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GUEST OPINION: The train wreck ahead for Sonoma County

  • (LISA BENSON / Washington Post Writers Group)

Here is the gravity of our county's financial situation. From 1991 to 2000, the county spent $108 million on pensions, an average of $10.8 million per year.

From 2001 to 2010, the county spent $302 million on pensions, but ended the decade with a $330 million liability and $515 million in pension bond debt. Added together, the average cost was $114.5 million per year, 10 times more than the previous decade.

These numbers may sound shocking, but the reality of the situation is much, much worse because these numbers are based upon accounting gimmicks and overly optimistic investment return assumptions.

Now Moody's, the credit rating agency, is proposing to recalculate unfunded pension liabilities when it provides credit ratings for government agencies. This will not change the amount the public agency has to pay for pensions, but it will affect the credit rating of the agency by significantly increasing their debt and future borrowing costs. The new formula also gives us an idea of what pension costs would be if we were responsibly funding pensions.

Moody's is proposing to use a 5.5 percent rate of investment return (versus the 7.75 percent currently being used in Sonoma County), a 17-year amortization period (versus the 27-year period currently being used) and the market value of pension fund assets (versus a method that smooths losses over five years).

Here is how these changes affected Sonoma County's pension liability when financial expert John Dickerson ran his model:

The county's unfunded pension liability more than tripled from $330 million to $1.1 billion. Add on the $515 million the county owes on its pension bond debt and the number grows to $1.6 billion.

As a result of the additional unfunded liability, the annual employer contribution to responsibly fund the plan tripled from $57 million to $168 million per year. Adding on the debt service for the pension bonds of $47 million, the total amount the county should be paying into the pension fund per Moody's would increase from $94 million per year to $215 million per year.

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