Borenstein: Justices Reject City Manager’s Pension-spiking Scheme

June 30, 2016 GMT

Retired city manager Joseph Tanner, a critic of inflated public employee benefits who helped steer Vallejo through bankruptcy, has lost another bid to spike his pension 42 percent.

In a unanimous decision Tuesday, a state appellate court rejected his claim that in 2009 he was entitled to starting annual retirement pay of $307,000.

The three appellate court justices ruled that Tanner and the city of Vallejo had failed to comply with a 23-year-old law requiring transparency of public employee compensation.

The decision upheld earlier rulings by an administrative law judge, the California Public Employees’ Retirement System and a Sacramento County Superior Court judge.

The current value of the extra lifetime pension payouts Tanner sought was more than $1 million. Had he prevailed, taxpayers in cities where he previously worked, Pleasant Hill being the longest, would have borne most of that cost.

Tanner was 59 when he took the top job in Vallejo in 2007 with the clear intention of boosting his pension. He was earning a $170,000 annual salary as Pacifica city manager and could have retired with a $131,500 annual pension.

He told Vallejo officials he would only take the job there if they paid him at least $300,000 of annual income that would count in his pension calculation.

In California, public employee pensions are based on a worker’s top salary, not a career average. So a late-career salary boost disproportionately inflates retirement pay.

Tanner’s first contract with Vallejo called for $216,000 in base salary, plus add-on items that would soon be converted to salary, bringing his compensation to $306,000.

But when CalPERS advised that the amount of those add-ons would not count toward his pension, he insisted on a contract amendment: The add-ons were eliminated and his base salary was simply increased to the $306,000. At the time, no nearby city was paying its city manager base salary of more than $200,000.

With management incentive pay and other items, Tanner’s total pay was about $349,000. When he retired in 2009, he tried to claim that as the top salary on which his pension should have been calculated.

CalPERS said no. It was not just the inflated pay that was at issue, it was also the subterfuge he and Vallejo city officials used to hide the pension-spiking scheme.

The City Council discussed his original contract terms in closed session, in violation of the state opening meeting law. And notice of the council’s scheduled public approval hid the full cost of the deal.

The amended contract directly violated CalPERS’ admonition that the add-on items could not be converted to base salary. Moreover, it was not approved by the City Council at a public meeting.

But Tuesday’s appellate court ruling never addresses those issues. Instead, the decision turns on one point: State law requires that a pay rate used for a pension calculation appear on a “publicly available pay schedule.” Tanner’s $306,000 salary never did.

The 1993 law applies to the rank and file, who often work under labor contracts with pay schedules, and to top administrators covered by individual contracts.

To be clear, all public employee compensation is public record. That principle was reaffirmed by the state Supreme Court in 2007, when it ruled in favor of the Contra Costa Times’ request for Oakland workers’ salaries.

The 1993 law, which applied to CalPERS and has since been expanded to other retirement systems across the state, adds another layer of transparency.

As the appellate court said Tuesday, the required salary listing “more readily informs the public of the pay rate that will or may be used in determining the amount of an employee’s retirement benefit.”

If a public agency doesn’t have such publicly available pay schedules, CalPERS rules now give the pension system discretion to consider other salary documents. Those rules were not in effect when Tanner retired and, if they had been, would not have helped his bold claim.

Nevertheless, he still made out just fine. With management incentive pay and other allowable items, Tanner had a legitimate top salary of $247,000 to use in his pension calculation, entitling him to starting retirement pay of $216,000 a year.

He should be able to live off of that. Daniel Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or dborenstein@bayareanewsgroup.com . Follow him at Twitter.com/BorensteinDan .