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Sonoma County’s pension gap grows $50 million

By BRETT WILKISON
THE PRESS DEMOCRAT

For the second time in two years, officials overseeing the pension system for Sonoma County government have lowered the fund’s projected rate of return on investments, a move that will increase taxpayer costs in the short term but is intended to reduce long-term market-driven shortfalls.

The quarter-percent change, to a new rate of 7.5 percent, will trigger a roughly $50 million spike in the county’s pension underfunding, now set at $353 million.

It also will trigger a $4.6 million increase in annual contributions by taxpayers to the system. That represents a 4.9 percent increase on the county’s current annual pension costs of $94 million, including payments on pension bond debt. The increase will be phased in over three years beginning in mid-2014.

The shift comes at a time of increasing focus on the rising cost of public pensions, which critics say sucks money from county services.

It also comes amid continued debate over pay and benefits for county employees. State-mandated pension changes this year and a slate of county proposals subject to negotiation are geared to curb rising pension costs, up 400 percent for taxpayers since 2000.

Not all of the annual increase in contributions will be borne by taxpayers. County employees and workers in several affiliated agencies will see an increase totaling $680,000, or 1.9 percent, in their annual contributions.

The board overseeing the county retirement system made the change at a Jan. 17 meeting. Supervisor David Rabbitt, who serves on the pension board, announced the shift at a Board of Supervisors meeting this week.

In an interview, Rabbitt called the decision “a move in the right direction,” while suggesting a sharper reduction would have been in order.

Stock market losses have driven much of the rise in annual pension costs for taxpayers, prompting fiscal watchdogs to call for investment changes that would reduce risks for taxpayers, including lower projected earnings rates in the range of 4 to 6 percent.

New York City Mayor Michael Bloomberg, the billionaire founder of a financial data services firm, last year called retirement fund earnings assumptions of 7 to 8 percent “indefensible.”

But public-sector pension officials have largely resisted those calls, saying their long-term returns have far surpassed those rates and that only smaller adjustments are needed.

“Over 30 years, we’ve earned over 9 percent,” said Gary Bei, administrator of the $2 billion Sonoma County Employees’ Retirement Association. The fund’s 20-year return is 7.5 percent, in line with the new assumption. Setting a significantly lower assumed rate would be “misleading,” Bei said.

The county pension board lowered its previous rate of 8 percent to 7.75 percent in early 2011.

The latest move mirrors changes by many government retirement systems. CalPERS, the giant state employee system that also includes many cities, and CalSTRS, the fund for teachers, both went to 7.5 percent last year.

Because the lower rates shrink assumed annual income from investments — the largest source of pension funding — and require taxpayers to largely make up the difference, they can be a bitter pill to swallow for cash-strapped governments.

Glittering single-year investment earnings can also make such changes seem unnecessary. In 2012, for example, Sonoma County’s pension fund earned 14.8 percent, a return that will help make up for past losses.

But pension critics point out other years, such as 2011, when the county fund made 1 percent, or an effective loss of more than $120 million based on fund assets at the time of about $1.8 billion.

With Sonoma County’s current pension bond debt at more than $500 million, county officials have said the risks posed by those investment losses no longer can be sustained.

“That huge trough, we can’t afford to fill,” said Rabbitt, speaking as a supervisor.

At the pension board meeting, he argued for a larger rate drop, to 7.25 percent, while at least one other pension board member, Tom Ford, a retired county treasurer-tax collector, pushed for no change at all.

In the end, the decision on the quarter-percent change to 7.5 percent was unanimous. Bei said it puts the county system in line with most comparable public-sector retirement funds.

The county board typically addresses such decisions on a three-year cycle. But Rabbitt suggested a quicker reassessment and possibly another reduction could be justified.

“Looking forward, based on what we know, we have to bring it down,” he said. “I don’t think we really have a choice.”

You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.com.





15 Responses to “Sonoma County’s pension gap grows $50 million”

  1. bear says:

    @ andrew simpson

    Brilliant reporting! The Water Agency has historically been a BS operation, and the BOS have always taken advantage of it.

    I understand the critics, but please identify the target before you fire.

    Someday soon the BOS will face a huge crowd of County employees and retirees.

    Strikes are a last resort, abd not always bad if there is just cause.

    Thumb up 7 Thumb down 6

  2. MOCKINGBIRD says:

    GAJ-just to put things into perspective, the deferred compensation paid by the county to the managers is worth $4.1M. They need to give that up and SEIU has been saying this since 2008 since so many of SEIU employees were laid off. If they gave it up then there would be $8.2M to put into county roads, or add it into more rank and file (like road crew who respond to problems and in an emergency)to provide more quality services to the public.

    Thumb up 14 Thumb down 8

  3. Snarky says:

    $50 million EXTRA tax dollars being stolen from us by a corrupt government that fends for its own parasitic public employees first and worries about roads last.

    Yes, the money is stolen from us. Its our money stolen by a gang of criminals who call themselves “authority.”

