Grand jury calls on Sonoma County to issue annual update on pension reform

Sonoma County in the past four years has taken significant strides to reduce its financial obligations for employee pensions, but costs - up 500 percent since 2000 - continue to climb at an unsustainable rate, according to a Sonoma County grand jury report released this month.

“The county is really making progress, and we’re encouraged,” said Martin Jones, the grand jury’s foreman. “But we’re not out of the woods yet.”

The civilian panel’s findings, though not revelatory, constitute the 19-member body’s first look at county’s efforts to curb rising taxpayer pension costs since the issue drew public notice as a significant strain on the county budget in the wake of the recession.

The grand jury recommended the Board of Supervisors publish an annual pension report detailing the county’s total retirement obligations, including unfunded pension liabilities for current employees and retirees - more than 9,000 people - as well as money owed annually on $459 million in pension bonds.

“This is the single largest financial issue in Sonoma County, and the county’s pension liabilities are preventing us from filling potholes, supporting parks and paying for health and human services initiatives,” Jones said. “The county is spending a significant portion of its $1.6 billion budget on these employee benefits, so our primary goal was to help people understand what’s driving these costs.”

The county’s total pension costs this fiscal year rose to $105 million, including $66 million in taxpayer contributions to the county pension, and $39 million to pay off money borrowed in 2003 and 2010 to pay off mounting unfunded liabilities.

The sum of those long-term liabilities has dropped in recent years due to the pension fund’s stronger investment performance. The latest tally, released in an actuarial report this month, put the unfunded figure at $343 million, down from the high of $527 million reported in 2013. Unfunded liabilities are the difference between current assets and projected payments to retirees, and they are driven primarily by stock market performance and the cost of benefits, which for Sonoma County escalated rapidly after the Board of Supervisors in 2002 approved more generous pension benefits for all current workers.

Sonoma County was not alone in that move, with the Board of Supervisors at that time mirroring similar actions made the state and other local governments. State-mandated pension reforms that went into effect two years ago and additional measures implemented by the county, while expected to curb costs over the longer term, have not translated to immediate savings.

The grand jury’s intent was to look at that recent history and offer the county some guidance on the future, Jones said.

“We wanted to offer a big-picture, objective look at these obligations so the public can understand the finances,” he said. “The costs aren’t going away, and they’re only going to get worse if they’re not continually addressed.”

In 2012, the grand jury analyzed the legality of the county’s decisions to boost pension benefits, but the inquiry that did not offer a comprehensive picture of the retirement system.

Sonoma County supervisors have set a goal to reduce taxpayer costs for county employees to 10 percent of total payroll by 2024. The current share is about 19 percent.

This year, the county published its first update on its pension overhaul efforts, including lower benefit tiers for employees hired since the start of 2013 and the elimination of most ways to spike pension payments through end-of-service cashouts. The savings this fiscal year allowed the county to make a first-time, $3.5 million payment to reduce its unfunded liabilities.

Supervisor David Rabbitt, who is serves as board member for the county pension system - the Sonoma County Employees’ Retirement Association - said he supports the grand jury’s two formal recommendations, including the annual report updating the public on the county’s progress toward its pension goals.

“I think the grand jury report reflects the work we’ve done, and it shows that we’re moving in the right direction,” Rabbitt said. “We’ve been working at making our accounting more transparent. Look at where we started - in 2011, our costs were 31 percent of payroll, and now we’re down to 19 percent. We’re not at 10 percent yet, but we’re on track.”

The panel’s other recommendation was to include the county’s annual pension bond payment in its accounting of future pension obligations.

“We’re seeing terrific returns in the stock market right now, and that’s very encouraging,” said Jones, the grand jury foreman. “But we need to be measuring the financials on a consistent basis to get a more accurate picture.”

Board of Supervisors Chairwoman Susan Gorin said that picture should include a clear understanding of stock market performance and how retirement benefits compare between public and private sector employees.

“There’s a view that public employees are getting benefits that are not comparable in the private sector,” Gorin said. “But during the recession, our public employees saw similar reductions and pay cuts, so one thing I also want to make sure everyone is understanding is how the public sector compares to the private sector.”

Once the grand jury’s final report is submitted at the end of its term in June, the Board of Supervisors has 90 days to formally respond.

You can reach Staff Writer Angela Hart at 526-8503?or angela.hart@?pressdemocrat.com.