State audit reveals San Jose pension projections used by the Mayor were inaccurate. This comes after an NBC Bay Area Investigative Unit exclusive report earlier this year. Today, the State Auditor confirmed what we first reported: Those pension projections were unfounded.
A state audit released Tuesday morning reveals the city of San Jose used pension projections in official city documents that were unsupported.
It comes after an NBC Bay Area Investigative unit report that exposed San Jose Mayor Chuck Reed's frequent use of $650 million as a five year projection of pension costs was not an accurate estimate. View our original report here.
"The figure is not overstated, the figure is just a number," Mayor Chuck Reed told NBC Bay Area today at City Hall.
"By 'unsupported' they mean there was no formula given to them to do a calculation, but in fact it was supported by the professional staff, that's how the number was arrived at that was explained at a public session," Mayor Reed said.
NBC Bay Area spoke with State Auditor Elaine Howle on the telephone today.
"When we say they are not supported, there is no evidence for our actuary to be able to do calculations," Auditor Howell told NBC Bay Area.
"It was somewhat surprising to hear them continue to defend the 650 million number because that number of all the numbers we looked at, our actuaries said, was overstated. There was no support for that number," she said.
The $650 million estimate came from former Retirement Services Director, Russell Crosby, during a meeting, a projection he told us in an interview last January was "off the top of his head."
In an interview with the state, found in the audit, Crosby reiterated, the number was "off the top of his head."
"You can't say that is a number that represents anything because that's just someones guess off the top of their head, so I would disagree with the Mayor," Auditor Howle said.
The audit found the official calculation the city should have used to be about half that number. "The actuary for the boards of the two retirement plans projected that the city's fiscal year 2015-16 retirement contribution would be $320.1 million," the audit found.
The audit also reports other pension estimates used by the city of San Jose had no actuarial calculations to back them up and were used in bond statements to convey the city's financial condition to potential creditors.
"Although we believe that San Jose's financial challenges are real, we found that some of the retirement cost projections reported in the city's official documents in 2011 were not supported by accepted actuarial methodologies, nor were the underlying assumptions vetted and approved by the boards of administration of the city's two retirement plans," the audit states.
The audit recommends San Jose report its official retirement cost projections, "To ensure that stakeholders receive consistent and reliable information, San Jose should report the official retirement cost projections that were developed using the assumptions approved by the two retirement plan boards (boards). If San Jose does not use the official retirement cost projections, it should develop projections that are supported by accepted actuarial methodologies, report this information in the correct context, and disclose significant assumptions that differ from those in the boards' retirement cost projections."
According to the report, the city agrees with the recommendations but disagrees with the "characterization" of some of the results.
Mayor Chuck Reed said in a statement, "I appreciate the auditor’s recommendations for clearly reporting retirement cost information. In fact, the City of San Jose already does this and will continue to do so for both official projections and any estimates developed by its professional staff." Read the entire statement from the mayor.
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