A 49 percent spike in unfunded pension promises could drive up taxpayer contributions to Sonoma County government pensions by $13.6 million over the next three years.
The roughly 25 percent increase in county payments, triggered mostly by past investment losses, is contained in a new report accepted Wednesday by the board of the $2.05 billion county government pension system.
It comes on the heels of better recent earnings by the pension fund and overhauls last year by the state and county intended to lower taxpayer pension costs. Those costs are up 400 percent in Sonoma County since 2000 and have been a hot-button issue in political campaigns, with fiscal watchdogs decrying cuts to public services and staffing.
At least in the short term, taxpayer contributions to Sonoma County's pension fund will continue to rise, pension officials reported Wednesday.
The increase in pension costs could extend through mid-2017, county officials said.
"We knew this was coming," said Sonoma County Supervisor David Rabbitt, who also serves on the board of Sonoma County Employees' Retirement Association. "It's one of those things where it's going to get worse before it gets better."
The system covers six government agencies, of which the county is by far the largest. It pays benefits to 4,283 retirees and has about 4,150 current and deferred workers enrolled.
The report showed a sharp, one-year jump in long-term unfunded obligations to county retirees. Now at $527 million, that so-called unfunded liability - the difference between current assets and projected payments to retirees - is up from the $353 million reported last year.
The fund's stock market losses from 2007 to 2009, totaling $671 million, are a main factor in the projected rise in annual employer contributions. The last layer of those losses, $109 million, was accounted for in the system in 2012. Pension officials said that step warranted some optimism, especially after earnings in three of the past four years have surpassed the fund's target rate.
"Your deferred gains mean you have good news in the pipeline," said Paul Angelo, senior vice president with The Segal Company and actuary for the county pension system.
But the continued rise in taxpayer contributions marks a new era, set to begin this year, when the county expects to pay an average of over 50 cents toward employee retirement - including pension, Social Security and medical benefits - for every dollar it pays on salaries. Public safety workers, who generally earn higher benefits, are on the leading edge of that trend.
Tom Lynch, a Guerneville contractor and county pension system critic, called the rising cost "unconscionable," saying it has diminished the reach of government services.
"The county can't afford to replace the people that are retiring, so they put more and more burden on the staff that remain," Lynch said.
Reforms enacted last year by the county and state have not translated to immediate savings because they either affect new workers in 2013 - none of whom were hired at the time of the pension snapshot - or because some of the changes for current workers are still under negotiation, largely with public safety unions.
Those include moves to eliminate cashouts of accrued leave that can be factored into pensions. Those perks and other pension spiking maneuvers already have been ended for a majority of the county's workforce.
Gary Bei, administrator of the county pension system, said the county could get credit for the savings when contract talks conclude with the remainder of employees.
The other major driver in the short-term cost increase and rise in long-term liabilities is the pension system's recent change to a lower projected earnings rate of 7.5 percent. That change, from 7.75 percent, added $50 million to the unfunded liability and increased taxpayer contributions in the short term.
But it is intended to reduce market-driven shortfalls and taxpayer risk in the long-term.
"We knew that was a change we had to make moving forward," Rabbitt said.
About $27 million in interest charges and $31 million from changes in life expectancy and other demographic factors added to the total unfunded liability. Offsets worth about $51 million came from salary increases that were lower than expected and the elimination of deferred compensation payments from pension calculations.
The report signaled a continued climb in annual county pension contributions - from nearly $51 million a year now to roughly $64 million in three years, according to county estimates.
Overall, including payments on pension bond debt, the county's current annual pension costs are about $97 million, or 19 percent of total salary and benefits.
By July, the county expects to have finished paying off all of its 1993 pension bond of $97 million, which is expected to reduce current county costs by $1.5 million. That would leave about $472 million from a series of 2003 and 2010 bonds. Currently, Sonoma County has the highest per capita pension bond debt among the state's 20 county retirement systems.
You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.com.
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