Davis Issues Call for City Pension Reform : Capitol: Controller says many communities use improper tactics to boost the retirement pay of their top officials.

SACRAMENTO —  Declaring that “public service is a privilege,” not “a license to pig out” at taxpayer expense, state Controller Gray Davis on Tuesday called for a crackdown on a practice by a number of California cities that allegedly have been artificially inflating public employee pensions.

Davis made his remarks in the wake of a detailed audit, released last month, that alleged pension abuse in several cities, including six in Los Angeles County.

The audit uncovered “significant deficiencies” in the practices of eight Southern California cities--Bellflower, Culver City, Hawthorne, Beverly Hills, Huntington Beach, Torrance, Manhattan Beach and Anaheim. All eight based their pensions on an employee’s final-year salary, not an average of the worker’s last three years of wages, as is more common.

With the exception of Beverly Hills and Hawthorne, auditors found “substantial instances” of pensions being improperly inflated because the calculations on which they were based included such items as car allowances, accumulated sick leave and even business expense accounts. The alleged abuses involved the way pensions were calculated for rank-and-file employees as well as top city officials.

At a Capitol news conference, Davis said he will seek legislation to toughen criminal and civil penalties for officials who inflate public pensions and impose a 20% penalty against all retirement income judged to be excessive. Davis also plans to urge the state Public Employees Retirement System to recover excessive retirement payments detected in the audit.

Davis complained that “pension abuse is a blight on the public sector.” He said he was “particularly offended” by top city administrators in Torrance, Manhattan Beach and Anaheim who had their pensions artificially boosted.

“These are people who are well paid to begin with,” Davis said. “They have a moral obligation to live within the spirit and the letter of the law, and yet they engaged in salary spiking.” Under the practice, an employee’s last year salary is boosted so that he qualifies for a higher pension.

With $63 billion in assets, the state Public Employees’ Retirement System administers pensions for 1,200 cities and government agencies in the state and is the nation’s largest state pension fund.

The audit was triggered by allegations last year of pension fraud at the American River Fire Protection District in Sacramento County. Auditors looked at eight cities that engaged in similar practices. Davis said the fact that problems were found in all the cities suggests that problems may be widespread.

Besides the legislation to overhaul the pension system, Davis proposed the establishment of a “pension abuse hot line” at the Public Employees Retirement System, better supervision of local agency pension managers and continued field audits.

Among the examples of inflated pensions cited in the audit is the case of a former Manhattan Beach city manager, identified by aides to the controller as David J. Thompson, who earned more in retirement at $132,000 a year than he did while on the job at a salary of $89,000. Last month, Manhattan Beach City Manager William Smith said city officials had cut the former manager’s annual pension by $60,000 after concluding that it violated regulations.

The report also singled out a 34% salary increase given to a former Torrance official, identified by Davis aides as former City Atty. Stanley Remelmeyer. In late 1987, one year before he stepped down, Remelmeyer’s salary jumped from $92,724 to $124,548. In exchange, Remelmeyer agreed to stop accepting city-financed health benefits and a car allowance.

Another case cited by Davis involved former Anaheim City Manager William O. Talley, whose contract allowed his salary to increase from $97,390 to $159,109 roughly within the year before he resigned in 1987. “How can someone who is, the year before, making $97,000 think it’s possibly legal to retire with a $160,000 pension?” Davis said. “I mean, you have to be out of your gourd to think that you’re entitled . . . to a pension roughly 70% higher than your salary.”

But Talley said the state’s retirement system gave him written approval for the higher figure, which was calculated when he converted $40,000 worth of benefits and a retroactive pay raise into straight salary. In addition to his pension, he is making $99,500 a year as the city manager of Dana Point.