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Old Mendocino County Courthouse Around 1915

California County Pension Debt


California County Pension Funds

Massive Write-Off of County Net Worth

Major Pension Financial Reporting Reform Hits Hard!

21 CA Counties

Choices -


Massive Write-Off

May, 2016

Twenty-one California counties have their own independent County Pension Funds instead of participating in the huge statewide CalPERS (see Note 1). 21 Counties with Pension Funds These Counties released their June 30, 2015 audited financial statements from late December 2015 through March 2016. These are the first audited statements required to conform to major new rules about how state and local governments in the US must report their pension finances as defined in Governmental Accounting Standards Board Statement 68 ("GASB68") that was issued in June 2012. (See the preceeding section "Reporting Fraud" (click) for a description of these new rules.)

The Fatal Flaw in the Old Rules Fixed by the New Rules

As described in the previous section the fatal flaw in GASB's old rules was that pension expenses that create unfunded pension debt were reported in the future as that debt was paid. That's absurd. Payments of debt eliminate debt, they don't create it. And because governments didn't have to report those expenses as they created the debt, they didn't have to report the debt.

The new rules require governments to report pension expenses that create unfunded pension debt as they happen - not as the debt is paid. And - therefore - unfunded pension debt will be reported as real bona fide debt for the first time.

GASB68 required these counties to restate their reported June 30, 2014 Net Positions (aka Net Assets or Net Worth) in their 2015 audits. They did this by making "Prior Year Adjustments" in accordance with these new rules. (See Note 2 below) The Net Position is the difference between the value of a county's assets and its debts.

21 Counties with Pension Funds wrote of $28.5 Billion of their People's Net Worth in those counties

$28.5 Billion Write-Off!

These 21 counties together The write-off of the People's Net Worth in cities, counties, special districts, and the 50 states was unbelievably massive originally reported in their 2014 audits that their assets were worth $41 Billion more than their debts as of June 30, 2014. GASB68 forced them to "write off" $28.5 Billion! They wrote off 70% of their Net Worth! (See Note 3)

There are over 3000 counties in the US, tens of thousands of cities, school districts, and special districts, and the 50 states.

Huge Range of Impact on These 12 Counties

Not all these counties are in the same boat. Several got their bottoms riped out. One only got a slight dent. But the rest are taking on serious water.

Scale of Write-Off of Net Assets by New Rules

Five counties wrote off their entire Net Assets and then some - big range among counties We can't compare the degree of impact of these Prior Year Adjustments forced by the new GASB68 rules among the counties by only looking at the dollar values of their adjustments.There's a huge range in the financial size of these 21 counties. The smallest - Mendocino - reported $80 million in Net Assets as of June 2014. LA County reported nearly $10 BILLION! Mendocino County's numbers are "rounding errors" for LA.

In order to compare the impact on these counties this shows the percentage the total adjustments were of the previously reported Net Assets for each county. That is, the Net Assets of each county originally reported as of June 30, 2014 = 100%.

Mendocino County suffered the largest write off of Net Worth of these 21 counties. The combination of listing unfunded pension debt for the first time and writing off the old worthless Pre-paid Pension Asset reduced the County's Net Assets by 170%! The County originally reported $80 million of Net Assets. After the required GASB68 adjustment to conform to the new rules the County reported Net Assets at that time were really a negative $56 million (rounded).

One financial definition of insolvency is having more debt than assets. (See Note 4) Five counties were forced into that form of insolvency as of June 30, 2014 by the new rules - Mendocino, Contra Costa, Fresno, Sacramento, and Merced.

Thirteen of these 21 counties wrote off more than 50% of their previously reported Net Assets.

Contrast the impact on those two counties with Tulare way down in the San Joaquin Valley. Tulare was forced to "write down" its Net Assets by 11%. I'm not saying that's "good" - but it's 16 times better than what Mendocino was forced to do. (See Note Five)

Impact of Unfunded Pensions on County Balance Sheets

This shows the proportional Balance Sheets these 21 counties reported as of June 30, 2015 - one year later. Instead of Net Assets = 100% as in the graph above, this time we make Total Assets = 100%. (See Note 6) So the question becomes - "For every $100 of Total Assets a county has, how many dollars of Total Debt does it have?"

There are two differences between the adjustments to the June 30, 2014 Balance Sheets shown above and these Balance Sheets as of one year later - June 30, 2015. the biggest difference - obviously - is that a full year of activity and changes happened between them. A less significant difference is that some counties 21 County Balance Sheets as of June 30, 2015 had to adjust their June 2014 Balance Sheets for reasons other than the new pension reporting rules - the impact of which are not shown in the previous graph.

The solid red inside black boxes at the top are the remaining Pension Bond balances.The red without a surrounding box are the newly reported Net Pension Liabilities - unfunded pensions the counties owe to their Pension Funds. These two together are these counties' total unfunded pension debt.

The "pink" areas are all other debt. The sum of total unfunded pension debt and all other debt are greater than their reported total assets for four counties - Mendocino, Fresno, Sacramento, and Contra Costa. Technically - they are "Balance Sheet Insolvent".

If a county has more assets than debt the green areas are the proportion of Net Assets as a percentage of Total Assets. Four counties reported more debt than assets - Mendocino (with 20% more debt than assets), Fresno, Sacramento, and Contra Costa. Seventeen counties had more assets than debts - although Merced, LA, and San Joaquin barely squeaked by.

For every $100 of assets LA County reported they had $96 of debt. The largest population county is the US is on the edge of insolvency (again - according to one technical financial definition of insolvency).

And - again - look at Tulare!!! For every $100 of assets they have, they only owe $22. Compare that with Mendocino's owing $124 for every $100 of assets!

