Does Contra Costa County need to pay more into its employees' retirement system?
An analyst from Mendocino County says it does, along with Alameda and at least four other counties.
In fact, the analyst, John Dickerson, says these counties may have to double the amount of money they're putting into pensions if the numbers calculated last year by Moody's are correct.
If that happened, counties would have to decide whether to slash programs or ask voters for large tax increases.
"This is like the Exxon Valdez. It's a huge ship with such inertia, it'll take years to turn it even slightly," said Dickerson.
Dickerson's contention and his scenario are strongly contested by county financial experts.
"Future payments could change depending on many factors," said Contra Costa County Administrator David Twa, "but at this time the county is not underfunding its portion."
Dickerson, a public sector pension expert with 30 years of financial experience, posted his online report in early January. He studied six counties, including Alameda and Contra Costa, that are not part of the California Public Employees Retirement Systems (CalPERS). A summary of his report was also posted by the California Public Policy Center.
Dickerson put together his independent report after reading the proposal by Moody's Investor Services last summer. The credit rating agency concluded that government employee pension data was understating the credit risks caused by unfunded pensions.
Moody's does not have any authority to force government officials to make changes in their pension funding systems. However, the agency can lower credit ratings, potentially causing governments to pay more for money they borrow.
The agency hasn't announced when it'll decide whether to lower credit ratings, but Dickerson said it could be as early as next month.
Among the changes Moody's officials are recommending is that government pension systems reduce their projected rate of return on their investments from an average of 7.7 percent to 5.5 percent.
They also recommend government agencies pay more into their pension systems to amortize them over a 17-year period instead of a 20 to 30-year period.
Contra Costa County's projected rate of return right now is 7.75 percent. Twa said investments have returned 6 to 7 percent annually for the past 30 years. He noted the money is invested in more than just the stock market, so the returns can vary.
The Contra Costa County Employees' Retirement Association releases a financial report every quarter. Here are the numbers.
- Current and future retirees are projected to collect $6.9 billion in pensions over their lifetimes.
- The CCCERA pension fund has $5.4 billion invested. That leaves an unfunded pension liability of $1.5 billion. Contra Costa County's portion of that liability is about $1 billion.
- Contra Costa County paid $142 million last year toward that unfunded liability. Some of that is reimbursed by federal and state agencies. Employees pay about $48 million into it every year.
Twa reiterates the pension system is being properly funded.
Dickerson disagrees. He says under Moody's calculations the CCCERA's unfunded pension liability would rise to $3.7 billion.
He added the increased payments the county would need to make to cover this increased unfunded pension liability would be equivalent to 154 percent of the county's annual property tax revenues.
"This isn't vapor. This is real money," said Dickerson.
Dickerson said local governments are handcuffed by state laws that require agencies to guarantee pension benefits to public employees. In other words, lowering benefits is not a realistic option.
"Given California law, counties can't do what they need to do," said Dickerson.
Alameda County Assistant County Administrator Donna Linton said this is all a lot of panic without solid reasoning.
She said it's quite possible Moody's will not lower credit ratings because the company grades on a curve and if every agency's pension liability increases, then nothing really changes.
She added the pension systems have been funding pensions for decades and, so far, the system hasn't gone broke.