The Riverside County Board of Supervisors directed the Executive Office to continue searching for ways of mitigating the “single biggest threat” to county finances going forward – an unfunded pension liability totaling nearly $3 billion – but there are scant options available, according to officials.
“It looks like we’ll be crowding out other services (to meet pension obligations),” Supervisor Kevin Jeffries said. “How do we deal with it? That’s what we need to be asking. Every answer seems to be, ‘Can’t do it.’ I’m concerned we’re looking at the wholesale elimination of departments and services.”
Treasurer-Tax Collector Don Kent and the county’s veteran actuarial consultant, John Bartel, delivered a snapshot of findings from a report by the Pension Advisory Review Committee to allow the supervisors to get a better handle on how to prioritize funding commitments ahead of budget planning for the 2018-2019 fiscal year and beyond.
The PARC’s 18-page document was combined with assessments contained in two separate reports from the California Public Employees’ Retirement System. The data point to significantly higher costs that the county – taxpayers – will have to bear in the near future to preserve employees’ and retirees’ nest eggs.
“There’s good news in the long term,” Kent said, noting that, after about a decade, pension obligations are expected to ease up. “But the reality is there’s going to be pain between now and then.”
CalPERS’ figures showed that in the safety category – covering sheriff’s deputies, District Attorney’s Office investigators, probation agents and others – the county will need to commit the rough equivalent of 32 percent of payroll in 2018-2019, about $118 million, exclusively to cover pension obligations. By 2024-2025 that figure jumps to 47 percent, based on projections.
The costs factor in the expense of amortizing pension obligation bonds issued in 2005, as well as some accounting adjustments.
In the miscellaneous category – covering clerks, custodians, nurses, technicians and others – the county will need to commit a sum equal to 19 percent of payroll in 2018-2019, about $226 million, to cover pension obligations. By 2024-2025 that amount spikes to 29 percent.
The county’s retirement apparatus has about $7.8 billion in assets.
A major influence on pension costs is CalPERS’ investment performance, which county officials have complained has lagged the markets as a whole due to a preference for environmental and social justice causes over broader
“They have done an incredibly bad job since the market crash (of 2008),” Supervisor Marion Ashley, a certified public accountant, said. “It’s been one mistake after another. Here you had this big market recovery (over eight years), and at CalPERS, it was like the gang that couldn’t shoot straight.”
According to the reports, the mammoth public pension fund’s assumed rate of return on investments – also known as the discount rate – In the current fiscal year is 7.375 percent. However, over the next three years, the rate is expected to fall below 7 percent, meaning more money will be needed from Riverside County, along with other counties and cities statewide, to make up the difference.
The lower rate is a CalPERS projection and may not materialize. The pension fund earned 11.2 percent on its portfolio in the last fiscal year.
“We can always hope for the Dow Jones industrial average to hit 42,000,” Kent said, half-jokingly. “We can only encourage the state to strive for investment performance greater than what they’ve achieved.”
The county’s funded status for both the safety and miscellaneous categories is just under 70 percent. Three years ago, the funded status was closer to 75 percent. County officials did not estimate the prospective value of unfunded liabilities going forward.
“Pension costs are the single biggest threat to our budget ever,” Ashley said. “It dwarfs what we’re doing now. The next 10 years are going to be miserable unless we grow our way out of it. But economic expansion is not enough to take care of this.”
The county is facing growing costs in support of health care reforms in the jail system under a consent decree, as well as rising expenses tied to Riverside University Medical Center operations and increasing commitments to comply with state mandates. The county’s reserve pool is expected to continue shrinking, with funding for additional public safety personnel in doubt.
According to the PARC report, questions about whether shifting new workers to defined-contribution plans, in which employees’ take on greater responsibility for their own investments, to save the county money are moot because CalPERS has to approve dispensing with government-insured defined- benefit plans now in place, and there are barriers in state law.
Despite the obstacles, Jeffries said it was imperative for the Executive Office to sniff out possible solutions for paring down pension costs to prevent gutting the general fund.
“We can’t give up,” he said. “We’re not going to be able to sustain where we’re headed.”
The balance of the board agreed, suggesting that the answer may have to come in the form of state legislation – or a statewide initiative decided by voters.