Racial transfers of wealth and income via under-funded legacy municipal pension systems Darwin BondGraham1 Abstract: Oakland,

California's Police and Fire Retirement System (PFRS) provides retirement benefits to police and fire officers hired before 1976. Because of racist hiring policies and discrimination within the city's various departments, especially the police, except for a few late hires in the 1970s, vested members of the PFRS pension are virtually all elderly white men. Most members retired decades ago and decamped to suburban cities and distant rural towns. Between 1976 and the present the PFRS pension became severely under-funded, requiring extra contributions from the city. Oakland simultaneously lost thousands of middle class residents, major employers closed factories, retail was shuttered, and poverty and unemployment rates increased for the city's new non-white majority. Fiscally weakened, Oakland struggled make contributions to the PFRS. To finance contributions the city issued risky pension obligation bonds in a securities arbitrage strategy. The pension bonds successfully prevented extremely harmful cuts to services funded from the city's general fund, but this risky plan of creative finance failed to reduce the unfunded accrued actuarial liability of the PFRS. A stock market bubble, weak performance by investment managers, and the financial crisis of 2008, wiped out gains from the bond proceeds leaving the system further under-funded. In 2012 Oakland doubled down with a new issuance of pension bonds. Only five years from today will investment returns and losses net of interest payments be calculable. Even so, the PFRS saga of Oakland demonstrates the structurally racist fiscal architecture of US cities due to complex historic, demographic, market, and political factors that benefit certain privileged past workers over current residents and employees.

1 Contact the author darwinbondgraham(at)gmail.com

Black Migration and Exclusion from the City's Wealth World War II brought approximately 80,000 new residents to Oakland, California to work in wartime manufacturing plants scattered from Richmond to Fremont. The largest influx of workers were Black and white migrants leaving southern states where where changes in the plantation system displaced the tenant labor force. i Wartime jobs in West Coast industrial boom cities also promised upward socioeconomic mobility for these groups. New residents were catalysts of rapid economic growth in California. Oakland quickly became the second largest city in the Bay Area metropolitan region, and solidified its role as the hub of industry around which tens of thousands of new homes, and hundreds of schools and commercial centers were constructed. Thousands of new small businesses as well as major retail department stores opened in downtown, east, and north Oakland. California's reputation as a "Golden State," initially conceived in popular culture as a story of private riches to be eked out of mines and frontier markets via bootstrap entrepreneurship was replaced by a new "dream." During and after World War II California's "golden" opportunities were conceived of as a social project available through the robust public sector, centered on a few large municipalities, and growing collective investments in education, infrastructure, health, and welfare, and underwritten by the labor of a rising middle class. New migrants to Oakland sought out these social riches, indeed fought with employers and conservative politicians to strengthen a progressive social contract. For Black newcomers social progress was much more difficult to earn. Racist barriers were established in law and customs by the white majority. Like nearly all other "northern" cities, Oakland's wartime leaders chose to foster an apartheid system of housing, education, and city services as a "solution" to Black migration, which many local white businessmen and politicians presumed was "temporary." The city's rapidly growing Black population was ghettoized into the flatland regions initially in West Oakland where a small Black community had existed almost since the city's founding. ii During and after the war Black families increasingly took up housing in portions of East Oakland as white middle class families left for the growing suburbs. In 1940 Blacks made up about 3 percent of Oakland's total population. By 1950 they were more than 12 percent, 22 percent by 1960, and 34 percent by 1970. In 1980 Blacks became the largest racial group in Oakland, making up 47 percent of the city's population.iii Figure 1 charts Oakland's racial shift from a white industrial city to Black postindustrial metropolis, and finally to a Black, white, Latino, and Asian prismatic metropolis over seven decades.iv

Figure 1: Oakland's racial composition between 1940 and 2010. Approximately 200,000 whites left the city between 1950 and 1980 while over 100,000 Blacks arrived. *In the 1980s Latino immigration from Mexico and Central America increased alongside the existing and significantly large Chinese, Korean, Cambodian, and Vietnamese communties.. Black migrants quickly made Oakland their home. Post-war organizing for human rights led to slow but steady progress in de-segregating the public and private spheres of life and labor. Even though housing segregation remained a serious inequity (indeed to this day), the advent of mass homeownership, and small business entrepreneurship, among Oakland's Black population marked progress over previous eras of racist disaccumulation. One of the institutions most difficult to de-segregate was the city of Oakland's public safety apparatus, however. During World War II, and the immediate postwar decades, the city's police and fire employees were virtually all white. v A de-facto policy which banned Blacks from working for government in any but the most menial roles existed well into the 1960s. Of the OPD's 617 officers in 1966, only 16 were Black, and these very junior officers were mostly consigned to duty in West Oakland.vi According to a survey of Oakland police officers conducted in 1980, only six percent of the force was Black. The overwhelming majority, 83 percent of officers, were white, and while almost a third of officers had been with the department for ten years or more, black officers had a less lengthy average tenure.vii One of the many inequitable results of this racist exclusion from municipal employment was that the vested membership of the city's pension systems, principally PFRS, became a homogenous population of white men. Non-white workers, and by extension their families and communities, would never receive proportionate benefits of this unique social insurance available to Oakland employees. This inequitable arrangement was made all the more damaging to Black city employees due to the fact that in post-WWII America, police and fire jobs have been among the highest paying public jobs, and

