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Sonoma County Pension Crisis Study Report

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Sonoma County Pension Crisis Study Report

Sobering Study on the County’s Pension Crisis

New Sonoma, a volunteer organization of financial experts and citizens concerned about the finances and governance of the County has just completed an extensive study of the County’s pension crisis. The full text of the study is found at: http://www.newsonoma.org

In addition to describing how the County has incurred over a billion dollars in unfunded pension and retiree health care liabilities, how the County ignored the requirements to notify the citizens of cost of the benefit increase and failed to follow the Board of Supervisor’s resolution requiring the employees to pay for the increase, the report also provides a first-of-its-kind comparison of Sonoma County’s pension system with neighboring counties.

The following is a summary of the study’s findings:

  • Sonoma County is approaching balance sheet insolvency, which means the County’s liabilities will exceed their net assets when the new accounting standards, which will require the County to list their pension liabilities on their balance sheet, kick in and unfunded retiree medical liabilities are included.
  • The key driver of the pension problem was the retroactive increases which took effect in 2003 and 2006 for Safety and 2004 for General employees. The increases lead to higher pensions, accelerated retirement rates and reduced the average retirement age by 5 years
  • The retroactive increases combined with a new definition of pensionable compensation increased pensions by 66% for General Employees and 69% for Safety Employees the year after the increases were enacted.
  • Even thought the Board of Supervisors Resolutions authorizing the new formula required the General Employees to pay the entire past and future cost of the increase and Safety Employees to pay the past cost, the resolutions were never enforced by the retirement association. In fact, in the 2008 contract negotiations the County picked up all but 1% of the General Employees contributions to the increase and all but 1% of the Safety Employees contributions.
  • The County's pension costs have climbed from $24 million in 2001 to $122 million in 2012. Even with these increased costs, the system has a $1.3 billion dollars in unfunded pension, retiree health care and pension obligation bond liabilities.
  • When comparing Sonoma County's pension costs with Tulare, Mendocino, Alameda, San Mateo, Marin and Contra Costa counties we found that their average pension costs were 16% of the General Fund while Sonoma’s were more than double at 36%. No other county or city we know of has pension costs as high as ours and a percentage of the General.
  • When adding payroll costs, the total climbs to 120% of the General Fund. The average for the other counties is 60%.
  • The County currently has a funding ratio of 60% for pension and retiree health care benefits when pension bond debt is added in. That means there is only 60 cents available for every dollar for benefits already earned. This percentage uses a 7.5% return on investments. If a more conservative 5.5% return is used, the funded ratio drops to 50%.
  • Sonoma County employees receive on average $110,000 per year in salary and pension benefits, plus health insurance for life after 10 years of service. This is double the average salary and retirement benefits of Sonoma County residents.
  • Increased pension costs in the years ahead have far reaching implications for the all County residents, including; (1) unsustainable annual costs for taxpayers, (2) burden on active County employees, (3) threats to vital public services, and (4) the potential for the County to run out of money and go bankrupt resulting in loss of health care and a reduction of pensions for retirees as has happened in Stockton and Detroit.

“We hope this report will be a call to action on the part of all stakeholders and that they will work together to solve this deepening crisis, which threatens the quality of life and economic prosperity of all Sonoma County residents” said Ken Churchill New Sonoma’s Director.

Contact:

Ken Churchill

www.newsonoma.org

info@newsonoma.org

707-578-3403