    Thumb up 11 Thumb down 6

  4. Better Yourself says:

    I’m not a government employee and I get a pension. I have also put away my own money for retirement. Instead of envying others, spend some of the time you are wasting posting comments and go back to school. Improve yourself and get a better job, maybe with a pension.

    Or you can just waste your time posing comments and being jealous and hope that social security will be there when you retire. Good luck.

    Thumb up 14 Thumb down 15

  5. andrew simpson says:

    The pension mess, as it turns out, is grossly underreported.

    And this time it’s not just taxpayers who are holding the bag: it’s the County’s employees.

    The Supervisors and the Water Agency have been using County Pension Funds as their private piggybank. They’ve invested $45 million of those funds against Fund policy, the deal turned sour, and the Supervisors and the Water Agency are trying to cover it up. This is large scale fraud.

    Here’s what happened.

    The Water Agency operates as a kind of Automated Teller Machine (“ATM”) for the Supervisors and their bosses, the campaign contributors and private interests who actually decide who gets what in Sonoma County.

    The Water Agency in the ordinary course confects bogus no-bid contracts as the disguise for its role as bagman for County insiders. The Water Agency’s $95,000 payment to our erstwhile Assemblyman just scratches the surface of this practice.

    This practice continues.

    Witness the current $115,000 consulting contract on Sonoma Clean Power. No real work was done; and when challenged to explain this no-bid/no-work contract, the Water Agency attempted to cover it up with clumsy fabrication. The problem with this one-off approach to payoffs is its modest scale. It’s hard to keep the County’s system of white collar fraud in minor key when the opportunities are so great. As in, the $45 million fraud in Sonoma County Energy Independence (“SCEIP”); as in, SCEIP as a pilot project for the billion dollar fraud in Sonoma Clean Power “Clean Power”).

    The facts are stranger than fiction.

    SCEIP is County program to lend homeowners and businesses money to install solar panels and energy retrofits. Clean Power, the next step, is the billion dollar version of SCEIP.
    The Water Agency and the Supervisors borrowed $45 million from the County Pension Fund to jump start SCEIP. This loan was against County Pension Fund policy. This policy says: only invest in short term liquid investments that are highly secure. The Fund’s loans to SCEIP are effectively 20 year private loans that have no liquid trading market. Why would the Supervisors approve this exception to Fund policy? Because the Water Agency said: don’t worry, this is just a bridge loan; we’ll get the banks to refinance this loan and you’ll get the pensioners’ money back quickly. Besides: this money will create investments that will lower unemployment and will drive down CO2 emissions in the County—everybody wins.

    That’s not quite how it worked out:

    • The federal housing authorities blacklisted SCEIP loans from secondary market trading in the mortgage finance markets
    • The banks won’t finance the repayment of loans back to the Pension Fund
    • The County Pension Fund is stuck in a bad deal and can’t get its money back
    • The County Pension Fund already has an unrecognized loss on its books from this loan but the County is concealing this loss from the pension holders and the public
    • This act of concealment is fraud
    • Market funding sources, as it turned out, can fund energy efficiency projects more cheaply than SCEIP
    • SCEIP is commercially dead with almost no new loan activity
    • With respect to its promised benefits, SCEIP has increased County jobs by 70, at a cost of $400,00 per job; this has driven down unemployment by .4% (.004)
    • SCEIP has decreased C02 emissions by 6000 metric tons annually, or .4% of the annual CO2 reduction goal of 1,500,000 metric tons
    • The Water Agency has propped up SCEIP by investing an added $15 million of its rate payer money and increased administrative headcount
    • SCEIP’s overhead is crushing its modest revenues; SCEIP is a money loser

    SCEIP isn’t a clean energy initiative; it’s not an employment booster; it’s training wheels for the Water Agency’s billion dollar piggybank—Sonoma Clean Power– for dispensing bogus no bid contracts to County insiders.

    A senior Water Agency executive at a recent Taxpayer’s Association meeting stated publicly that the Water Agency had no role in these events: that the Water Agency was just a passive investor. The Water Agency and the Supervisors are now at pains to pretend SCEIP never existed.

    SCEIP should not disappear. The $60 million wasted in SCEIP—in an environment where we can’t muster $60 million to repair our roads—is a window into the culture of white collar fraud by which the County is governed. It’s a precursor to fraud on a vast scale: the empty promise of Sonoma Clean Power.

    SCEIP is also a clear signal to every citizen in the County that County governance is predicated on insider advantage—and that nobody else, not the public; not the tax payers; not the rate payers; and not our County employees and retirees, matters.

    Thumb up 20 Thumb down 4

  6. Illegal is Legal says:

    Tax payers of Sonoma County, we have to get an initiative on the ballot so we can pass a law like that in Oregon, having eleven staff to one manager. The county will then have money to repair our roads and provide the services which are meant for the tax paying community.

