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Sonoma County’s Unsustainable Pension Costs

Columnist: Bob Andrews
December, 2014 Issue

Bob Andrews
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Sonoma County is first among CERL counties in pension obligation bond debt per capita, at just more than $1,000 for every man, woman and child in the county.

This column of “Open Trench” is the last in a four-year series. Many times during these four years, I’ve written about the inexorable financial disaster of public employee pensions: the debacle of retroactive pension enhancements, huge unfunded liabilities, huge debts (pension obligation bonds), steeply rising annual costs, myriad creative ways for employees to spike their pensions and other government services devastated while pension costs take ever-larger pieces of the budget pie.
Did Governor Brown’s half-hearted, watered-down “pension reform” in 2012 fix the problem? No. Those reforms have been challenged in court by employee groups. And the governor, who loudly proclaimed his opposition to pension spiking, recently took no decisive action against a long list of spiking mechanisms approved by the labor-controlled board of CalPERS. So much for “reform” at the state level.
Has the county of Sonoma led the way in pension reform? No. Instead, the “leadership” of Sonoma County is in all the wrong categories. Consider: Sonoma County is first (among Bay Area counties that adopted CERL, the County Employees Retirement Law of 1937) with the lowest funded ratio of already-earned pension and post-retirement medical benefits. When all costs and debts are considered, the funded percentage is below 60 percent. Sonoma County is also first (among CERL counties) with the most generous pension formula for miscellaneous employees hired before 2013: 3 percent of pay times years of service, with normal retirement at age 60. Three other counties (out of 20) have the same formula, but average salaries in those counties are much lower.
Speaking of pay, Sonoma County is second (just behind Marin County) in average salary per employee (more than $86,000). Sonoma County is first in the disparity between compensation of government workers versus nongovernment workers, when you consider pay and retirement plan contributions. County workers average $110,000 pay and pension contributions—twice the average of private sector workers. Not to be left out, Sonoma County supervisors have a state-leading package of pay and benefits surpassing $230,000 per year for themselves. This is more than the pay and benefits for supervisors in a number of counties with larger populations. Sonoma County is first among CERL counties in pension obligation bond debt per capita, at just more than $1,000 for every man, woman and child in the county.
And then there’s the most dubious leadership of all: Sonoma County may be the only county where supervisors failed to follow state law for the adoption of retroactive pension enhancements in 2002. Recognizing that retroactive pension increases have massive fiscal implications, state law requires that supervisors get an independent actuarial prediction of costs, and that supervisors give the public a clear notice of the meeting and agenda for adoption of such increases and that supervisors specifically approve resolutions adopting CERL sections with new pension formulas. Our supervisors did none of those three things.
But wait, there’s more. What supervisors did do was proclaim, long and loudly, that miscellaneous employees would “pay the full cost” of the retroactive pension formula enhancement. The “pay the full cost” understanding was incorporated in labor agreements, but “the full cost” was erroneously set at 3 percent of pay going forward. That’s where the failure to get an independent actuarial prediction of costs became disastrous.
Don’t take my word for it. Check out the supervisors’ own Ad Hoc Committee Pension Report (11/3/2011), in which they acknowledge the “pay the full cost” understanding with employees, admit employee contributions didn’t cover the cost and recommend a new study to identify the shortfall and negotiate with labor organizations “to meet the intent of the prior agreements regarding the enhanced benefit formulas costs.”
Have supervisors acted on their own recommendation? No. Has this whole can of worms cost Sonoma County taxpayers boatloads of money? You bet. Before enhancement, pensions (and pension obligation bond debt service) cost Sonoma County roughly $20 to $25 million per year. That number is now nearly $120 million per year and, by 2020, is predicted to be more than $200 million per year. Yikes!
Can anything be done to fix this enormous financial problem? The quick answer may be found in bankruptcy court and much better leadership. Bankruptcy judges in both Detroit and Stockton have ruled that federal law trumps state law, that pensions are contracts with the same status as other debts in bankruptcy and, thus, that pensions can be “adjusted” just as other debts are handled in bankruptcy. So much for the public employee union position that pension accruals can only go up, never down.
Sonoma County is desperate for much better leadership, with much more financial transparency. Here’s an example of lack of transparency: Supervisors claim actions taken by them will “save” $160 million of pension costs over 10 years. But when you look closely, you find that they quietly changed the amortization period of currently owed pension costs from 20 to 28 years, thus lowering current payments but actually increasing overall costs. That’s a very deep, open trench.


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