retirement benefits for public safety officers far outstrip what is available to civilian city employees, and most of the region's private sector blue collar jobs. The Police and Fire Retirement System The Police and Fire Retirement System of the city of Oakland was established in 1951 as a defined benefit retirement plan to provide pensions to the city's rapidly expanding police force. In the early days of the PFRS most of the system's members were active employees making contributions to the fund, not yet drawing benefits. This situation persisted into the early-1970s leaving PFRS with a healthy funding ratio which drew its value from the city's contributions (provided from the still robust property tax base), police employee contributions drawn from paychecks, and returns on bonds and other securities purchased and held by PFRS. As police and fire employees retired, there tended to be new hires to replace them, thereby replacing their contributions, and keeping the fund growing at a steady clip. Furthermore, while police salaries in Oakland at the time were considered good, they were still well within the means of the city to pay, even while maintaining a police force sized to fit its geographic size and population level. The era of $200,000 a year cops had yet to arrive. viii Combined, all this required relatively low levels of contributions from the city compared to its over-all fiscal capacity to meet actuarial obligations. The California Public Employees Retirement System (CalPERS), founded in 1932, originally invested funds for the retirement of state employee, but in 1939 the legislature expanded the system's authority to cover the employees of cities, counties, and other local government agencies. CalPERS grew rapidly thereafter; 201 cities in California, which would become home to millions of residents, employing tens of thousands of police and fire officers, were not even incorporated until after 1939. ix Many cities soon after incorporation chose CalPERS to administer their pension systems. In 1976 Oakland's voters chose to close the PFRS fund to new members. Thereafter the City Council transfered over all new police hires to the rapidly growing CalPERS. Although closed to new members, the PFRS board still oversaw the retirement savings of several thousand city employees, mostly retired police officers. The city of Oakland ultimately would be legally obliged to ensure the funding of the PFRS to pay out retirement benefits until the actuarially estimated date of death of the system's last member. Anticipating the possibility that an un-funded actuarial accrued liability (UAAL) might arise x, Oakland's leaders sought a means of ensuring a dedicated funding stream for city contributions to the pension fund if and when it became necessary. The city's retirement law, modified by Measure R in 1976, stipulated that the city's UAAL to the PFRS pension were to be amortized (paid up) over 40 years, until 2016 when it was expected to be fully funded and would require no further city contributions.xi Even at this point it was becoming clear that the city's fiscal capacity would be strained to meet these obligations, however, and that a simple amortized schedule of city contributions would be difficult to meet without cutting general services. Demographic, economic, and political shifts would soon leave Oakland seriously short of tax revenues to pay for necessary city services and infrastructure, forcing the city to reorganize its fiscal constitution in ways that have harmed current residents. To make legally required contributions to the pension to alleviate the unfunded liability, the city initially needed to make contributions to the pension out of its general fund. This devoured increasingly scare tax dollars that would otherwise go toward city services. Later when the city issued bonds to forward-fund its contributions, Oakland dove deep into debt. In 1981 the City Council passed Resolution No. 59916 which levied a 0.1566 ad valorem tax on property. This special "tax override" was legally permissible because the pension obligations were effectively debts incurred by Oakland prior to the passage of Proposition 13 in 1978. As later court

rulings held, debts incurred prior to Proposition 13's passage justified the levy of tax override measures, even if this increased total local property tax bills above the 1 percent constitutionally enforced cieling.xii The tax override raised money to pay the city's contributions to the PFRS and avoid painful cuts to the city's general fund which would reduce services. In the 1980s Oakland began to use pension obligation bonds (POBs) to forward fund its obligations to the PFRS, paying off the bondholders with the same tax override revenues. The POBs were meant to arbitrage the rate at which Oakland could borrow money in bond markets (between 4 and 6 percent) and the rate of return available on investments made with proceeds of the pension bonds by the PFRS fund (upwards of 8 percent). In the 1990s and 2000s this arbitrage strategy would backfire when risky securities lost value, causing the obligation owed by Oakland to the PFRS to remain underfunded, even while debts owed to bondholders grew. The levying of the tax override also undermined the city's ability to convince its residents to approve other taxes in the post-Proposition 13 era. Many voters felt taxes were too high already, regardless of what the real burden and levels of services were. xiii While the tax override to pay the pension obligations of the city did not need voter approval, taxes for services, schools, infrastructure, and other goods for current residents did, and were frequently voted down. Finally, whether homeowners or renters, the tax-override levied on top of the existing 1 percent property tax, constituted a transfer of hundreds of millions of dollars from the people of Oakland, now majority non-white, to a small club of mostly white retired police officers who predominantly live outside the city in majority white and affluent suburbs and rural retirement towns. Before addressing the racial consequences of these local fiscal transformations in more detail, a brief examination of the role of the police in shaping Oakland's economy and politics is warranted. The role of Oakland's police in the city's racial and class politics during the era of the PFRS system (19511976) when officers were vested with the municipal pension fund's lucrative benefits worsened the already serious economic and demographic problems that were steadily undermining Oakland's fiscal health. The police were active agents in the under-development of Oakland's working class communities. The Oakland Police openly served the region's economic elites by breaking up union organizing activities, and later attacking mobilizations of Black Oaklanders who sought to desegregate public and private sector institutions and end poverty in the flatlands. The Oakland Police Department's Role in Racial and Class Politics Throughout the 20th Century the Oakland Police Department worked in concert with the region's major corporate employers and the affluent white "hills" residents to suppress Black and Labor organizing towards desegregation of public and private institutions, residential neighborhoods, living wages, fair tax and budgeting priorities, and fair economic development policies, among many other goals that could have improved the city's collective welfare. xiv The Oakland police routinely sided with employers in multiple high-stakes battles over workplace conditions, pay, unionization, and other issues. xv The Oakland Police Department was well known among Labor leaders and federal National Labor Relations Board members as "actively assisting in strikebreaking" in concert with industry during the late 19th and early 20th Centuries. Records from the regional maritime-centered strike of 1934 describe the Oakland police as driving away union organizers, protecting scabs on the industrial waterfront, and looking the other way while "[white] AFL thugs" attacked multi-racial CIO organizers and workers. xvi Between 1900 and 1920 the San Francisco Chronicle frequently reported that the Oakland Police protected non-union "scabs," and assaulted "mobs," typically striking workers attempting to occupy or picket workplaces in Oakland. xvii The department's hostile temperament against the Black community became more vociferous during World War II's wave of southern migration to the city. Oakland's police chief claimed the

