County pension expense rises 5,000 percent over 10 years

By Dai Meagher
 

 

Back in 2002, Nevada County's annual pension expense was a mere $200,000. Nine years later, the County's annual pension expense ballooned to $10.6 million — a growth rate of 5,195 percent. By comparison, the S&P 500 increased just 36 percent.

During the same 10-year period, the County's health benefit expense grew by 460 percent — rising from $600,000 for 2002 to $3.2 million for 2011.

But 2011 wasn't a quirk year. In fact, the rapid jump in pension and benefit expenses began around 2007 — which coincides with the time local financial professional Mike McDaniel first published his cautionary report on Nevada County pensions. To fully grasp the magnitude of this increase, let's divide the past 10 years into parts. Part one represents the five years from 2002 through 2006. Part two represents the following five years of 2007 through 2011.

For the five years comprising part one, the county's pension expense was $12.9 million — an average of $2.6 million per year.

But during part two, county pension expense came to $50 million — an average of $10 million per year.

This rapid rate of increase is reflected in Nevada County's health benefits, as well.

For the fiscal years 2002 to 2006, health benefit expense totaled $4 million, an average of $800,000 per year. But from 2007 to 2011, health benefit expense averaged $3, million per year for a total of $15 million.

If the incoming revenues to the county had increased by a similar amount, the rise in county pension and heath benefit expense could possibly be overlooked. Unfortunately, during the same 10 years, total county revenues increased by only 70 percent. So, in 2002, the total pension and health expenses were less than 1 percent of the county's revenues in 2002, but in 2011, they now equal 10 percent of the county's revenues.

We know the county's management, supervisors, and most of its unions have implemented some measures to reduce pension costs. But it has not been demonstrated to the public that these measures are sufficient.

As reported in The Union in November, the average age of the 836 county employees is 48 with nine years of employment service.

This means that within seven years hundreds of county employees will be eligible to retire at 43 percent of their annual pay.

Further burdening the situation is the fact that the county's funding for pensions and benefits is $120 million short.

In addition, CalPERS belatedly acknowledged that their projected growth rate on investments is too optimistic. Though they only reduced their projection by a quarter of a percent, this translates to an even higher pension contribution required by Nevada County.

Given these circumstances, it seems appropriate for the leaders of our county government to formally present a detailed analysis of the projected pension expenses for the next ten years, as well as their plan to fund the $120 million in pension liabilities.

Author's note: All amounts were obtained from Nevada County's published “government-wide” financial statements, with immaterial rounding applied by the author.

 (This article was published in the Union newspaper Weds. May 9, 2012).

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