By BRETT WILKISON
THE PRESS DEMOCRAT
Sonoma County’s average pension for new retirees has risen dramatically over the past 10 years, outstripping the cost of living by nearly 5 to 1 and driving up taxpayers’ costs.
The trend is fueled by generous pay and benefit policies adopted almost a decade ago by the county Board of Supervisors and by state legislation and court rulings.
Members of the pension system for county government and several special districts who retired in 2002 receive an average annual pension of $22,291. New retirees since then have been receiving sharply more, with those retiring so far in 2011 getting an average pension of $48,814, an increase of nearly 119 percent over eight years.
The figures come from records released last week by the county’s retirement system under a court order handed down as the result of a Press Democrat lawsuit.
Ballooning payouts, which have come during a severe recession and stock market setbacks, have required taxpayers to devote millions more each year to the pension system, contributing heavily to county government’s fiscal woes.
Records from the county’s pension system highlight a key decision behind the increased retirement spending.
In 2002, at the urging of labor and with the endorsement of management, the county Board of Supervisors approved a more generous set of pension benefits for all current workers.
The change, fueled by salary increases and combined with other workforce trends, is now seen as driving the upward spiral in pension costs.
One ex-county official now looks back on the decision as a pivotal moment.
“It’s nearly impossible to do something like that and guarantee it forever,” said Mike Chrystal, who was county administrator at the time.
The deal was designed to pay for itself through a cost-sharing agreement with employees and surplus investment income. In the wake of the 2008 stock market crash, however, taxpayers have been largely responsible for footing the bill, a trend that could continue over the long term unless investments rebound or future benefits are revised.
“Looking back, it makes you wonder,” Chrystal said.
Chrystal served on the retirement board after he stepped down from the administrator’s post in 2004. He was the only top county official involved in the decision who would discuss it.
Sonoma County Sheriff Steve Freitas and Democratic Assemblyman Michael Allen of Santa Rosa, both of whom lobbied for the benefits as labor leaders, also gave their perspectives.
Past members of the Board of Supervisors who upgraded the benefits in a series of votes — Tim Smith, Mike Reilly, Paul Kelley and Mike Kerns — did not return phone calls requesting comment.
Current Supervisor Valerie Brown, who has been on the board since late 2002 and voted to approve pension changes, returned a call Saturday night, but could not subsequently be reached for an interview.
Rod Dole, the county’s longtime financial chief who retired in May and now earns the top pension among 3,916 county and special district retirees — $254,625 a year — also did not return calls for comment. Dole also served for years on the retirement board.
The pension deal has become a target for critics of the county’s retirement system, in part because it has been seen to benefit top officials the most.
For example, Chrystal, the county’s third-highest pensioner, gets $209,862 annually, an amount many thousands higher than he would have received under the former benefit level. The same holds true for other top executives and elected officials.
“There was a certain amount of self-interest involved in the decision,” Chrystal said, acknowledging that county leaders had a stake in the outcome. “I can’t remember it being a big issue at the time.”
That no longer is the case.
Along with the rescue of recession-ravaged banks, few public policy issues have prompted more spirited debate than the rising cost of public pension systems to taxpayers.
Many of the decisions that underlie those costs were made in the late 1990s and early 2000s, when government and labor leaders struck deals that relied on surplus investment income and the expectation of continuing increases in government revenue.
In California, court rulings and legislation expanded the range of pensionable benefits and set off a race among public-sector employers to attract and keep workers by approving higher pay and benefits.
“California set the pace in many ways,” and counties such as Sonoma were not immune, said Stephen Fehr, a researcher with the Pew Center on the States in Washington, D.C. “There’s so many examples up and down the coast of counties and city governments making those promises when times were flush. Those promises are coming due now and the governments are realizing what a mistake they made.”
In Sonoma County and elsewhere, the reckoning has been hastened by a backlash over cuts to public services taking place while more money goes toward retirement spending.
Fiscal watchdogs have been on the front lines of the fight. With the release of county pension records last week, rank-and-file workers are also raising their voices.
Some protests come from private-sector employees who complain their pensions have gone away or been reduced, especially since the 2008 financial collapse. They argue the guaranteed monthly benefit received by county workers is rarely found in private companies.
The outcry also comes from retired public workers looking at the widening gap between their pensions and what newer retirees are receiving.
“I was shocked,” said Gwendolyn Orro, 80, describing her reaction last week to The Press Democrat report that 98 retirees earn six-figure pensions in the county system and some former county workers earn more in retirement than they did while working.
“I didn’t know it was so jacked up like that,” Orro said. The 15-year social worker retired from the county in 1994 and now receives a pension below the current $21,258 average for her year.
Records released by the Sonoma County Employees’ Retirement Association clearly show the rising payments to new retirees.
Until 2003, the average payout to new retirees had been fairly level for a decade, moving up and down around $20,000 but changing no more than a few thousand dollars from one year to the next.
But in 2003, when the first of the enhanced benefits kicked in for sheriff’s deputies and other public safety workers, the average for new retirees jumped 57 percent, to $35,106.
Over the next eight years, with all the new benefits in place by 2006, the average payout would jump an additional 40 percent, to $48,814 in 2011, records show.
That pattern is not uncommon for a public pension system that has increased benefits, said Joe Nichols, an actuary based outside Kansas City who works with public and private pension systems nationwide.
Salary hikes also are a likely factor, he said.
The average county salary has increased 60 percent percent over the past 10 years, retirement system records show. By comparison, the Consumer Price Index rose 23 percent, according to the federal Bureau of Labor Statistics.