    Where I work for the County we have a manager that only has “One” employee to manage, this person receives well over 100k with all the perks, nice huh?

    We need this changed ASAP! The line staff are not the issue, the over bloated fat management is and the are the foxes guarding the hen house so to speak. Let’s get smart taxpayers – this has to stop!

    Thumb up 16 Thumb down 2

  7. bill says:

    why do government employees get a pension and we do not? simple question

    Thumb up 14 Thumb down 9

  8. Snarky says:

    Speaking of the pubic employee pension system, lets talk about the following news item that the Press Democrat failed to report about:

    http://www.sacbee.com/2013/02/02/5159901/calpers-worker-arrested-in-identity.html

    An employee of the public employee pension system is right now being accused of identity theft / taking out loans in another person’s name.

    Thumb up 12 Thumb down 10

  9. Nora Gonzales says:

    This is another county problem that will not go away until the BOS have enough backbone to stand up and say on behalf of the taxpayers, enough is enough and deal directly with the unions and the deficit.

    The BOS needs, as a first step, to be removed from the pension system totally. They also need their pay cut to $600 per month and thats it.

    Thumb up 25 Thumb down 8

  10. Follower says:

    I can’t imagine how it must feel to retire believing that all those years of union dues bought you a guarantee of Golden Years filled with financial stability, only to now be confronted with the reality that it was all just a shell game.
    A ponzi scheme designed to make your union leaders look like they deserved all that money they stole for your paycheck every month.

    Yet NOBODY is upset with their Unions!

    I wonder if that will change once the checks stop coming?

    I suspect not.

    No, it will be MY fault for not paying enough taxes!
    Go figure??!!

    If I lost my income because my boss was so lousy at his job that nobody would do business with our company anymore, can I file a “Union Grievance” demanding that customers come back anyway?

    Are you starting to see the difference between Public Employee Unions and Private Sector Unions?

    Thumb up 31 Thumb down 8

  11. Jim says:

    Not sure why this is even a story. The county was a massively underfunded pension, so does every city, the state and the federal government. It doesn’t matter. The state, using bogus government accounting, has an unfunded liability of over $500 billion. No one cares because the same union-backed party is reelected over and over.

    Hey…anyone catch the criminal in Chicago stating he’s going to push the unfunded retiree medical cost to Obamacare? Sweet, now us taxpayers in CA, who obvious don’t pay enough already, will have to shoulder the bill for people who never worked for us and no longer work at all! Just wait until EVERY city and county in America does this. Thank goodness Obamacare is budget neutral! And thank goodness government programs are funded with money that grows on trees.

    Anyway, the Stupid Bowl is Sunday. A great distraction from reality.

    Thumb up 25 Thumb down 6

  12. Grapevines says:

    And on the other side of the coin we see that the county employees are planning a February strike over what?? “A package of unpopular pay and pension cuts” is what the PD reports.

    So I guess more unfunded pension obligations is what would make them happy? Tell county employees to grow up and face reality. The public at large is not getting pay raises, or doesn’t that count? Should we be going on strike also??

    Have the BOS grow a pair and start doing something about this problem besides stalling and delaying. Or would that be asking too much??

    Thumb up 37 Thumb down 10

  13. GAJ says:

    Keep in mind that the increase alone is more than the entire $4.3million budget to maintain County Roads.

    Still waiting for the Board of Supervisors to cut their ridiculously high pay and completely eliminate Pension Benefits for Board Members.

    Being a board member is not a career so why they get a Pension is beyond me.

    State Legislators are paid far less and haven’t received Pension Benefits since they phased them out in 1999.

    Thumb up 44 Thumb down 4

  14. bear says:

    @JP

    As a SC retiree (23 years, non-mangement)I can agree with your comment.

    But I would point out that past and current members of the BOS are voting on their own retirement pay – and they are paid a whole lot more than line employees.

    I KNOW how they operate. They don’t earn it.

    I’d also point out that the stock markets are approaching all-time highs again. I question the investment strategies of retirement fund managers, who also recieve pension benefits.

    If you have a vested interest in your own pension, you better the hell perform or get your ass fired.

    And then there are the private sector thieves who are NOT IN JAIL. We’ve got to fix that, too.

    I still don’t understand why a pension fund worth over $2 billion needs any help from current government budgets.

    The PD – or someone – needs to explain why this is so. Retirees are not greedy takers – pensions were part of our employment agreements for decades.

    NOBODY wants to fix this situation more than retired employees!

    Thumb up 30 Thumb down 5

  15. John Pendergast says:

    What does Paul Simon say? One man’s ceiling is another man’s floor. I don’t mind these people getting a nice pension, but it has to be paid for. Who pays the bills??? Small business pays the bills, and they’ve been incredibly abused in this county. If you lower taxes and especially regulations on small business, they’ll generate the income to pay this. There’s no reason why we should always be dealing with a shrinking pie. Let’s grow the pie.

    Thumb up 31 Thumb down 2

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