San Diego Taxpayers Educational Foundation

707 Broadway, Suite 9051 San Diego, CA 92101 1T: 619-23.4-6.4231 F: 619-23.4-7.403

August 3, 2011 Ms. Maureen A. Stapleton General Manager San Diego County 'Water Authority Re: SDTEF report on labor costs at CW A Dear Ms. Stapleton: Attached is a document containing the findings of the San Diego Taxpayers Educational Foundation's study analyzing labor costs for the San Diego County Water Authority between FY 1999 and FY 2009. It includes an explanation of the study's methodology, and the raw data on which the analysis was based. We would like to extend to you the opportunity to review the study and respond before making the findings public. We ask that you please provide any comments within seven business days (August 12). Any questions or responses may be sent to joe@sdtef.org. If you have any questions or comments that cannot be addressed bye-mail, or if you think a meeting may be the best forum in which to address these issues completely, please feel free to call me at 619-234-6423. Sincerely,

J-S_S'1fJoe Sheffo Policy Analyst

cc:

Mr. Eric Sandler, Director, Finance Department Ms. Angela Tomayko, Finance Department

Federal Tax Identification Number: 33-0354443

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San Diego County Water Authority

4677 Overland Avenue San Diego. California 92123-1233 (858) 522-6600 FAX (858) 522-6568 www.sdcwa.org Aug. 12.2011

NiEMBER AGENCIES

Lani Lutar Executive Director San Diego County Taxpayers Association 707 Broadway, Suite 905 San Diego, CA 92101 Dear Lani: We received from the San Diego Taxpayers Educational Foundation on Aug. 5 a letter from Policy Analyst Joe Sheffo requesting our review of the findings of the Executive Summary of a study on the Water Authority's labor costs. We appreciate the opportunity to review and comment on the document, and will also respond directly to Mr. Sheffo, as requested. However, I want to bring to your immediate attention the fact that the study contains numerous errors, miscalculations and erroneous data. As a consequence, the majority of the "Key Findings" and table data points in the report are incorrect. and in some cases. grossly misleading.

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The inaccurate findings and errors have shaped the content, tone and tenor of the Executive Summary and provide a wholly distorted overview of the Water Authority's labor and benefits. We do not know if there is a broader report that has been written for public release (it appears we have been provided only an "Executive Summary"). Accordingly, we request that you postpone any public release until after your organization has had the opportunity to regroup. correct the fundamental errors and methodologies used, and produce an accurate report. This would be especially important if you would otherwise plan to proceed using similar methods and calculations to produce reports on other water agencies, as the introduction to the Executive Summary states (e.g. Metropolitan Water District of Southern California and local water agencies and cities). As you know, we have been provided only a few days of review before our response was requested (by today). We welcome the opportunity to sit down with you and your staff to review the study and discuss the problems outlined above. If you would like to have such a meeting, please contact my office. Sincerely,

OTHER REPRESENTATIVE

Maureen A. Stapleton General Manager Cc: Joe Sheffo, policy analyst, San Diego Taxpayers Educational Foundation
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San Diego County Water Authority

4677 Overland Avenue 0 San Diego, California 92123-1233 (858) 522-6600 FAX (858) 522-6568 www.sdcwa.org Aug. 12,2011

'AtMBER AGENCIES

Joe Sheffo Policy Analyst San Diego Taxpayers Educational Foundation 707 Broadway, Suite 905 San Diego, CA 92101 Dear Mr. Sheffo: We appreciate the opportunity to review and comment on the San Diego Taxpayers Educational Foundation's summary of a study on the Water Authority's labor costs. The study contains numerous errors, miscalculations and erroneous data. As a consequence, the majoritv of the "Key Findings" and table data points in the report are incorrect. and in some cases, grossly misleading. Attached is a letter sent today to Lani Lutar, executive director of the San Diego County Taxpayers Association, discussing these errors. We have suggested to Ms. Lutar that a meeting be held between Taxpayers' staff and Water Authority staff to discuss the study and the errors we uncovered. In the meantime, and in response to your request that we review the study and respond to you by today, the following table corrects errors in the "Key Findings" section of the study. "Key Findina" Total Annual Labor Labor Cost for CWA, as of Fiscal Year 2009 Increase 1999-2009 Increase per employee 19992009 Annual salarv cost increase 1999-2009 Benefit cost increase 1999-2009 Total labor related liability increase 20022009 "Pick-up" increase 1999-2009 Study's Data Kover $52 million" "270%" "148%" "quadruoled" "nearlv trioled" "1900%" "251%" Fact $42 million 85% 24% 91% 74% 1227% 78% Difference $10 million 185% 124% 209% 126% 673% 173%

