A Tale of a Serp

On March 12, 2008, PVUSD Board Agenda item 13.4 reports that the district will not have the funding to meet the current budget. Due to the State’s financial crisis, A Tale of a SERP 47 2008–2009 Santa Cruz County Grand Jury Final Report with Responses PVUSD would be $9,400,000 short for 2008-2009 and $17,500,000 short for 2009- 2010 if cuts and adjustments were not made. Response: Pajaro Valley Unified School District - AGREES

PVUSD hired Keenan and Associates, a financial planner, to conduct a Fiscal Cost Analysis to analyze the potential savings of offering a SERP. The report was prepared and submitted to the district on June 6, 2008. It established plan assumptions, benefit options, demographic analysis, SERP cost analysis, and benefit data sheets for three employee groups in the district. PVUSD staff stated that offering a SERP to management employees could generate a cost savings of approximately $159,000 depending upon the number of employees who took advantage of the opportunity. The proposal identified twelve managers as potential candidates for the incentive. Response: Pajaro Valley Unified School District - AGREES PVUSD staff stated the projected savings generated would be $159,000 over five years as the projected by Keenan and Associates in the report dated March 6, 2008. The power point presentation to the board March 12, 2008 listed projected savings by year. Yr 1: $50,794 Yr. 2: 40,546 Yr. 3: 30,672 Yr. 4: 21,349 Yr. 5: 15,867 The projection was that an estimated 12 employees would take advantage of the SERP, there were more than 12 employees that would qualify.

Three months before Keenan and Associates submitted the Fiscal Cost Analysis, PVUSD Board of Education approved Resolution 0708-22 on March 12, 2008, offering a SERP for management employees. The criteria set forth by the Board requires that the employee: • is a certificated or classified management employee • will be at least 55 years of age by June 30, 2008 • has at lease five years of continuous service with the district by date of retirement • submits a letter of resignation and SERP enrollment package by May 9, 2008 • is eligible to retire from State Teacher Retirement System (STRS) or Public Employee Retirement System (PERS) • retires from the district as of June 30, 2008 • will not be eligible for reemployment in the district other than as a substitute 48 A Tale of a SERP 2008–2009 Santa Cruz County Grand Jury Final Report with Responses Response: Pajaro Valley Unified School District - AGREES The projections were brought to the board March 12, 2008 with the resolution to request permission to proceed with the offering. This criterion is the same for management and teachers.

The PVUSD SERP offered eligible employees 95% of current salary to be paid according to the option selected by the employee. The terms of payment varied from a monthly payment through the remainder of life or a five to ten year distribution. Response: Pajaro Valley Unified School District - AGREES

The Associate Superintendent of Business and the Interim Superintendent prepared the SERP Resolution 0708-22 and the agenda item for the PVUSD Board. The resolution was approved in open session and the public had the opportunity to see the item on the agenda prior to the action taken by the board. Both the Interim Superintendent and the Secretary of the Board signed the resolution according to district procedures. Response: Pajaro Valley Unified School District - AGREES Associate Superintendent prepared the item and Superintendent approved the item for the board packet. The appropriate protocols for submitting and approving resolutions were followed.

PVUSD Board Members did not have a copy of the Fiscal Cost Analysis prepared by Keenan and Associates and were not privy to the information in the document except what was reported to them by staff prior to approving the SERP. Response: Pajaro Valley Unified School District – PARTIALLY AGREES The appropriate protocols for the adoption of resolutions were followed. The projected savings were supplied to the board, without the individual salary data which was not presented for reasons of confidentiality.

The district SERP administrators were the Associate Superintendent of Business and Assistant Superintendent, Human Resources. Keenan Financial Services served as the contract administrator to assist in implementation of the plan. Response: Pajaro Valley Unified School District - AGREES The Board authorized the two positions in Resolution 07-08-22 dated March 12, 2008 to administer and execute the plan. This included, executing documents and authorizing the contract. A Tale of a SERP 49 2008–2009 Santa Cruz County Grand Jury Final Report with Responses

Following the approval of the SERP by the PVUSD Board, an announcement flyer was prepared and distributed to all management employees in the district. Response: Pajaro Valley Unified School District - DISAGREES The flyer was mailed to eligible managers only.

