County pension liability tops $346 million
July 23, 2014
By DANIEL BLACKBURN
San Luis Obispo County employees’ pension plan has a $346 million unfunded liability, a matter of concern to the Grand Jury because of its breathtaking size and the suggestion that officials may have tried to camouflage the problem.
The Employment Retirement Plan imbalance was examined in a report just issued by the 2013-14 Grand Jury, which asserted “…this liability adds to a complex cash flow management burden that must ultimately be solved by the SLO Board of Supervisors.” Jurors called the county’s employee pension program “substantial” and “growing,” increasing in size nine of the past 10 years.
Noting a $25.2 million increase in the fund’s liability during 2012 alone, the Grand Jury worried the total will increase substantially over the next decade, citing a Jan. 2013 actuarial report prepared for the county by Gabriel, Roeder Smith & Company. County taxpayers pay about $8.7 million annually to service the debt incurred by the pension plan.
James Erb, the county’s auditor-controller-treasurer, said he is preparing a response to the Grand Jury’s report for supervisors “and they’ll have it soon.”
One issue raised by the Grand Jury was a lack of transparency in the accounting process.
Erb, commenting on criticism that pension plan data was difficult to locate in audits said, “the disclosure issue has been around for a long time.”
He has reportedly “embarked” on what the Grand Jury labels “a preemptive program with the goal of placing this county on a more fiscally prudent path while still fulfilling contractual obligations to its employees.”
County plans call for erasing the deficit during the next 24 years, and has a “two-tier” plan in place which reduces benefits for new employees. The Grand Jury noted, however, that “a clearer presentation of the plan… is lacking.”
Former Santa Barbara county administrator Mike Brown said the so-called “recovery plan” is based on the assumption that the pension program will enjoy a steady annual interest hike of more than 7 percent.
“Those figures of the county’s will take a big dive” if that interest should drop over the life of the program, Brown added.
The county’s credit rating for general obligation bonds was recently upgraded by Fitch to AAA, and pension obligation bonds to AA+.
Over the past five years, according to data provided to the Grand Jury by county officials, average annual benefits increased from $18,744 to $25,474, a 36 percent increase.
The total actuarial liability increased 39 percent over the same period, from $1.057 billion at the end of 2007 to $1.468 billion in Dec. 2012.
The fund’s Comprehensive Annual Financial Report “does not clearly identify the variances” nor does it “provide an understandable explanation of the changes” that caused the increase in the unfunded liability, the Grand Jury said in its report.