Market plunge darkens taxpayers’ pension obligation

September 16, 2008


San Luis Obispo County taxpayers are looking down the black hole of a swelling, multi-million-dollar deficit of the county workers’ pension plan that poses a monumental problem with few real solutions, complicated by Monday’s record-breaking 500-point plummet of the Dow.

The county’s pension investment portfolio is in a very precarious position. Public employee pension promises may be one of the most potentially crippling fiscal disasters facing county taxpayers today, yet this remains an issue shrouded in its own complexities.

But there is nothing complicated about the reason for the looming calamity: Short-term politicians rubber-stamping long-term obligations based on a literal roll of the investment dice. County supervisors made promises during boom times based on the incorrect assumption that those boom times would last forever, and thus this unfunded liability has become SLO County’s financial nemesis.

In January 2007, county officials figured they were about $235 million short of being able to deliver on the payout to retirees that had been promised. That’s more than double the deficit reported in 2006. The county has not yet revealed the January 2008 projected shortfalls.

Tony Petruzzi, the county’s pension trust executive director, did not return repeated calls from a reporter.

Petruzzi told UncoveredSLO in March that the county’s fund will probably experience a continuing decline during the next year or two. “The last two years have not been pretty, but we have stopped the bleeding at this point,” he said.

Here in a nutshell is what is happening with the pension fund, and why it is happening: In a market that was volatile in an upward direction, county supervisors readily bought into the notion, as Petruzzi writes in his occasional newsletter, The Fiduciary, that “benefit formulas could be improved with no impact on cost.”

In reality, though, Petruzzi acknowledges that time has shown that costs of benefits provided by the county’s plan have increased considerably.

Working on the supposition that the fund was only going to prosper, supervisors voted in 2001 to authorize increased county worker pension benefits in the never-ending quest for comparable pay and benefits to ostensibly attract the highest quality employee. [This is a widespread policy used by almost all public agencies which revolves around an ongoing survey of other public agencies’ pay and benefit practices. When one agency gets generous and authorizes increases in tax-supported raises, other agencies soon follow. Hence, the term “comparable.”]

What made the 2001 benefit adjustment particularly damaging fiscally was its retroactive nature: An employees’ years of service now are counted when computing increased benefits. That resulted in an immediate financial windfall for county workers and an ever-increasing financial liability for which unsuspecting taxpayers are responsible.

But overall, the fund has been experiencing anything but a windfall. The crash of the real estate market first, and the stock market now, have created numerous circumstances which might negatively impact the fund’s stability.

An Orange County lawsuit, initiated by supervisors there, alleges that the retroactive nature of their benefit package was actually an improper use of public funds and therefore unconstitutional.

San Luis Obispo County Supervisor Bruce Gibson suggested that such talk is premature.

“We are not litigating at this point,” he said. “I want to say that we are not exposed to a similar situation [as Orange County]. It’s hard to see where this is going, though. It all depends on the performance of the market.”

Gibson and fellow supervisor Katcho Achadjian said they have not yet seen an estimate of the plan’s current unfunded liability. But Supervisor Jerry Lenthall said he has “seen a preliminary and it [the unfunded liability] appears to have flattened out; no increase. But that’s not official.”

Lenthall, who lost the last election and whose term expires in January, said the county’s focus is to put employer dollars to work in the most effective way for taxpayers.

“People tell me, we need to do more, but this is really a moving target,” Lenthall said. “And there is a need to use taxpayers’ money responsibly, and still be able to get the most qualified employees. County officials and employee representatives are working hard together to find a solution.”

SLO County is one of two California counties that have independent retirement systems for employees. A board of trustees administers the system. These trustees have no authority to negotiate for, or to advocate for or against, any benefit adjustment. Only the county board of supervisors has that power.

Tags:, San Luis Obispo County

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Member Opinions:

By: concerned on 6/21/09

According to "The Fiduciary" newsletter for June 2009, the pension trust lost 27.7% in 2008. On $800+ million of trust assets as of 1/1/08 that's another $200+ million of new unfunded liability added to the county's pension funding deficit. We are rapidly approaching half a billion dollars in pension debt. Meanwhile the board of trustees routinely approves another 3% COLA increase in existing pension benefits.

Help! Our County Supervisors are either cowards, ignorant or neglegent. At least we won't be the first county to declare bankruptcy over pension deficits. If I were a county employee or retiree I might be concerned.

By: sullyberg on 9/18/08

Public pensions have always been a crippling fiscal disaster. Now you know why we need more sewers and more control over water. Pay when you drink and when you flush and in SLO the plan to sell it back to you for your lawn, in out on, in out on. Remember this one, modern science is the reason…..

By: ThomasPaine on 9/18/08

Excellent comment and unfortunately so true.

By: Countdown on 9/18/08

NSZ, insider and their kind are the self replicating problems on this and on all blogs. Difference of opinion is fine. Spouting lies and foul mouthed vitriol is not. This blog will diminish in direct proportion to your frequent assaults on others.

The site and reporting is great. You guys are not.

By: footefoote on 9/17/08

NSZ, your comment about the stock market reflects your true colors. Do you really wish for the stock market to "burn baby burn"? Really? How American is that? Doesn't reflect very well on "the right" or whatever group you think you belong to… And I'm very proud of you for pulling your $5 out of the stock market 8 months ago. May I ask what you were invested in? Did you pull everything, or do what a smart person would do and redistribute your portfolio?