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In addition, the study contained four tables that, combined, contained 209 separate data points. Of the 209 data points, 169 (nearly 81%) are incorrect. These errors appear to be the result of miscalculations and/or incorrect assumptions. Considering the brief review period we have been afforded, and because these errors are too numerous to address in this letter, we would be happy to discuss necessary corrections in the meeting suggested in our letter to Ms. Lutar.

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Mr. Joe Sheffo Aug. 12,2011 Page 2

Finally, we are unable to verify the calculation in the fourth "Key Finding" on the first page of the document concerning the "typical pension and retiree healthcare benefit paid out to a CWA employee who retires at age 55 .... n Thank you again for the opportunity to comment on the Executive Summary of the Taxpayers Educational Foundation's study. Sincerely,

Maureen A. Stapleton General Manager Attachment Cc: Lani Lutar, executive director, San Diego County Taxpayers Association

August 17,2011 Ms. Maureen A. Stapleton General Manager San Diego County Water Authority 4677 Overland Ave. San Diego, CA 92123 Re: Response to labor cost numbers Dear Ms. Stapleton: Thank you so much for your replies to our letter of August 3 in which we shared with you the findings of our study of labor costs at the San Diego County Water Authority between FY 1999 and FY 2009. As your letters made clear, CWA believes the study's conclusions, and the data on which they are based, are flawed. In order to ensure the soundness of our study, we are providing the numbers, in nominal dollars, which were used to calculate the figures you are disputing. The sources of these data are also provided. A spreadsheet with that information is attached, as is all relevant correspondence between your organization and ours since April of this year. As to the dollar amount given for the lifetime pension benefit of a typical CW A employee, that figure was based on the following assumptions: A 2.5% at 55 benefit formula 20 years of service A final compensation of $95,593 (Based on Average Annual Salaries by Age and Service Table. CalPERS Actuarial Valuation. June 30, 2009. Page 24) An EPMC earned compensation of7%, or $6,691. An annual cost-of-living adjustment of 3%. A life expectancy of 84 years of age (CaIPERS Actuarial Office. "CaIPERS Experience Study: 1997 to 2007. Apr 2010. P.27-29. Life expectancy used for calculations is rounded average for men, 82.3, and women, 85.3) An annual OPEB benefit for retiree and eligible dependent of$3,840 for ten years (ages 55 to 65). Both retiree and dependent are the same age and die the same year.

The San Diego Taxpayers Educational Foundation strives for accuracy. We hope that this additional information will help clarify any uncertainties you may have about the study. For its part, the Foundation will consider any changes that provide a more complete and accurate picture of labor costs at the Authority. If, after examining the attached data, you still have outstanding questions about the study, its methodology, or its ultimate findings, please let us know by August 24th.
Federal Tax Identification Number: 33-0354443

Page 2 of2

Sincerely,

Lani Lutar Director

cc:

Mr. Eric Sandler, Director, Finance Department Ms. Angela Tomayko, Finance Department