southern migrants (white and Black) were of lower quality than other migrant streams, justifying his department's buildup of force and increasingly militarized tactics. Many OPD officers hired during this era of containment were southern whites purposefully courted for their "experience" in policing Blacks in their home states (even if, by the logic of city officials, they were also of "lower quality" than say Midwestern white migrants).xviii During the war OPD was said to conduct arbitrary "sweeps" of West Oakland's Black community to jail young men by the hundreds on vagrancy and draft evasion charges, actions that were designed to both terrorize the city's Black residents and undermine union and nascent Civil Rights organizing.xix The Oakland general strike of 1946 is the best known episode of the Police Department's overt attacks against the city's working class, and also one of the most harmful setbacks for organized labor in the Bay Area. In October the Specialty Store Employees Union Local 1265 brought a campaign to organize retail clerks in several Oakland department stores to a head by voting to strike. The Alameda County Labor Council embraced the strike, and other unions pledged not to cross picket lines. According to historian Chris Rhomberg "[t]he Kahn's and Hastings strike quickly developed into a public showdown between the downtown business elites and the AFL unions in Alameda County, and each side marshaled its allies." xx The Police were decidedly a force for the downtown business elites. Again, as Rhomberg described the seminal moment of the strike: "The store officials announced their intention to move half a million dollars worth of merchandise into the struck stores using a nonunion trucking firm from Los Angeles, and with the consent of all present, the chief of police agreed to provide security for the event [....] By sunrise, some 250 policemen were on duty at the scene, equipped with shotguns and tear gas. Strikers and union leaders were forced to watch from behind police lines while dozens of police squad cars and motorcycles escorted two separate convoys of strikebreaking trucks, allowing them to complete their deliveries." This train of action, enforced by the OPD, immediately escalated a single strike into Oakland's famous general strike of 1946, but organized labor would not ultimately prevail, and union power ebbed thereafter. The record of OPD surveillance and violent repression marshaled against Oakland's Black community is thick. Most obviously the OPD's mundane practices of racial profiling and brutality were the inspiration for the Black Panthers' program to "police the police," a militant self-defense effort that itself was met with violent force by the police. OPD repression of Black Oaklanders wasn't confined only to those who agitated for change. Rather, it was a daily routine of terror designed to keep Black residents from crossing racial lines, from entering white neighborhoods, or otherwise aspiring to anything beyond the increasingly segregated ghettos of the city they were forced into by the real estate and banking industry. Systematic police repression of Oakland's Black population continues to this day. The city's police department has been found to perpetuate a pattern and practice of civil rights violations of Black and Latino residents by a federal judge. xxi Multiple class action civil cases involving wrongful death, illegal searches, racial profiling and brutality have been brought against OPD leading to numerous multi-million dollar judgements against the department. Nearly all the plaintiffs have been non-white residents, leading many to argue that Oakland's police department continues to be influenced by an anti-Black culture of militarized policing that was fostered during and immediately after World War II.xxii On balance the Oakland Police Department has served to undermine political mobilizations of the city's lowest income workers, particularly the Black population. The legacy of this brutality is apparent today in the underdevelopment of Oakland's working class flatlands communities where unemployment rates are high, schools are under-funded, industry has disappeared, property values are depressed, environmental pollutants accumulate, crime is high, food insecurity is common, and other problems that social movements have struggled to address rage out of control.

Whose Benefits? Oakland's obligation to members of the PFRS pension is a legally binding financial commitment of the city's post-1976 residents, two-thirds of whom are non-white and half of who are under the age of 36, to a small group of virtually all white elderly men employed by the city prior to 1976. Most of the PFRS beneficiaries no longer live in Oakland, many have retired to suburban cities and distant rural towns. Because of the pension system's underfunding, and the requirement that this underfunding be patched with special taxes or general fund revenue, the total pension obligation owed to these men, which amounts to just over $1 billion as of January, 2013, is effectively a transfer of wealth from the city's current residents to this small pool of beneficiaries and the communities they currently reside in. This wealth transfer has occurred in some years as a direct payment out of the city's general funds to the pension system, and in most years as a special payment from tax override funds pledge to the PFRS obligation. Both means of repayment crowd out other potential uses of general fund and securitized tax dollars for bond-funded expenditures. As of 2012 there were 1,106 members of the PFRS pension system, split between 629 former police officers and 477 former fire officers.xxiii Total benefits payments to these former employees amounted to 66.8 million in 2011, an average of about $60,000 in yearly benefits paid to each individual, or about $20,000 more than California's median average non-family income. xxiv The mean benefits payment per month is $4,935. The highest benefits payment to a PFRS member in 2011 was $13,949.xxv Of the 1,106 beneficiaries of the PFRS pension, only 71 still reside in Oakland - about 6.5 percent. The dollar amounts flowing out of Oakland via the PFRS system are similarly distributed in geographic terms. Only about $4.7 million of PFRS benefits payments made in 2011 went to retired officers living in Oakland, while about $60 million went to officers living outside the city. A balance of about 93 cents of every PFRS dollar was exported from Oakland. Benefits paid through the PFRS fund to members end up being spent on housing, retail, healthcare, and other consumer purchases, mostly in and around the communities where beneficiaries reside. In addition to California, where 888 members of the pension system live, retired OPD officers and fire employees who receive PFRS benefits live in 31 others states. PFRS members are most concentrated in rural areas of Nevada (40), Oregon (35), Arizona (19), and Washington (18). Within California many retired OPD PFRS beneficiaries live in the affluent, majority white East Bay suburbs that ring Oakland. These same municipalities, most notably Walnut Creek, Pleasanton, San Ramon, Danville, Livermore, and unincorporated Castro Valley, are precisely the same suburban zones that rapidly grew between the 1950s and 1990s, due in no small part to white flight from Oakland and other urban cores. While Oakland only grew by 29 percent between 1940 and 2010 (indeed actually shrinking between 1940 and 1980), East Bay suburbs like Concord and Pleasanton grew by 8,000 and 5,000 percent, respectively. This shift in population, especially the exodus of middle class and affluent residents from Oakland, would create a severe mismatch between the city's social and economic policy needs, and the government's fiscal capacity to pay for them. Figure 2 charts the stagnation of Oakland's population and the growth of the East Bay suburbs between 1940 and 2010. The suburban cities included in Figure 2 are those with the largest numbers of PFRS members residing in their tax district.