Twelve employees submitted the proper paperwork and met the established criteria to receive the retirement incentive. Response: Pajaro Valley Unified School District - AGREES

Eleven of those employees, the Associate Superintendent of Business and the Assistant Superintendent of Human Resources were subordinate to the superintendent and they reported directly to the superintendent. Response: Pajaro Valley Unified School District - DISAGREES While all employees were subordinate to the Superintendent, all of the employees other than the Associate Superintendent, Business and the Assistant Superintendent, Human Resources were directly supervised by someone other than the Superintendent.

One of the employees was directly evaluated by the PVUSD Board and had a specific written contract that stipulated all terms and conditions of employment including compensation and benefits. The contract did not provide authorization for a SERP. In addition, this employee had previously retired from the district and was serving in an interim capacity. Response: Pajaro Valley Unified School District - AGREES

Keenan Financial Services estimated cost savings of $159,000 if all eligible management employees took advantage of the SERP. Interviews with the PVUSD officials revealed that the SERP savings was approximately $46,000, $113,000 less than projected. Response: Pajaro Valley Unified School District - DISAGREES The PVUSD officials showed that the savings for the FIRST year was $46,000. The Keenan document stated an estimated savings over FIVE years of $159,000. At the time when the district officials were asked for the savings amount only ONE year had past therefore only one year of savings could be calculated. A Tale of a SERP 2008–2009 Santa Cruz County Grand Jury Final Report with Responses

A financial analysis of the projected savings compared to the actual savings was not shared with the Board of Education. Response: Pajaro Valley Unified School District - AGREES The savings for the first year after the SERP had not been shared with the Board.

PVUSD stated that the County Office of Education was informed about the SERP. However officials at the county office stated they were not involved in the SERP offered by PVUSD and would only be involved if the SERP was part of a fiscal recovery plan or a payment agreement with employee bargaining units. Response: Pajaro Valley Unified School District - AGREES The county was not involved in the offer of the SERP to Management Employees. Response: Santa Cruz County Office of Education – PARTIALLY AGREES The Santa Cruz County Office of Education disagrees with the statement made by the PVUSD that the County Office of Education was informed about the SERP. We do agree with the second sentence in the Finding that officials at the county office stated they were not involved in the SERP offered by PVUSD and would only be involved if the SERP were part of a fiscal recovery plan or a payment agreement with employee bargaining units. The Santa Cruz County Office of Education has no role in reviewing or approving district Supplemental Early Retirement Programs; however, the role of the County Office of Education does include submitting retirement information in district matters of the Public Employees Retirement System (PERS) and the State Teachers Retirement System (STRS). Even in those cases, the role is not one of approval but rather submitting the retirement information and that only in the case of PERS. The Santa Cruz County Office of Education had no role in PVUSD’s SERP early retirement program of which this action was directed. Under fiscal oversight statutes (collectively referred to as AB 1200), the Santa Cruz County Office of Education does have a responsibility to review certain elements that involve added costs to districts if the district is under fiscal stress. The PVUSD at the time the SERP was granted had a positive certification. Even if not under fiscal stress, any agreements that are made between the district and a PERS recognized bargaining unit must be disclosed and the Santa Cruz County Office of Education must be provided the information as to the costs, if any, and it must also be disclosed to the public prior to board action. The 2007-2008 PVUSD budget was approved in August of 2007 by the Santa Cruz County Office of Education and the referenced First Interim Report for that year was filed by the district and received a positive certification in January, 2008. A positive certification is defined as an interim budget report that, based upon current projections, certifies the district will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A Tale of a SERP 51 2008–2009 Santa Cruz County Grand Jury Final Report with Responses In April of 2008, the district filed the required Second Interim Report and it was assigned a negative certification. One of the solutions the district proposed was to offer a supplemental early retirement option through a third party vendor, Keenan and Associates. They are among one of several vendors that work with school districts to craft such programs. By their very nature, these are programs that are offered with certain criteria in place with a stipulated timeframe. The decision to implement them is contingent upon projected cost savings. These preliminary reports only serve to define the possible eligibles not the actual outcome. The final actual application submitted determines the financial feasibility after the close of the application period. The Santa Cruz County Office of Education’s role is only to acknowledge that the district is using this program as a projected cost reduction strategy. It is within the purview of the district board to approve such strategies.

County Office of Education officials weren’t aware of a SERP being awarded to a retired employee serving as interim administrator for a district. County officials stated the practice of awarding a SERP in that situation was unusual and they had never heard of it happening before in the county. Response: Santa Cruz County Office of Education – AGREES The Santa Cruz County Office of Education was not aware of the final offering to administrators. The Santa Cruz County Office of Education is not aware of other instances in which a retired or interim employee was provided such a benefit in the past. Conclusions