San Diego County Water Authority

4677 Overland Avenue 0 San Diego, California 92123-1233 (858) 522-6600 FAX (858) 522-6568 www.sdcwa.org Aug. 22, 2011

MEN\BER AGENCIES

Lani Lutar Executive Director San Diego County Taxpayers Association 707 Broadway, Suite 905 San Diego, CA 92101 Dear Lani:
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I have received your August 17 letter responding to my letters of August 12 to you and Joe Sheffo of the San Diego Taxpayers Educational Foundation. Your letter made no mention of whether or not you and your staff intend to accept my offer of a meeting to review, in greater detail, the errors in the San DiegoTaxpayers Educational Foundation study on Water Authority labor costs. As stated in my August 12 letters, the majority of the "Key Findings" and table data points in the report are incorrect, and in some cases, grossly misleading. I reiterate the offer of a meeting, and believe it would help you and your staff produce accurate calculations for this study and avoid making the same errors in the subsequent studies you plan to produce on the Metropolitan Water District of Southern California and local retail water agencies and departments . You attached to your August 17 letter the documents containing the baseline data the Water Authority provided to Taxpayers over the past four months; none of the baseline data contains any errors of which we are aware. Rather, it is the mathematical formulas and computations your staff applied to the baseline data that produced the countless errors in the Taxpayers study. In fact, of the 209 data points in the four tables in Appendix A, 169 were incorrect. The only data points that were accurate were the 29 data points where the data was zero, and the 11 data points that listed the Water Authority's FTE (Full-Time Equivalent) employee count, as no computation was attempted using that data. Attached are just a couple of examples of fundamental computational errors in the study. These errors should give you sufficient enough pause to step back, regroup, and produce a new, accurate report. Despite the two letters from the Water Authority on August 12 pointing out that that the vast majority of findings and data points in the Taxpayers' study are inaccurate, your letter of August 17 does not acknowledge any errors. Rather, your letter asked if the data attached to your letter (consisting mostly of the baseline information the Water Authority provided to the Taxpayers) of August 17 helped "... clarify any uncertainties you may have about the study." To be clear, we have no "uncertainties" about the baseline data the Water Authority provided to Taxpayers: that data is accurate. However, the work product of the Taxpayers - its study -- is riddled with errors, none of which were clarified nor corrected in your August 17 letter. We are at a loss to understand why the Taxpayers would ignore the feedback provided by the Water Authority. While the Water Authority is capable of taking this one step further to produce accurate figures for each of the data points and Key Findings to replace the
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Ms. Lani Lutar August 22, 2011 Page 2

erroneous information in the Taxpayers' study, it would seem counter-intuitive for a public agency being reviewed by a taxpayer advocacy group to produce such work. It is the Taxpayers' responsibility as a respected and important voice in the community to ensure the accurate portrayal of information on which it bases its study findings, conclusions and policy recommendations. To that end, I would encourage the Taxpayers Educational Foundation to obtain the services of a qualified CPA to independently review the formulas and calculations its staff used to produce the data in the study. This could help avoid potential embarrassment of having a Taxpayers study in public circulation that is so fundamentally flawed. Sincerely,

~~ Maureen A. Stapleton General Manager Attachment

Examples

of Errors in San Diego Taxpayers Educational Foundation San Diego County Water Authority Labor Costs

Study of

Example of SDTEF's CPI adjustment computational error: FY1999 EPMC: $786,584 (baseline data provided by the Water Authority) Factor to convert June 1999 to June 2010 dollars: 1.42 or approximately 70.3% $786,584 x 1.42 = $1,118,910 $786,584/70.3% $1,118,896

In Appendix A, SDTEF miscalculated the EPMC figure for FY 98/99 as $553,733.81. SDTEF miscalculated the CPI adjustment because it multiplied by 70% instead of dividing. This resulted in deflating the FY 98/99 figure rather than inflating it to 2010 dollars. This caused the number in Appendix A to understate - by $565,162.19 - the adjusted value of the EPMC in FY 98/99. This understatement then created a much greater difference between the FY 98/99 figure and the corresponding FY 08/09 figure (which is also incorrect). Because of this error, SDTEF then concluded, incorrectly, that the growth in EMPC from FY 98/99 to FY 08/09 was 251% when, in fact, the growth was 78%. In this case, SDTEF overstated the figure by 173%. These errors were repeated for all data points in the EPMC column in Appendix A. Correct % increase calculation: 1999 EPMC in 2010 dollars: $1,118,910 2009 EPMC in 2010 dollars: $1,995,149.46 Increase from 1999 to 2009: $1,995,149.46 - $1,118,910 = $876,239.46 % increase from 1999 to 2009: $876,239.46/$1,118,910 = 78%

