In the Last 25 Years, Sonoma County’s Pension Liability Rose ELEVEN TIMES Faster Than Tax Revenues

In August of last year retired attorney George Luke sued the Sonoma County Employees Retirement Association (SCERA) and the Board of Supervisors (BOS) because according to County records they did not follow the law when pensions were increased in 2002 and 2003. According to the law, before increasing pension benefits the supervisors are required to (1) hire an actuary to determine the future annual cost of the increase, (2) enact by majority vote a board resolution adopting the new formulas and (3) present the cost to the citizens at a regular BOS meeting so they would have the ability to know how their tax dollars are being spent. None of these requirements were even minimally met and that is why Luke sued.

Growth of Sonoma County Pension Liability vs Other Indicators

What is really appalling is documents obtained by my organization, New Sonoma, just 2 years ago proved it was not the BOS that enacted these increases at all, but a closed door settlement of a lawsuit between the employee unions and SCERA over what pay items should be considered pensionable. Here is how it happened.

In 1998 to settle another lawsuit brought by the unions (they have sued the county many times) SCERA added 45 additional pay items to pensionable pay, but the unions sued again over 2 items the unions thought should also have also been considered pensionable, the employer pickup of the employees’ pension contribution and their health insurance premiums. As part of the settlement somehow new formulas, which SCERA cannot legally change, became part of the settlement.

There’s more. The agreement struck between the employee unions and the supervisors required the Safety employees to pay half the cost of the increase and the non-safety employees to pay 100% of the cost. But because costs were underestimated by SCERA’s actuary, the additional employee contributions have fallen well short of the amount needed to avoid shifting the cost to taxpayers. This has been admitted by the supervisors and even former assembly member and current SEIU negotiator Michael Allen who said instead of the increased employee contribution being 5% it should have been 20% of salary. His estimate is exactly what mine is and if true, the county would have $70 million more each year to spend on basic services like road and infrastructure maintenance, which has about a $1 billion backlog to go along with the $1.1 billion unfunded pension and retiree healthcare liability.

Unfortunately, George lost the first round of his suit because Sonoma County judge Rene Chouteau ruled that even if the County did not follow the law it did not matter because the 3-year statute of limitations had been exceeded, which some might think is a strange ruling when the violation was failure to notify citizens of the increase and there is no resolution adopting the increase (so it never really happened). The plan now is to appeal the ruling because case law indicates every time a new check is written for an illegal pension amount, the statute of limitations starts all over again.

Why should county employees and retirees be worried? As the chart indicates, these illegal increases caused pension liabilities to grow 772 percent from 1993 to 2017 — a rise that was eleven times more than the 66 percent increase in Government Fund revenues during the same period.

The bottom line is that what can’t continue won’t and the longer the supervisors and unions wait to reform the system, the more drastic cuts to pensions will eventually be.

Ken Churchill is the Director of New Sonoma, and organization of financial experts and citizens concerned with the finances and governance of Sonoma County. More information can be found at www.newsonoma.org.

REFERENCES

Here is a link to the full text of the amended complaint:
George Luke Vs. Sonoma County

Here is a link to the exhibits for the lawsuit:
George Luke Vs. Sonoma County Exhibits for Original Complaint

Here is a link to the exhibits for amended complaint:
George Luke Vs. Sonoma County Exhibits for Amended Complaint

Here is the article that appeared in the Press Democrat:
http://www.pressdemocrat.com/news/7471405-181/lawsuit-targets-enhanced-pension-benefits?artslide=0