of that liability. PERS ordered the city to pay that bill by June 30, he said.

Another $10 million covers unfunded pensions of 153 city employees planning to retire with spiked pensions.

“It’s a terrible mess that has put a potential liability of $13 million on the citizens of Huntington Beach,” Sullivan said. “In my opinion, it’s an outrage that it happened and the council should do everything it can to stop it and make sure nothing like this ever happens again.”

The council also voted 5 to 0 to stop the processing of retirements with spiked pensions during the next two weeks. A final vote is expected at its meeting July 5.

A new state law, which will prohibit most pension spiking by public employees, takes effect July 1.

But Sullivan said the financial implications for the city won’t stop.

“It’s certainly not over for us, if it’s going to cost us $10 million after July 1,” he said.