Figure 2, East Bay population trends, 1940-2010. While Oakland lost population between 1940 and 1980 surrounding suburbs, some newly incorporated, grew rapidly, adding approximately 1.24 million residents. (Source: Historical Census Populations of California, Counties, and Incorporated Cities, 1850-2010, California State Data Center, August, 2011.) In the 2000s some of these suburbs became increasingly populated by Blacks and Latinos. xxvi Most of these suburban towns maintain white majorities, or pluralities, however, with Asian middle class residents making up the second largest demographic group. One way to understand the PFRS obligation of Oakland is that it is a transfer of equity from Oakland's real estate, paid by property owners and renters alike, to the communities in which PFRS beneficiaries have relocated to in large numbers. Thus Oakland transfers a quarter million dollars in city wealth to Castro Valley and San Leandro each month, money that ends up being spent on housing, consumer goods, and healthcare in those locations, rather than Oakland. Together the major East Bay suburbs of Alameda and Contra Costa Counties, where 412 PFRS members now reside, soak up over $2 million of Oakland's revenues each month (ultimately sourced from the tax override and invested in the PFRS fund). There is not a similar flow-back dynamic. Retired public safety officers from Walnut Creek, for example, do not retire in Oakland. Table 1 lists the East Bay suburban cities with the largest numbers of PFRS members as residents, the total gross monthly pay received by all members in each city, and the average percentage of white residents in the zip codes they reside in.

Table1: East Bay suburbs with the largest numbers of PFRS members residing in their tax districts. Note: Castro Valley and San Lorenzo, which appear above, are not charted in Figure 2 because they are unincorporated areas for which census data going back to 1940 is unavailable. Their population growth over this period mirrors that of other suburbs though.

White Flight, Capital Flight, and the Tax Rebellion Just when the PFRS system was closed to new members a dramatic demographic and economic transformation undermined the ability of the city of Oakland to meet its actuarial obligations, forcing the city to resort to risky and complicated financial strategies to fund the PFRS. In 1980 Oakland registered a Black plurality of over 150,000 residents, surpassing the city's white population for the first time. The national-level economic and political forces that allowed for southern migrants to create a prospering Black metropolis in Oakland had long disappeared, however. The "Chocolate City" of the West Coast proved just out of reach, and the once economically and fiscally robust Oakland fell into a chronic and worsening crisis. xxvii Reactionary opposition to the demands of the Black freedom movement to desegregate the public sector led to a white exodus from Oakland. White working and middle class families left for the boomtown suburbs of the East Bay, beginning in the 1950s, but peaking in the 1970s and 1980s, taking their political and economic capital with them. This caused a drop in economic activity and property values in Oakland which was reflected in a decline in the growth of tax receipts for the city. Capital flight also afflicted Oakland as the industrial waterfront was shuttered and much of the region's manufacturing and logistics capacity was automated or sent overseas thanks to the decisions made in the boardrooms of powerful manufacturing and shipping companies. The Port of Oakland's

terminal operators shed the majority of their workforce between 1950 and 1980 with the institution of container technology which vastly enriched shipping owners at the expense of workers and their home towns.xxviii Increasingly high rates of unemployment afflicted Oakland's new Black plurality and its growing Latino immigrant communities. xxix As noted above, attempts to address these political and economic crisis from the grassroots up were often met with harsh force by the Oakland police. Industry relocated outside of Oakland's boundaries in white majority suburban cities that were purposefully erected as barriers against Blacks, barriers to protect and maintain white wealth, property, and privileged access to jobs, schools, and ultimately tax dollars. xxx Rising unemployment, continuing hyper-segregation, environmental racism, and rising crime and violence in West and East Oakland from the 1970s through the present created conditions for severe poverty and hardship among Oakland's Black communities and led to a branding of the entire city as a dangerous and undesirable place. As if this wasn't bad enough, the tax rebellion that began in California in the late 1960s and reached its peak in the late 1970s radically undermined the ability of local governments to raise revenues, even during the best of economic times. The single biggest blow was Proposition 13 which slashed property taxes to 1 percent of assessed value, reset assessments at their 1975 values, and allowed for only a maximum 2 percent per year increase in assessed values of property. Proposition 13 also required than any and all other taxes be approved by a two-thirds vote of the state legislature or public, thereby giving anti-tax minorities a virtual veto power over attempts to raise revenue through means other than the gutted property tax. Numerous other problems with Proposition 13 are too numerous to describe here, but generally the effect was to starve older urban cities of tax dollars, benefit newer cities with booming housing and commercial development, and allow corporate property owners to reap a windfall of effective tax cuts for decades after. xxxi In Oakland revenues plummeted following passage of Proposition 13, and the extinguishing of state and federal aid, and the state budget surplus that initially cushioned the blow. By the early 1980s Oakland's tax receipts were stagnant as the city could no longer rely on revenues from the relatively high priced real estate of homes located in its affluent hills, the Lake Merritt neighborhoods, and corporate downtown. In the 1990s retail tax dollars would be further eaten into by the development of Emeryville, a small city on Oakland's edge that used state redevelopment funds and tax incentives to build big box shopping malls. The fiscal consequences of these changes were simply that Oakland lacked the tax dollars necessary to fund much needed city services. Predictably most of the city's public institutions fell into perennial crisis, the city's budget problems worsened during recessions, and never recovered during macro-economic booms. The PFRS would come to be a major liability of the city, and mistakes made in attempts to creatively finance the obligation would drive Oakland's current residents deep into debt. Un-Funded Actuarial Accrued Liability Before its closure in 1976 it was clear the PFRS pension was accruing an unfunded liability; the contributions being made into it by police officer employees and the city employer, plus the growing value of assets held in the fund, were not enough to meet the projected total obligations of the city to all PFRS members. Despite multiple attempts to fund the pension after its closure, it would continue to lose value against the benefits earned by its members. The under-funding of the PFRS is caused by a dynamic that has afflicted hundreds of other local government pension funds, but also to forces that are uniquely potent in Oakland's political economy. Similar to the underfunding afflicting other pensions, worsening national economic recessions undercut the value of the PFRS's assets, while obligations continued to grow faster than the inflation rate, and much faster than the city's fiscal capacity, because benefits owed to PFRS members have been tied to salary increases of current police employees.