Example of how SDTEF's CPI adjustment computational error resulted Benefit Cost Increase calculations. The correct information is: 1999 Benefits in 2010 dollars: $7,511,282.19 1999 Number of Employees: 193 1999 Benefits per Employee: $7,511,282.19/193 = $38,918.56

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2009 Benefits in 2010 dollars: $13,053,838.33 2009 Number of Employees: 288 2009 Benefits per Employee: $13,053,838.33/288 = $45,325.83 Increase in Benefits per employee: $45,325.83 - $38,918.56 = $6,407.27 % increase in Benefits per employee from 1999 to 2009: $6,407.27/$38,918.56

= 16%

Increase in Benefits from 1999 to 2009: $13,053,838.33 - $7,511,282.19 = $5,542,556.13 % increase in Benefits from 1999 to 2009: $5,542,556.13/$7,511,282.19 = 74% SDTEF's "Key Findings" stated that "benefit costs nearly tripled." However, SDTEF miscalculated the CPI adjustment because it multiplied by 70% instead of dividing. Accordingly, SDTEF overstated the growth in benefit costs by approximately 226%.

In addition to the CPI miscalculations that led to numerous errors throughout the SDTEF study, the study contains other errors in calculation and in the application of the baseline data provided by the Water Authority.

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August 23, 2011 Ms. Maureen A. Stapleton General Manager San Diego County Water Authority 4677 Overland Ave. San Diego, CA 92123 Re: Labor cost study Dear Ms. Stapleton: We information subjects of prior to the are in receipt of your letter of August 22. We have since reviewed our data against the you supplied and made appropriate corrections. Your feedback is the reason we provide the our studies the opportunity to review pertinent data, as well as self review for any errors, release of our reports.

Understanding you have concerns about additional data we have provided you, we look forward to meeting with you as early as possible. In fact, you may recall that we first raised the possibility of a meeting in a May 2 letter to the San Diego County Water Authority (attached). At the time of our meeting we will provide you with updated data and key findings for our mutual review. We will be contacting your office within the next few days to schedule a meeting. any questions, please-contact me at 619-234-6423. Sincerely, If you have

Lani Lutar Director

cc:

Mr. Eric Sandler, Director, Finance Department Ms. Angela Tomayko, Finance Department

Federal Tax Identification Number: 33-0354443

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Lani Lutar Executive Director San Diego County Taxpayers 707 Broadway, Suite 905 San Diego, CA 92101 Dear Lani:

Association

Thank you for your August 23 letter. We are delighted that you have agreed to meet with us to discuss the errors in the San Diego Taxpayers Educational Foundation study, and that you have already made corrections to some of those miscalculations in response to my August 22 letter. We are encouraged by this progress.

I and my staff have identified the following dates and times that work for our calendars. Could you please let me know if one of these works for you and your staff?
Wednesday, September 14, any time between 8 a.rn, and 10 a.rn. Thursday, September 15 at any of the following times: 8 a.m. to 9 a.m. 2 p.m. to 3 p.m. 4 p.m. to 5 p.m. The reference in your August 23 letter to the Taxpayers' suggestion of a meeting back in early May was for a different purpose than the one I suggested in my previous letters. In the May 2 email from Mr. Sheffo to Water Authority staff, he was requesting the Water Authority provide an array of information and offered the option of a meeting if the Water Authority thought that would be necessary. A meeting was not necessary at that time; as the Water Authority responded with all the information Mr. Sheffo requested in an ernail on May 20. Now, more than three months later, the meeting I have been suggesting is not related to the Taxpayers request for information back in May. but rather was for the purpose of helping you and your staff identify and correct the many errors in the August 3 study that was provided to us for our review. I hope this clarification is helpful. We look forward to meeting with you and your staff. Sincerely.

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Maureen A. Stapleton General Manager

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