PD Editorial: Urgency needed in addressing Sonoma County pension crisis

The greatest risk facing Sonoma County concerning pension benefits is complacency founded on a belief that somehow the county has done enough. It hasn’t. Annual pension costs are continuing to climb and are cutting into basic services - to the tune of $55 million this year alone - and the public has yet to have a clear and consistent picture of what the problem is. The findings and recommendations of a county-appointed independent advisory committee on pensions seek to address both of these problems. ?First the facts:

Despite reforms adopted by the Board of Supervisors and the state Legislature, the county’s pension problem “is not yet close to being solved,” according to the report. The county won’t come close to reaching its goal of reducing pension costs from 20 percent of total compensation to 10 percent by 2024. At best, it won’t reaach that goal until 2030, barring any economic downturns.

Overall, pensions have cost the county an extra $269 million over the past decade and are expected to cost an additional $741 million between now and 2030. To keep that in perspective, every $10 million is equivalent to repairing 40 miles of roads.

To confront all of this, the Independent Citizens Advisory Committee on Pension Matters has issued a series of recommendations that deserve the supervisors’ attention and wholesale support. We summarize three in particular that require immediate action.

First, the county needs to come up with a clear and concise way of communicating to the public about the pension problem. As the committee notes, the numbers are confusing, and there is little consistency in how the county and the Sonoma County Employees’ Retirement Association report on it. For example, SCERA claims its pension obligations are now 85 percent funded. But that fails to include debt from pension obligation bonds, which, as the committee recommends, must be included. If so, SCERA’s funding ratio drops to 73 percent, which is a more accurate reflection of the situation. But nothing will assure the transparency and accountability more than having a standing citizens advisory committee made up of individuals who do not directly benefit from the pension system. Unfortunately, the Board of Supervisors disbanded this panel July 12 without taking action on any of its recommendations, offering only a promise to come back at some future date with a proposal for creating a permanent committee, possibly with two supervisors as members. Supervisors need to follow through on that pledge.

Second, the county needs to be more aggressive in negotiating with labor groups for a true sharing of pension costs and risks. When employees received retroactive enhanced benefits in the early 2000s, employees agreed to pay for the added benefits through an additional 3 percent contribution from their paychecks. But that 3 percent has not begun to cover the true cost of the benefits, and the county has done a poor job of tracking how far off it has been. As it is, county taxpayers are stuck making up the difference as well as being on the hook for all the risks if pension investments drop due to stock market declines. Making matters worse, the 3 percent supplemental contribution is set to expire in 2024. The county and labor groups need to agree on extending that contribution or the problem will get far worse. Meanwhile, state law allows the county, beginning in 2018, to impose a 50/50 sharing of normal pension costs on tier 1 employees who receive the enhanced benefits. This and other steps recommended by the committee to share risks need to be explored.

And finally, the county needs to work with other counties and state lawmakers in finding relief. As the committee concludes, the best way for the county to meet its pension reform objectives is to adopt a third tier of benefits, one that offers a hybrid of both a defined benefit plan - as currently exists - and a defined contribution plan, such as a 401(k). It’s a system similar to what is used by the federal government. However, such a plan is not currently allowed under state law. Sonoma County’s elected officials need to team up with other jurisdictions to push for a change in state law and to find out what reforms are working in other areas. None of this will be easy. All will require political courage, including measures that will ensure ongoing transparency about the county’s pension problems. But the alternative is for supervisors to do nothing more than has already been done and hope the situation will improve on its own. As recent history has shown, it won’t.