PFRS benefits are tied to the current pay of Oakland Police Department officers, even though the current police employees of the city are covered by CalPERS. When current police employees receive raises in their pay tied to their rank, these raises are calculated into the total obligations owed by the city to the retired PFRS members. xxxii The city therefore pays the real current cost of officer retirement benefits, not the past cost of the workforce that had been anticipated by city leaders who bargained with the Oakland police during the PFRS era. In theory there is nothing problematic with this arrangement. However, when a city undergoes dramatic demographic and economic changes that negatively affect its tax base, its pension obligations to prior era workforces become mismatched. This tendency is made more extreme in Oakland's case because of the political strength of the police officers union. The police officers union is one of the strongest political forces in Oakland. The Oakland Police Officers Association (OPOA) successfully bargained with the city for decades for lucrative increases in base pay, overtime pay, pension, and healthcare benefits. OPOA's bargaining successes grew as the city's crime problems worsened. Of all services the city's electorate were most loath to cut, the police were at the top of the list. By 1999 Oakland was spending a quarter of its program budget funds on the police. This growth continued through the 2000s to where in 2011 Oakland spent over 40 percent of its general fund on cops.xxxiii OPOA has its own political action committee that funds attack ads against politicians the union believes will be unfriendly toward the union's priorities. The union strongly supports its allies on the Oakland City Council and spends thousands during elections to undermine opponents who are seen as "soft" on crime, meaning opposed to continually increasing the police budget, in particular the pay and benefits of officers.xxxiv Mean average OPD officer compensation (base pay plus overtime pay plus medical and retirement contributions) in 2011 was $186,000. The highest paid officer received $423,000 in total compensation.xxxv OPOA successfully convinced Oakland's Council members and successive mayors in the 1980s through mid-2000s to increase active police officer pay and compensation, and was able to successfully resist cuts to pay and benefits during most economic downturns, even while other city employees were laid off or saw drops in their base pay. The biggest single gain obtained by Oakland's cops was a five year 27 percent raise obtained in 2001. xxxvi In 2003 Oakland's police were the only city employees who refused to increase their employee contributions to their CalPERS pensions, then at zero percent with a proposed 3 percent increase.xxxvii Only in 2010, as a result of the most serious budget shortfall in Oakland's history, did the police force experience layoffs. Eighty officers in total were culled from the ranks of the department's most junior hires.xxxviii In 2011 the police union was finally required to pay nine percent of their salaries into their CalPERS pensionsxxxix, but this had no effect on the obligations owed to the PFRS members as the underlying formula used to calculate benefits was not altered. Only in one instance has that formula been reduced, but even so the Oakland Police and Fire Retirement Association, through their representatives on the PFRS board, resisted a commensurate reduction in benefits payments. The Oakland Police and Fire Retirement Association, a 501(c)3 nonprofit, was "founded in 1949 to protect the benefits of Oakland police and fire retirees," making it the retired officer version of the OPOA.xl In 2006 the city negotiated an increase in holiday pay and "shift pay" (odd hour work times) with officers, part of the usual increases in officer pay that the police officers union lobbied for in non-recession years. The PFRS board interpreted these special additions to current officer pay as being within the general "compensation" that PFRS members' benefits are tied to. The board therefore boosted benefits by million of dollars. A lawsuit brought by the City Attorney eventually compelled a reversal, slowing the growth of PFRS benefits finally in 2012. xli Pension Bond Arbitrage

To fund the PFRS pension the city of Oakland initially paid yearly contributions into the pension from the general fund. As city revenues became increasingly stretched, and services were cut year after year, the political impetus to find extra money in the city budget became overwhelming. The solution, devised by a private law firm especially for Oakland, would be to issue bonds to forward-fund yearly contributions. The bonds would be paid back with a special tax-override levied on real estate, thereby freeing up millions of dollars within the city's general fund for other purposes. This gambit proved ultimately a losing proposition for the city as various stock bubbles and the financial crisis of 2008 greatly undermined the value of PFRS investments, and interest payments on the bonds added up to an even larger long-term drain on the city's wealth. In the early 1980s the Orrick, Herrington & Sutcliffe law firm developed the pension obligation bond (POB) as a means of forward-funding state and local government pension obligations. Oakland was the first US city to issue POBs. Oakland used POBs in a tax arbitrage strategy which allowed the city to issue tax-exempt debt and deposit the proceeds within the PFRS. The PFRS board then invested these proceeds in securities such as US Treasury Bonds that had higher returns than the interest owed on the tax free pension bonds. Profits were thereby locked in. The huge financial gain (at the federal government's expense) that could be obtained was clear.xlii Imitators quickly sprang up around the country, but in 1986 the US Congress closed this arbitrage loophole by banning the issuance of tax-exempt POBs except under very strict circumstances.xliii Even so POBs have remained a useful tool for local and state governments for various reasons. Oakland chose to forward fund the PFRS pension using POBs because the bonds provided "holidays" in which the city could put off making yearly contributions to the pension fund, and instead pay interest on the POBs with tax override revenues. Oakland's finance staff estimated that the proceeds of pension obligation bonds invested over ten year durations in corporate equities would yield high enough returns to eliminate the UAAL and thereby save the city considerable money compared to the option of simply making yearly contributions. Oakland's POB strategy also allowed the city to tap a tax revenue source that would not otherwise exist were it not for the debt created by the pension bonds. The special tax override charge on real estate within Oakland used to refund the POBs was a unique means of generating revenue for Oakland that broke free of Proposition 13's debilitating constraints. However, these tax override funds could only be pledged to pay back a debenture, "evidence of indebtedness under the law," owed by the city to the pension fund. Even so, it prevented having to pay directly from the general fund, and it was assumed it could even lower the total fiscal burden on the city imposed by the pension obligation. Oakland's major issue of pension bonds in 1997, designed to finance contributions the PFRS in one lump sum and provide a 14 year "holiday," failed to produce returns that exceeded the bond debt. The primary reasons was that returns on investments made by the PFRS simply did not outpace the interest payments on the bonds. After the Tax Reform Act of 1986 the assured arbitrage opportunity of depositing POB proceeds in risk free federal debt was eliminated. POB issuers thereafter expanded into corporate equity and other risky securities under the assumption that over a span of ten years (or however long the bonds were structured) the total average returns from even highly volatile investments such as stocks would prove advantageous. Oakland's 1997 issuance was among the worst timed and managed POB deals, losing value from a stock bubble and recession, and then experiencing a disastrous loss of value during the 2008 financial crisis from which there would be no recovery because bonds were callable in 2011. California's public pensions were historically barred from investing in anything other than federal, state, and corporate bonds. Pensions increasingly sought higher yielding investments as their obligations grew in relation to their assets and contributions from employers and employees. Seeking the higher yields promised by stocks and real estate, and justifying these investment decisions by

