By BRETT WILKISON
THE PRESS DEMOCRAT
Public sector pensions are “Ponzi schemes” propped up by taxpayers whose money has been poured endlessly into a risky “gamble,” key speakers said Thursday at an economic conference in Petaluma.
“It’s the system and the system has been rigged to ensure that all these (pension) obligations are met even if it’s not from money the system is producing,” said Brian Sobel, a political consultant and former Petaluma city councilman.
He was one of two speakers to compare public pensions to the illegal financing ventures known as Ponzi schemes. The other was Sonoma State University economics Professor Robert Eyler.
The third presenter to take aim at public pensions at the annual breakfast conference sponsored by SSU and the North Bay Business Journal was former North Bay Assemblyman Joe Nation.
Nation, a Stanford professor of public policy, said state and local governments have underestimated the amount of money they owe to their retirement systems for pension obligations. That figure is now $3 trillion to $5 trillion nationwide, he said.
Some of those systems, including the state retirement fund, CalPERS, and Marin County’s pension system, likely won’t be able to pay their obligations to retirees in the future, Nation said.
“Everyone,” he added, “is headed to insolvency, unfortunately.”
Nation did not have a forecast for Sonoma County’s retirement system, but he criticized the county for borrowing about $590 million, in the form of three pension bonds over the last 18 years, to reduce the unfunded liability in its pension system. He called it a “gamble” with public money.
The speakers’ comments sparked immediate reaction from public employee union representatives and pension officials in the audience.
In interviews, they called the criticism offbase, saying it did not accurately portray the value of the public pension system, the health of Sonoma County’s fund in particular or the service and pension contributions of public employees.
Robert Moffett, president of Service Employees International Union Local 1021, which represents the most county government employees — about 1,800 — called the comments “irresponsible,” saying they “trivialize the sacrifices of public servants.”
Pension contributions by county workers are among the highest in county pension systems statewide, union representatives said.
Greg Jahn, a board member of the Sonoma County Employees’ Retirement Association, the county’s pension system, called the criticism “hype.”
“I think that people respond to the headlines. But if you look beneath the surface, you’ll find that the way the (Sonoma County) fund has been structured, the way it is designed, generally it is structurally sound,” Jahn said. “I think this debate is healthy, but we need to get all the facts out on the table.”
The annual economic conference drew hundreds of business leaders and some local government officials to the Sheraton Hotel in Petaluma. It featured several speakers addressing economic, political and public policy issues.
The comments on public pensions proved some of the morning’s hottest material.
Nation, a leading pension-overhaul advocate, repeated his call for government retirement systems to lower their investment earnings projections.
He has called for a more conservative 4 percent rate, equivalent to the return earned by bonds. Pension officials have widely denounced that proposal and have defended the earnings projections they use — most in the 7 to 8 percent range — to manage their investments and meet benefit obligations.
But Nation said those assumptions have been unrealistically high over the last decade and have contributed to many of the pension funding shortfalls of late.
Add the recent stock market crash and the rich benefits promised to workers in the late 1990s and early 2000s and you now have hundreds of pension funds across the country that are woefully underfunded, Nation said.
“At the end of the day, the people who pay are taxpayers,” he said.
The problems will grow in the next five years as a large wave of government workers is expected to retire, he said. Already, governments have slashed jobs and services to meet rising retirement costs.
“People talk about a pension tsunami. This is a tsunami that’s hitting us,” he said.
The top administrators of Sonoma, Napa and Marin counties spoke at the conference after Nation. All conceded the importance of pension overhaul.
“This isn’t something we’re taking lightly, I want to assure you of that,” said Sonoma County Administrator Veronica Ferguson.
The county’s annual payments to its pension fund have more than tripled in the past decade and, including pension debt, are at $90 million and rising — or nearly a third of the county’s $300 million payroll.
Ferguson, who took over as county administrator a year ago, told the crowd she was not to blame for decisions that led to the county’s rising retirement costs.
“I wasn’t the person who created these pension benefits,” she said.
But she and the other county leaders said changes were under way or being discussed.
Most of those efforts focus on reduced benefits for new employees. The new tier of benefits could take shape through changes in retirement age, years of service and a multi-year average of final salary instead of the current single-year earnings, Ferguson said.
State law governing county retirement systems prevents increases to employees’ pension contributions for everything but changes to salary and benefits, mortality rates and investment earnings projections.
Other changes, including reduced benefits for current employees or further restrictions in the type of compensation considered pensionable, would need to be authorized by changes in state law, administrators said.
An overhaul should recognize that guaranteed retirement benefits remain a big draw for public sector workers, Ferguson told the crowd. Any wholesale changes to that promise are a serious matter, she said.
“We’ve got to attract the right people,” she said. The goal “is finding a level of benefits that’s competitive but at the same time makes sure costs are sustainable.”
The Watch Sonoma County Poll