By: footefoote on 9/17/08

NoSpinZone is the smartest person alive!!! We should all aspire to be as awesome as him. Bow Down!!!

By: Zuke on 9/17/08

Why does this discussion have to immediately turn into a Liberal-vs.-Conservative fist fight? Ridiculous. Some of the commenters here show they have no clue about what goes into the County budget beyond some internet blog ramblings.

Why does this article not mention the fact that beginning in Jan 2008, employees also started shouldering larger contributions from their own paychecks to fund the retirement plan, not just the employer. It's highly likely the County will play hardball with the employee union this Fall and not be so willing to take on increased contribution rates this fiscal yea

By: InTheMiddle on 9/17/08

Whoa! The way I percieve all this back and fourth is that one side agrees that there has been some mis-management and it understandbly upsets them. The other side appears to be defending the mis-management by attacking those who are upset by it.

By: ThomasPaine on 9/17/08

Twiddle Dee Dumb and Twiddle Dee Dumber. Who knew they came in pairs? I was addressing the many comments regarding the "public trough."

That funds are mismanaged and inappropriately administered should go without saying. To most people anyway.

And no I don't work in civil service.

By: insider on 9/17/08

To ThomasPaine

Have you read the article that this post is about? You can read can't you? Let me simplify it for you. The ARTICLE is about the counties financial situation in regards to its employment practices and retirement benifits. DO YOU GET IT OR ARE YOU AS DUMB AS YOU SOUND?

By: ThomasPaine on 9/17/08

$1.3 billion was for 1 CEO you uneducated misanthrope. As much as you want to turn this into a liberal vs conservative issue, it isn't. But then again everything in your mind is a liberal vs conservative issue isn't it. Grow up.

By: insider on 9/17/08

Apparently you chardonnay sipping liberals don't get the point of the article. We are hiring too many people, we are paying them too much, and we are offering retirement plans we can not support. The problem with you OBama, Patterson, Hill supporters is you speak in paragraphs instead of sentences and say nothing. The solution is simple. 1) Come up with the revenue.(the question is from where) 2. Reduce the expenditures. (the answer is 50% from every department at the City and County to start with)

By: ThomasPaine on 9/17/08

The question should not be why are civil servants being paid so well and with semi decent benefits. Perhaps the question should be why those in the private sector are being paid so low and with fewer and fewer benefits. Unless you're a suit that is.

CEO pay pre Reagan was 40 times their average worker. Now it is over 400 times! Add to that the purposeful destruction and obstacles placed in the way of unions and you end up with the greatest disparity of wealth in this nations history.

Don't begrudge civil servants. Strive to make all pay for all workers more in line with what they are worth.

By: ThomasPaine on 9/17/08

Nospin and insider. Trust me on this one. Get some help. Besides being legends in your own minds you both sound like you're a couple cans short of a six pack.

Public sector vs private sector? Do some basic homework before you post beyond your pay grade.

When was the last time a public official received a $1.3 billion pay out?

Much like we will all be paying for the bailouts of the recent Humpty Dumpty firms on Wall Street. Private in their profits. Socialists in their losses.

By: WiseGuy on 9/16/08

What's with the "victimization complex" that seems to infect so many anti-liberal fanatics? They are forever complaining about being the poor victim of people they don't like, always fearful of not having enough, always blaming others for their anger and unhappiness, always acting like they themselves are blameless and exemplary, while maintaining a continual nasty and mean streak grounded in pure selfishness. It's always about them.

By: GBJohn on 9/16/08

Comments of the quality above me indicate that new Cal Coast News nice new website may be "jumping the shark".

Good article Dan, but the same could be said throughout California. This isn't really news state-wide.

By: Booty_Juice on 9/16/08

"Heads in the sand"? Nope.

More like faces in the trough.

"Heads in the sand" assumes that they are UNAWARE of reality. They know EXACTLY how they are draining tax payer funds for personal gain while providing absolutely no "value added" to the citizens who are forced to fund their bloated pensions.

By: insider on 9/16/08

to Dan

This is the best story yet. The budget of the county is a farce as is the budget of Atascadero. If someone was to uncover where we are heading millions could be saved by the taxpayers. Just look at whats taken place with the water fees in Paso Robles. People need to wake up. Would you run your own house the way they run the county or the city. Both the county and the City of Atascadero are on the path to Bankruptcy and the supervisors and City Council have their heads in the sand. The City of Atascadero could spend every dime they have for the next ten years and not get that Veterans building done and yet they spend millions on an Architect.

By: Booty_Juice on 9/16/08

Bottom line: When inbred, drooling mongs in one California city vote themselves increased pensions at the public trough, that action starts a cascading feeding frenzy which results in increases in every city in the state for every bloated, pig eyed retard on the public payroll.

By: insider on 9/16/08

They must of missed that story about the golden goose when they wiped out development in the county.

By: insider on 9/16/08

Gibsons an idiot as they all are to different degrees. The writings on the wall in ten foot high fonts and they still can't see it. Depending on how the market does. Are you kidding me. They set up a retirement system thats based on how the market does. Why not just head to Las Vegas on the weekends like the North County Contractors did at least they got a free plane ride. They have gone out and hired the most expensive people they could find. Hired twice as many as it took to do the job. Then they loaded the planning commission with tree huggers. Made the builders provide free housing to those who weren't willing to do it the American way. They have bankrupted this county but they need to review the situation. Review this*^$$#$%^%$#%&^&&***