referring to the modern portfolio theory of diversification, the rules were loosened to allow public pensions to invest up to 25 percent in the stock market. In 1984 California voters approved a law to allow CalPERS to invest more than 25 percent of its funds in the stock market. Other pensions followed suit. The PFRS pension fist relaxed its investment guidelines in 1983 when Oakland's voters approved Measure A. PFRS thereafter began to ramp up its investments in real estate, mortgage bonds, and corporate equities. In 1996 voters would further loosen investment guidelines to allow PFRS to invest up to 50 percent of funds in corporate stocks and mutual funds. xliv Finally in 2006 voters would again be asked to further loosen investment standards to the current norm of California's prudent person standard.xlv This standard allows for investments in most securities, including asset-backed securities like mortgage obligation bonds, and even derivatives such as swaps and options. 1996's vote came in anticipation of a watershed year for Oakland's fiscal fortunes. In 1997 the city issued it's $417 million POBs to forward fund the PFRS and provide the city with a fifteen year contribution "holiday," until 2011. Voters essentially approved the city's plan to carry out securities arbitrage with the pension bonds. Like nearly all public pension systems Oakland's PFRS uses hired investment managers to allocate its capital across a broad array of securities under the assumption that a diverse portfolio can match, or even beat the market. In 1997 the PFRS board solicited new managers to allocate the $417 million in POB proceeds, specifically seeking to deposit the funds in an increasingly wider array of high risk securities such as mortgage-backed securities, and the equity of foreign corporations. xlvi Between 1997 and 2011 the PFRS had multiple problems with its investment managers, however. The fund's board repeatedly put managers on watch and even withdrew contracts and sought out new managers in their quest for a magical 8 percent rate of return on the $417 million POB proceeds.xlvii Many investment managers during this era posted mediocre earnings on investments, however. The city assumed an 8 percent rate of return between 1997 and 2011 on the bond proceeds contributed to the PFRS. Instead the bursting of the tech bubble in 2000 and the resulting stock market stagnation produced loses of -0.2% and -2.53% in 2001 and 2002, effectively shrinking the value of the POB proceeds in the PFRS trust. Strong economic performance returned between 2004 and 2007, but was not reflected as well in the PFRS investments. While the stock market, real estate markets, and other securities inflated enormously in value over these years, the PFRS investments earned 10.5%, only two and half percent higher than the assumed rate of return, and not quite enough to regain ground lost in the early 2000s. The financial crisis of 2008 wiped out this progress. The PFRS reported returns of -6.1% and a devastating -20.7% in 2008 and 2009. Although the fund rebounded in 2010 with growth of 15.5%, this was the last year of the contributions holiday. The performance of Oakland's POB investments was dismal. In January of 2010 Oakland's director of finance Joseph Yew delivered the sobering news to the PFRS board: "The value of assets in the PFRS Trust has dramatically decreased over the last two years due to the economic downturn. The Unfunded Actuarial Accrued Liability ("UAAL") is estimated to be $435.3M, as of June 30, 2009, as opposed to an UAAL of $375.7M, estimated two years ago. The plan's funded ratio is 44.4%, a decrease from 63.7% in the prior valuation." xlviii An audit of the fund performed later in 2010 showed the city had lost $250 million on the gamble. While the POBs reduced the city's unfunded liability to approximately $500 million, outstanding debt due to the bondholders had grown to $510 million, equaling a $1 billion liability. Had the city simply paid thirty million yearly into the PFRS out of its general fund between 1997 and 2011 the un-funded liability owed to PFRS would have been higher at $760 million, but no debt would have been incurred with the pension obligation bonds. xlix

Double Down When the contributions "holiday" expired in July of 2011 Oakland was forced to resume direct payments to the PFRS amounting to $3.8 million each month. Fortunately the city had built a small reserve cushion of tax override funds to expend, rather than being forced to tap into the general fund which had already been cut the previous two years as a result of the financial crisis and major declines in tax receipts. The tax override cushion was designed to run out in 2013, however. In mid-2012 the city debated issuing another round of pension obligation bonds in order to avert required contributions of $13-29 million each year until 2023 to the pension fund that would necessarily come again from the general fund.l

