By JOHN G. DICKERSON
Next summer, new rules about how state and local governments must report the finances of their pension benefits are going to hit Sonoma and Mendocino counties (and thousands of other local governments) like a ton of bricks. Hundreds of millions in past pension expenses that have never been reported to the people are going to be flushed out of their hiding places onto county financial statements. The result is going to look like a bloodbath — which it is.
The Governmental Accounting Standards Board intends to impose these reforms next summer. Sonoma County will probably have to immediately comply. Mendocino may elect to delay a year.
These new rules will increase Sonoma County’s reported yearly pension expenses from $60 million to roughly $200 million. Mendocino County’s will jump from $13 million to about $50 million. Unfunded pensions aren’t reported as liabilities on government financial statements today. But they will be. Sonoma County’s long-term debt will jump from the most recently reported $730 million to about $1.3 billion — nearly double. Mendocino County’s will go from $120 million to about $260 million.
The current rules have a fatal flaw. They allow governments to report the pension expenses that create unfunded pension debts as expenses up to 30 years in the future when the debt is paid. But they’re really expenses of the past when employees earned those pensions. Our counties’ failure to properly fund their promises created the debt. The new rules will force governments to report pension expenses when they occur, not decades in the future.
Pension funds are supposed to be fully funded over the long term. There shouldn’t be unfunded pension debts. The obligation to eliminate unfunded pensions falls entirely on our counties. Employees and retirees don’t pay a dime. County officials who mismanaged pension financing and built up this debt will receive pensions. The debt they created will be paid by the people.
Sonoma County citizens have $900 million of unfunded pension debt. Mendocino County’s is $250 million. It will take three decades to pay these debts — plus interest. Residents won’t get one minute of county services or one dime of public infrastructure for it.
County officials said in past decades they had balanced the budget. The new Governmental Accounting Standards Board rules will show us they didn’t. They were only able to make that claim by building up hundreds of millions of unfunded pension debt without reporting the pension expenses that caused it.
The standards board has no authority to change how and when pensions are funded. But they do define how governments must report their finances to the people. The political impact of the people learning county officials didn’t report hundreds of millions of true past pension expenses is likely to be profound. It remains to be seen what the impact will be on credit ratings, access to loans and credit, state requirements to operate with balanced budgets, etc.
Some say columns like this are attacks on public employees. Bull. Public employees took a job with the benefits that were offered. It wasn’t up to them to manage their financing correctly. Most of them didn’t realize what was happening. Some did, and their unions certainly should have. Shame on them. Unfunded pension debt is destroying county jobs and services today.
What do we expect from our elected officials? Tell us the financial truth, manage our money competently and transparently, protect and build our counties financial strength, and don’t put huge, unfair debt on our kids.
These duties have been spectacularly violated for decades. The new rules will prove it.
John G. Dickerson is a Mendocino County financial analyst who tracks local debt issues via his website, yourpublicmoney.com, where more information about the new accounting rules is available. He lives in Redwood Valley.