Close to Home: County pension problems worsen
As most readers of this newspaper are aware, Sonoma County has serious pension-funding problems, with annual costs increasing 500 percent over the past decade. And even with these additional costs, we still owe $700 million in pension bond debt to bond holders and have an unfunded pension liability of $243 million.
In other words, it’s an unfunded pension liability equal to roughly $2,000 per county resident.
As a result of new Government Accounting Standards Board rules, we are now seeing the pension liabilities on the balance sheet for the first time - and the results are shocking. The county went from $76 million in unrestricted net assets in 2014 to $473 million in unrestricted net liabilities in 2015, a reduction of $550 million. And this number does not include the county’s $270 million unfunded retiree health care liability. Once that is added next year by GASB, the unrestricted net liability climbs to $820 million.
How did this happen? At the beginning of 2000, the state Legislature, to pay back employee unions for their support, enacted new rules that allowed for the retroactive increase of pension benefits and increased the pension cap from 2 percent to 3 percent per year of service.
So in 2002 Sonoma County retroactively increased pension formulas to the highest level allowed by law, 3 percent per year of service at 50 years of age for public safety employees and 3 percent per year of service at 60 years of age for general employees. This means employees with 30 years of service instead of receiving 60 percent of their salary suddenly received 90 percent. Worst of all, due to errors in the retirement association’s calculation of the financial impact, there was never a realistic plan to fund these additional benefits so the cost has fallen onto taxpayers even though, according to Board of Supervisor resolutions, the increases were supposed to be paid for by the employees. This shortfall is massive because following the increase, employees retired five years earlier with pension checks that averaged $16,000 more per year - or $400,000 over 25 years in retirement.
Were the increases legally adopted? No. To protect taxpayers, the California Government Code has statutory requirements that must be followed or the increases are void from inception. The requirements include the calculation of the future annual impact on the pension fund and the notification of citizens at the Board of Supervisors meeting where the increases were adopted to enable citizens to know how their tax dollars are being spent and to give them an opportunity to state why retroactively increasing pensions might not be a good idea.
None of this happened, because the increases were adopted as part of a lawsuit filed by the Sonoma County Law Enforcement Association against the Sonoma County Board of Retirement claiming that their pensionable compensation, in addition to 45 special pay items added in 1998, should also include the money the county spent picking up their pension contribution and money paid for their health care costs.
The settlement by the retirement association board, whose members also benefited from the increases, created a violation of state conflict of interest laws.
In the end, the settlement not only awarded public safety employees with the additional pensionable compensation items, it also adopted the new 3 percent per year of service formulas for public safety and general employees. And it was not the Board of Supervisors that adopted the increase. It was the board of the retirement, which does not have the power to change formulas.
For the past five years, New Sonoma has been calling for an investigation of the increase.
I hope you will join us in our effort and call or email our supervisors demanding an investigation by an independent third party, such as a retired federal judge, to investigate what has happened and develop a solution to this growing crisis.
Ken Churchill is director of New Sonoma, an organization of financial experts and citizens concerned about finances and governance of Sonoma County.