i Kirby, Jack Temple, Rural Worlds Lost: The American South 1920-1960, LSU Press, 1987. ii Tramble, Thomas, and Wilma Tramble, The Pullman Porters of West Oakland, Arcadia Publishing, 2007. iii US Census, Census of Population and Housing, 1940, 1950, 1960, 1970, 1980, 1990, 2000, 2010, http://www.census.gov/prod/www/abs/decennial/ iv I borrow the phrase prismatic metropolis to describe the city's new multi-racial cast with no overwhelming majority racial group. See Bobo, Lawrence, Melvin Oliver, James Johnson, and Abel Valenzuela, Prismatic Metropolis: Inequality in Los Angeles, Russell Sage Foundation, 2002. v Oakland's first Black police officer, J.F. Young, was hired in 1896. See "Oakland May Have a Negro Patrolman," San Francisco Chronicle, May 23, 1896. vi Bradford, Amory, Oakland's Not for Burning, D. McKay & Co., 1968. vii Westbrook, James C., "In A Pig's Eye: A STudy to Examine Police Officers Views, Attitudes, and Opinions Toward Themselves, Their Profession, and Society at Large," Dissertation, Golden Gate University, 1981. viiiVekshin, Alison, Elise Young & Rodney Yap, "Highest Paid California Trooper is Chief Banking $484,000," Bloomberg News, December 16, 2012. ix California Association of Local Agency Formation Committees, "California Cities by Incorporation Date," accessed January 1, 2013, http://www.calafco.org/docs/Cities_by_incorp_date.doc. x The unfunded actuarial accrued liability is the present value of accrued benefits owed to the pension system's members, minus the pension fund's assets available to pay these benefits. See, Anderson, Arthur W., Pension Mathematics for Actuaries, ACTEX, 3rd Edition, 2006. xi Yew, Joseph to Police and Fire Retirement System Board, "RE: Informational Report on Police and Fire Retirement System (PFRS) Fund, Future Liability, and Potential Funding Solutions," Memorandum, City of Oakland, January 27, 2010. xii George E. Valentine v. City of Oakland (1982); Richard M. Carman v. H.B. Alvord (1982). xiiiSears, David O., Tax Revolt, Harvard University Press, 1982; Martin, Isaac W. and Jack Citrin, After the Tax Revolt: Proposition 13 Turns 30, Institute for Governmental Studies Press, 2009. xiv For comprehensive reviews of the Oakland Police Department's role in attacking labor unions and undermining Black political organizations see: Self, Robert O., American Babylon: Race and the Struggle for Postwar Oakland, Princeton University Press, 2005; Rhomberg, Chris, No There There: Race, Class, and Political Community in Oakland, UC Press, 2004; Hayes, Edward C., Power Structure and Urban Policy: Who Rules Oakland, McGraw Hill, 1972; Jones, Charles E., "The Political Repression of the Black Panther Party, 1966-1971: The Case of the Oakland Bay Area," Journal of Black Studies, June 1988, Vol. 18, No. 4; Murch, Donna, Living for the City: Migration, Education, and the Rise of the Black Panther Party in Oakland, California, University of North Carolina Press, 2010; Murch, Donna, "The Campus and the Street: Race, Migration, and the Origins of the Black Panther Party in Oakland, CA," Souls, 2007, Vol. 9, No. 4; Cook, William J., "Policemen In Society: Which Side Are They On?," Berkeley Journal of Sociology, 1967, Vol. 12; Johnson, Marilynn S., Second Gold Rush: Oakland and the East Bay in World War II, UC Press, 1996; Johnson, Marilynn S., "Mobilizing on the Home Front: Labor and Politics in Oakland, 1941-1951," in Cornford, Daniel A., "Working People of California," UC Press, 1995; Reis, Elizabeth, "The AFL, the IWW and Bay Area Cannery Workers," The Center for Migration Studies, 1993, Vol. 10, No. 1. xv As opposed to the Oakland Police Department's official history written for their 150th anniversary, Oakland Police Department: A Tradition of Excellence, Turner Publishing Co., 2005. xvi Rosenson, Alexander Moses, "The Origin and nature of the C.I.O. Movement in Alameda County," MA Thesis, UC Berkeley, 1939 xvii"Oakland Drays to Run: Non-Union Teamsters Will Work Under Police Protection," San Francisco Chronicle, July 29, 1901; "Oakland Longshoremen Return to Work: Local Men Stand Firm," San Francisco Chronicle, September 12, 1901; "Claim Strike Is at an End: Laborers Perform Their Duties While Police Stand Guard," San Francisco Chronicle, April 20, 1902; "No Protection for Linemen: Mayor Olney Holds That Police Will Be Used Only When It Is Necessary," San Francisco Chronicle, Jul 30, 1903; "Oakland Riot Follows S. F. Canner Strike: Police With Drawn Pistols Hold Back Invaders and Force Them to Return," San Francisco Chronicle, Jul 27, 1917; Key Route to Operate Oakland Street Cars Today: Company Acts to Break East Bay Walkout,"San Francisco Chronicle, Oct 3, 1919; "Oakland Strike Mob Sets Fire to Car Station: Policement Put Out Blaze at 22d and Adeline Sts. After Rioting," San Francisco Chronicle, October 11, 1919. xviiiRiles, Wilson J., Jr., Interview with author, July 20, 2012. xix Johnson, Marilynn S., "Second gold Rush," pp. 21, 154-168. xx Rhomberg, Chris, "No There There: Race, Class, and Political Community in Oakland," UC Press, 2004, p. 105. xxi Negotiated Settlement Agreement with Stipulations, Re: Pattern and Practices Claims, Delphine Allen et al., v. City of Oakland, et al., C00-4599 TEH (JL) (revised as of December, 2008), http://www2.oaklandnet.com/Government/o/OPD/DOWD022066 xxiiBondGraham, Darwin, and Ali Winston, "The High Costs of Outsourcing the Police," East Bay Express, August 8,

