FOR IMMEDIATE RELEASE
Sacramento, California, January 16, 2014
The California Policy Center has just published an alarming study of Sonoma County’s pension crisis. The study was written by New Sonoma, a volunteer organization of financial experts and citizens concerned about the finances and governance of Sonoma County.
The study describes 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 increases, and failed to follow the Board of Supervisor’s resolution requiring the employees to pay for the increase. The report also provides a comparison of Sonoma County’s pension system with several neighboring counties.
The following is a summary of the study’s findings.
(1) Sonoma County is approaching balance sheet insolvency, which means the County’s liabilities will exceed their net assets when the GASB’s new accounting standards take effect. These will require the County to list their pension liabilities on their balance sheet in 2014, and unfunded retiree medical liabilities by 2016.
(2) 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.
(3) The retroactive increases combined with a new definition of pensionable compensation increased pensions by 66% for General Employees and 69% for Safety Employees after the increases were enacted.
(4) Even though 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. In fact, in the 2008 contract negotiations the County picked up all but 1% of the employee contributions.
(5) 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 $1.3 billion dollars in unfunded pension, retiree health care and pension obligation bond liabilities.
(6) When comparing Sonoma County’s pension costs with Tulare, Mendocino, Alameda, San Mateo, Marin and Contra Costa counties the study found that their average pension costs were 16% of the General Fund while Sonoma’s were more than double at 36%. As a percent of the general fund, no other county in California has pension costs as high as Sonoma County.
(7) When adding payroll costs, the total climbs to 120% of the General Fund. The average for the other six counties analyzed is 60%.
(8) The County currently has a funding ratio of 60% for pension and retiree health care benefits. That means there is only 60 cents available for every dollar for benefits already earned. This ratio assumes a 7.5% return on investments. If a more conservative 5.5% return is used, the funded ratio drops to 50%.
(9) 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.
(10) Increased pension costs in the years ahead have far reaching implications for the all Sonoma County residents, including; (a) unsustainable annual costs for taxpayers, (b) burden on active County employees, (c) threats to vital public services, and (d) 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.
“This report is a call to action to solve this deepening crisis that threatens the retirement security of Sonoma County employees and retirees, and the quality of life and economic prosperity of all Sonoma County residents,” said Ken Churchill, founder and director of New Sonoma and principal author of the study.
To read the entire study, click on “Sonoma County’s Pension Crisis – Analysis and Recommendations.”
If you have questions or would like to schedule an interview with the authors, please contact email@example.com.
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The California Policy Center publishes studies (ref. CPC Studies) designed to provide quantitative, top-down financial information and analysis of California’s state and local government finances, including reports on total state and local government revenue and expenses, as well as total state and local government debt. Related areas of focus include reports on the solvency of public sector pension plans and public employee total compensation. Other areas of focus include campaign finance and the impact of influential participants including corporate interests and public sector unions. The California Policy Center aspires to provide information that will elevate and enlighten the public dialogue on these vital issues, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions