For the second time in two years, officials overseeing the pension system for Sonoma County government have lowered the fund's projected rate of return on investments, a move that will increase taxpayer costs in the short term but is intended to reduce long-term market-driven shortfalls.

The quarter-percent change, to a new rate of 7.5 percent, will trigger a roughly $50 million spike in the county's pension underfunding, now set at $353 million.

It also will trigger a $4.6 million increase in annual contributions by taxpayers to the system. That represents a 4.9 percent increase on the county's current annual pension costs of $94 million, including payments on pension bond debt. The increase will be phased in over three years beginning in mid-2014.

The shift comes at a time of increasing focus on the rising cost of public pensions, which critics say sucks money from county services.

It also comes amid continued debate over pay and benefits for county employees. State-mandated pension changes this year and a slate of county proposals subject to negotiation are geared to curb rising pension costs, up 400 percent for taxpayers since 2000.

Not all of the annual increase in contributions will be borne by taxpayers. County employees and workers in several affiliated agencies will see an increase totaling $680,000, or 1.9 percent, in their annual contributions.

The board overseeing the county retirement system made the change at a Jan. 17 meeting. Supervisor David Rabbitt, who serves on the pension board, announced the shift at a Board of Supervisors meeting this week.

In an interview, Rabbitt called the decision "a move in the right direction," while suggesting a sharper reduction would have been in order.

Stock market losses have driven much of the rise in annual pension costs for taxpayers, prompting fiscal watchdogs to call for investment changes that would reduce risks for taxpayers, including lower projected earnings rates in the range of 4 to 6 percent.

New York City Mayor Michael Bloomberg, the billionaire founder of a financial data services firm, last year called retirement fund earnings assumptions of 7 to 8 percent "indefensible."

But public-sector pension officials have largely resisted those calls, saying their long-term returns have far surpassed those rates and that only smaller adjustments are needed.

"Over 30 years, we've earned over 9 percent," said Gary Bei, administrator of the $2 billion Sonoma County Employees' Retirement Association. The fund's 20-year return is 7.5 percent, in line with the new assumption. Setting a significantly lower assumed rate would be "misleading," Bei said.

The county pension board lowered its previous rate of 8 percent to 7.75 percent in early 2011.

The latest move mirrors changes by many government retirement systems. CalPERS, the giant state employee system that also includes many cities, and CalSTRS, the fund for teachers, both went to 7.5 percent last year.

Because the lower rates shrink assumed annual income from investments — the largest source of pension funding — and require taxpayers to largely make up the difference, they can be a bitter pill to swallow for cash-strapped governments.

Glittering single-year investment earnings can also make such changes seem unnecessary. In 2012, for example, Sonoma County's pension fund earned 14.8 percent, a return that will help make up for past losses.

But pension critics point out other years, such as 2011, when the county fund made 1 percent, or an effective loss of more than $120 million based on fund assets at the time of about $1.8 billion.

With Sonoma County's current pension bond debt at more than $500 million, county officials have said the risks posed by those investment losses no longer can be sustained.

"That huge trough, we can't afford to fill," said Rabbitt, speaking as a supervisor.

At the pension board meeting, he argued for a larger rate drop, to 7.25 percent, while at least one other pension board member, Tom Ford, a retired county treasurer-tax collector, pushed for no change at all.

In the end, the decision on the quarter-percent change to 7.5 percent was unanimous. Bei said it puts the county system in line with most comparable public-sector retirement funds.

The county board typically addresses such decisions on a three-year cycle. But Rabbitt suggested a quicker reassessment and possibly another reduction could be justified.

"Looking forward, based on what we know, we have to bring it down," he said. "I don't think we really have a choice."

You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.com.