2012. xxiiiPolice and Fire Retirement System, "2011 Annual Report, Fiscal Year Ending June 30, 2011," p. 26, http://www2.oaklandnet.com/oakca1/groups/hrm/documents/report/oak037253.pdf xxivU.S. Census Bureau, 2006-2010 American Community Survey. xxvAll data for the PFRS current beneficiaries, including dollar amounts distributed, places of residence, and other information were obtained via a California Public Records Act request in 2012, unless otherwise noted. Data available for download at http://www.scribd.com/darwinbondgraham. xxviThis of course meant that Black homeowners who escaped San Francisco's increasing rents to purchase housing in the outer-ring suburbs were also hardest hit by the foreclosure crisis that swept through the US between 2008 and 2012. See, Schafran, Alex, "Origins of an Urban Crisis: The Restructuring of the San Francisco Bay Area and the Geography of Foreclosure," International Journal of Urban and Regional Research, July, 2012. xxviiAllen-Taylor, J. Douglas, "Black Political Power: Mayors, Municipalities, and Money," Race, Poverty, and the Environment, Spring 2010 Vol. 17, No. 1. xxviiiRosenstein, Mark, "The Rise of Maritime Containerization in the Port of Oakland, 1950 to 1970," MA Thesis, New York University, 2000. xxixSelf, Robert O., "California's Industrial Garden: Oakland and the East Bay in the Age of Deindustrialization," in Cowie, Jefferson R. and Joseph Heathcott, Beyond the Ruins: The Meaning of Deindustrialization, Cornell University Press, 2003, p. 159-181; Lemke-Santangelo, Gretchen, "Deindustrialization, Urban Poverty, and African American Community Mobilization in Oakland, 1945 through the 1990s," in De Graaf, Lawrence B. et al., Seeking El Dorado: African Americans in California, University of Washington Press, 2001, p. 343xxxLipsitz, George, The Possessive Investment in Whiteness: How White People Profit from Identity Politics, Temple University Press, 1998. xxxiGoldberg, Lenny and David Kersent, "System Failure: California's Loophole Ridden Commerical Property Tax," California Tax Reform Association, May, 2010. xxxiiOakland City Charter Section 2608 (a)-(e), http://library.municode.com/Html/16308/level2/THCHOA_ARTXXVIADST1951POFIRESY.html xxxiiiCity of Oakland, "Adopted Policy Budget, 1999-2001," p. A-19; "Adopted Policy Budget, 2011-2013," p. D-71. xxxivGammon, Robert, "Oakland Cops' Union Breaks Law Again," East Bay Express, November 1, 2012, http://www.eastbayexpress.com/92510/archives/2012/11/01/oakland-cops-union-breaks-law-again xxxvData on current Oakland Police Officer compensation was obtained via California Public Records Act requests, and via the San Jose Mercury News Public Employee Salaries Databse for the San Francisco Bay Area 2011, http://www.mercurynews.com/salaries/bay-area. Data is available at http://www.scribd.com/doc/119101246/OPDTotalComp-Zip-Rank-AllOfficers. xxxviHarris, Harry, "Police Begin Voting on Raise of 27 Percent: Increase Part of Five Year Contract," Oakland Tribune, November 1, 2001. xxxviiThe Oakland Police Officers Association union also proposed fixing the city budget shortfall by eliminating the Citizen's Police Review Board and cutting funds from the federal court appointed monitors overseeing mandated police reforms stemming from OPD's systematic civil rights abuses of city residents, mostly Blacks and Latinos. See Burt, Cecily, "3 Unions Help Oakland Solve Budget Woes," Oakland Tribune, June 20, 2003. xxxviiiCollins, Terry, "Police Layoffs Hit Oakland, One of the Nationa's Most Crime-Ridden Cities," Christian Science Monitor, July 17, 2010. xxxixLee, Henry K., "Oakland Police Vote to Pay 9% Toward Pension," San Francisco Chronicle, July 8, 2011. xl Oakland Police and Fire Retirement System, "2007 Annual Report to Members," draft copy, p. 6. xli Scott P. Johnson to Police and Fire Retirement Board, "Order Granting Petition for Writ of Mandate," memorandum, city of Oakland, September 20, 2012. xliiDavis, Roger L., "An Introduction to Pension Obligation Bonds and Other Post-Employment Benefits," Orrick, Harrington, and Suttcliffe, LLP, 2006, 3rd Edition. xliiiU.S. Internal Revenue Code, Section 148. See Calabrese, Thad Daniel, "Public Pensions, Public Budgets, and the Risk of Pension Obligation Bonds," Society of Actuaries, Public Pension Finance Symposium, May, 2009. xlivPolice and Fire Retirement System of the City of Oakland, "Annual Report," 1999-2000, pp. 11-12. xlv California Government Code Sec. 53600 et seq. http://www.leginfo.ca.gov/cgi-bin/displaycode? section=gov&group=53001-54000&file=53600-53610 xlviReed, Jennifer Lea, "Oakland P&F Fund Enters New Sectors," Investment Management Weekly, October 13, 1997. xlviiRandall, Danielle, "Searches: Oakland May Search in Large Cap Value," Investment Management Weekly, March 6, 2000; Glynn, Christopher, "Oakland 911 Terminates Two Managers: Ongoing Asset Study Could Lead to More Changes," Investment Management Weekly, October 4, 2004; Forde, Arnella J., "Oakland Guns and Hoses Eye Seneca Capital," Investment Management Weekly, August 15, 2005; "Oakland Mid-Cap Managers On Shaky Ground," Money Management Letter, September 23, 2005; "Oakland Plan Under Review," Money Management Letter, February 24,

2006; Lewis, Jakema, "Oakland 911 Replaces Transamerica," Investment Management Weekly, May 15, 2006; "Oakland's Bravest Prep Asset Study," Money Management Letter, November 30, 2006; Lewis, Jakema, "Oakland 911 Monitors Equity Managers," Investment Management Weekly, July 30, 2007; Lewis, Jakema, "Oakland Police & Fire Place State Street on Watch," Investment Management Weekly, January 28, 2008; Lewis, Jakema, "Oakland P&F to Review Equity Line-Up," Investment Management Weekly, March 31, 2008; Lewis, Jakema, "Oakland 911 Fund Removes Two," Investment Management Weekly, December 15, 2008; Lewis, Jakema, "Three on Watch at Oakland P&F Plan," Investment Management Weekly, March 16, 2009; Lewis, Jakema, "Oakland Police and Fire Picks Manager," November 2, 2009; Lewis, Jakema, "T. Rowe Price Takes Home Oakland Mandate," Investment Management Weekly, October 4, 2010; xlviiiJoseph Yew to the PFRS board, "Informational Report on Police and Fire Retirement System (PFRS) Fund, Future Liability, and Potential Funding Solutions," memorandum, city of Oakland, January 27, 2010. xlixCity of Oakland Auditor, "Oakland Police and Fire Retirement System Pension Funding Options," October 21, 2010. l Mayor Jean Quan to the Oakland City Council, "PFRS Pension Obligation Bonds," memorandum, city of Oakland, May 21, 2012.