Perks and other pay that retiring county employees can apply to their final year’s compensation also have an effect, Nichols said.
Other jurisdictions have reined in so-called pension spiking and shifted to a multiyear average for final compensation to avoid that effect, a move Sonoma County has yet to consider.
“That’s a double whammy for them,” Nichols said.
County officials argue that the average is skewed by a record number of retirements in the past two years, including those of higher-paid, longer-tenured employees, more of whom are eligible for pensions equal to or above their pay because of the new benefits.
Neither of those claims could be tested because county pension officials continue to withhold data on years of employment for each retiree, final compensation and other pension information that courts have determined to be public.
Thomas R. Burke, an attorney for The Press Democrat, said he will return to court if necessary to gain access to additional records.
County employees help fund their pensions with payroll contributions that are higher than rates paid by most other public-sector peers. The current average across the county workforce is about 12 percent of pay. In addition, the county contributes an amount equal to 27 percent of payroll for general employees and 35.7 percent for public safety workers.
County retirees also receive Social Security benefits, and both workers and the county also contribute to the federal system. However, county workers do not receive automatic cost-of-living increases in their county pension.
About a quarter of the employees’ contribution resulted from the 2002 deal, in which employees agreed to forgo some salary increases and contribute at higher rates into their pensions to cover half of the additional benefit cost. The county agreed cover the other half.
“I remember us saying when we negotiated this, ‘We’ll pay our share,’ ” said Freitas, then a sergeant in the Sheriff’s Office and president of the county’s Deputy Sheriff’s Association.
For the county’s public safety workers, the formula was upgraded twice — the second time in 2006 — to allow employees to retire at age 50 and earn 3 percent of their final year’s pay for every year worked. The previous formula was 2 percent of pay per year at age 50.
For non-safety workers, including members of the Board of Supervisors, the enhanced benefit was the same, with retirement age set at 60. The previous formula was 2.6 percent of pay per year of service with retirement at age 62.
Other counties were making similar decisions, especially on the public safety side. Labor leaders and county officials said the changes were intended to help the county stay competitive. They also reached labor deals in the wake of state decisions that expanded the scope of pensionable benefits.
“After those decisions it was only natural for labor to start bargaining for the new benefits,” said Allen, the state assemblyman, who at the time was executive director of the since-renamed Local 707 of Service Employees International Union, the county’s largest labor group.
The belief at nearly all levels of government was those benefits could be sustained based on the “super-funded” pension systems existing at the time, Allen said.
“No one thought of a catastrophic meltdown,” he said.
But the 2008 stock market crash wiped out $670 million, or a third of the assets in the county’s pension fund, and taxpayers have been forced to come to the rescue.
The results have been staggering for county costs.
Since 2008, annual taxpayer contributions to the pension system have jumped 25 percent, to $48.4 million, part of a now-seven-year increase of 112 percent since 2004, when the new pension benefits kicked in for the majority of employees.
And those contributions don’t cover annual payments on pension debt, which the county doubled last year with the sale of about $290 million in bonds to help shore up the pension system. Those payments are now at $43 million and are set to peak at $57 million in 2023.
With that debt factored in, the rise of pension costs is more than 300 percent for the past decade.
And even the most optimistic assessments have that rise continuing for at least three more years as taxpayers continue to chip away at unfunded pension obligations that now total $249 million.
At least three current members of the Board of Supervisors — David Rabbitt, Shirlee Zane and Efren Carrillo — have called the county’s escalating costs “alarming” or “unsustainable.”
Supervisor Mike McGuire has stopped short of those labels, but joined the others in calling for pension system overhauls. Valerie Brown, the board veteran, has remained skeptical of that push, worried that outside critics could exert undue pressure to roll back workers’ benefits.
But nearly all the elected officials, including Freitas and Allen, both former labor advocates, acknowledge that rising pension costs threaten to further drain public services.
“What that reform looks like, how that happens, I don’t know,” Freitas said.
Some of the most common fixes, including lower benefit tiers for new workers, have not been enough to save public-sector employers from fiscal ruin.
After its attempts to contain retirement costs fell short, the city of Central Falls, R.I., last month became one of the latest local governments to declare bankruptcy.
Promises to retirees “are really bringing the local governments down,” said Fehr, the Pew Center researcher. “It’s their most urgent political issue. People are consumed by it.”
The result is a vastly different discussion in Sonoma County from years ago, with private citizens, public workers and elected leaders now debating the proper level of retirement security for government workers.
“We elected the people who put this into place,” said Dick Lammerding, 75, a retired commercial airline pilot and Cloverdale grape grower. “I think we’re all a bit responsible for this as far as not being aware of what was happening.”
Those charged with finding a way forward will have to contend with that new level of oversight.
“Could I have predicted this eight years ago? Probably not,” said County Administrator Veronica Ferguson, who came to Sonoma County last year, but oversaw similar issues in her former post in Solano County.
“The world has changed,” she said.
News researchers Janet Balicki and Teresa Meikle contributed to this report. Contact Staff Writer Brett Wilkison at 521-5295 or firstname.lastname@example.org.
Formulas represent the percent of final year’s compensation received for every year worked:
Public safety workers
2006 to present: 3% at age 50
2003 to 2006: 2.6% at 55
1967 to 2003: 2% at 50
General employees (including Board of Supervisors)
2004 to present: 3% at 60
1974 to 2004: 2.6% at 62
1967 to 1974: 2.4% at 65
Source: Sonoma County