Economic development will continue to be Sonoma County's greatest challenge in the new year, despite numerous signs that the economy is improving. The county unemployment rate inched up last month to 7.7 percent, but overall it's been on a steady decline for some time, dropping from 9.1 percent a year ago.

A recent economic forecast prepared for the county anticipates steady job growth this year and a 5.2 percent growth in personal income in 2013. But maintaining the region's economic momentum won't be easy given another major challenge facing the county and the majority of its cities — the need to continue reining in pension costs.

Although Gov. Jerry Brown and the state Legislature were able to push through a pension reform package this year and a number of cities also took reform-minded steps, no one should be left with the impression that the problem has been resolved. Far from it.

The Santa Rosa City Council earlier this month got word that, despite recent efforts to contain retirements, the city's pension costs are climbing and probably will continue to do so for the foreseeable future. Santa Rosa's annual payment to the California Public Employees Retirement System, is set to increase by about $1 million next year to $20.4 million. In addition, the city's unfunded liability has increased to $127.5 millions, up from $100 million just two years. This represents the difference between the value of the assets the city has set aside through CalPERS and what additional payments will be needed to meet its long-term obligations. The unfunded liability now exceeds the city's entire general-fund budget.

The Petaluma City Council, meanwhile, voted last week to amend its contract with CalPERS, creating a second-tier retirement system for non-public-safety employees. Under the plan, new employees will have to work to age 60 instead of 55. They will continue to receive 2 percent of their salary for each year worked, but their pension will be based on the average of their three highest salary years, not their single highest.

But because these changes will only apply to future hires, the financial benefits to the city won't materialize for years. Petaluma's unfunded liability is now about $65.5 million.

Meanwhile, the county's efforts to confront its $350 million unfunded liability hinges of the success of negotiations with labor groups. So far, it is not promising as the latest proposed contract proposal, which called for a series of concessions by employees in the county's largest labor union, was soundly rejected.

Finally, the county in 2013 also faces a major decision on whether to move into the power-buying business. Despite the supervisors' recent decision to create a joint powers agency — the Sonoma Clean Power Authority — so far it is just a power of one. No cities have committed to the plan.

The moment of truth will come early this year when the county gets bids on the system and sees what kind of power increases may be ahead for ratepayers. Surveys have shown local residents and businesses generally support the idea of a local power company, but their support wanes quickly if it means paying more.

Confronting all of these issues will require some measure of political courage — either through persistance or restraint — by lawmakers in 2013.