Percent Unfunded Pension Debt is of Total Assets - 21 Counties as of June 30, 2015 This graph focuses in on the specific impact of unfunded pension debt - the sum of Pension Bonds and Net Pension Liability owed to their Pension Fund as a percent of total assets.

Mendocino County's unfunded pension debt is almost 80% of the total value of assets. Next is San Joaquin with nearly 70%. Seven of the 21 counties have unfunded pension debt that is more than half the value of their assets.

GASB68 Prior Year Adjustments

These are the adjustments made by these counties to their June 30, 2014 Statement of Net Position (Balance Sheet) as decribed in their June 30, 2015 audited financial statements - in $Millions.

  Reported Beg. Net Position (6/14)   Write Off Net Pension Asset Add Net Pension Liability Deferred Pension Inflows/ Outflows Total GASB 68 Adjustment % Write Down of Net Assets re GASB 68   Net Assets After GASB68 Adjustment
Alameda 1,935 0 (1,088) 91 (998) (52%) 938
Contra Costa 750 (308) (821) 67 (1,062) (142%) (312)
Fresno 1,162 (545) (1,252) 161 (1,637) (141%) (475)
Imperial 212 0 (79) 0 (79) (37%) 133
Kern 1,779 (120) (1,395) 0 (1,514) (85%) 265
Los Angeles 9,317 0 (8,920) 1,085 (7,835) (84%) 1,482
Marin 1,490 (61) (251) (40) (352) (24%) 1,138
Mendocino 80 (31) (105) 0 (136) (170%) (56)
Merced 402 0 (428) 0 (428) (106%) (26)
Orange 4,325 (1) (3,687) 0 (3,688) (85%) 637
Sacramento 1,467 (966) (1,186) 172 (1,979) (135%) (512)
San Bernardino 3,045 (652) (1,474) (117) (2,243) (74%) 801
San Diego 4,341 0 (2,239) 0 (2,239) (52%) 2,102
San Joaquin 1,002 0 (905) 0 (905) (90%) 98
San Luis Obispo 1,481 (134) (351) 15 (471) (32%) 1,010
San Mateo 1,624 (50) (626) 124 (553) (34%) 1,071
Santa Barbara 820 0 (600) 0 (600) (73%) 220
Sonoma 1,400 (447) (197) 52 (592) (42%) 808
Stanislaus 689 0 (276) 0 (276) (40%) 412
Tulare 1,799 0 (194) 0 (194) (11%) 1,605
Ventura 1,708 0 (859) 146 (713) (42%) 995
  34,618 (1,958) (24,560) 1,671 (24,847) (70%) 9,771




NOTE ONE: Twenty counties have County Pension Funds organized under California's County Employees Retirement Law ("CERL" - aka "1937 Act"). One County's Pension Fund - San Luis Obispo - is its own unique legal entity.

NOTE TWO: All state and local governments were required by GASB68 to restate their previously reported Statement of Net Position (aka "Statement of Net Assets" and "Government-Wide Balance Sheet") as of the end of their last fiscal year. This analysis focuses on these "GASB68" adjustments.

All California counties have fiscal (financial) years that end on June 30. GASB68 had to be implemented in their June 30, 2015 audited statements. GASB68 required these counties (in fact all state and local governments) to "restate" their beginning Balance Sheet" as of June 30, 2014. They did so by making a Prior Year Adjustment.

In effect these adjustments show what the beginning Balance Sheet would have looked like had GASB68 been in effect over the past decades. However GASB68 allows a break-in period in which some of the rules are relaxed in the early years of applying the new rules. Data may not be available to accurately apply the new rules to previous years or the cost of developing the data would be excessive. Some of the provisions of GASB68 will require a decade to be fully implemented - but the main financial changes are reflected in these initial audited statements.

All these counties' Prior Year Adjustments changed the value of their Net Assets. These adjustments also adjusted other Balance Sheet items:

  • Net Pension Liability: All counties added unfunded pensions as "Net Pension Liabilities" for the first time.
  • Net Pension Assets: Some write off previously reported "Prepaid Pension Assets" that in fact never had any real value. These Net Pension Assets were set up when those counties borrowed large sums of money by selling Pension Obligation Bonds to eliminate unfunded pension obligations in the past.
  • Deferred Pension Inflows/Outflows of Resources: The basic concept in GASB68 is that the yearly changes in the Net Pension Liability will be reported as each year's pension expense - EXCEPT the impact of certain events will be spread out over a number of years. This is necessary both to prevent sudden chaotic changes in the value of the Net Pension Liability and pension expense in certain years and also to spread other changes over many years because of the longer-term nature Proportion of the 3 types of Prior Year Adjustments Made per GASB68's new rules - 12 County Balance Sheets as of June 30, 2014 of those events. Some counties made adjustments to these items in their Prior Year Adjustments - some didn't. However, all will make entries to these items each year in the future.

This shows the relative size of these three adjustments for all 21 counties (not dollar weighted). By far the biggest impact is adding the Net Pension Liability - 87% of the total. The other two each have about the same impact - 6% to 7%.

One example of Deferred Pension Inflows/Outflows - the difference between a Pension Fund's assumed rate of investment return and its actual return. Every now and then stock markets crash but in time have always recovered. If the yearly variances between expected and actual returns were completely included in the calculation of liability and expense each year their reported values would jump around so much it would be hard to see the more important long-term trend. So these differences will be spread across 5 years.

Another example - if it turns out retirees are living longer than expected then the Pension Fund will have to pay out more than was planned - and therefore the Net Pension Liability would be more than previously reported. But such a trend would have gradually occured over many years. And - for current employees the goal would become having enough money in the Pension Fund to pay their pensions when they retire - which would now be estimated to be larger than was planned for. So the financial impact of debt and expense that was calculated in the year the "longevity assumption" was changed will be spread over the average estimated remaining years of employment for BOTH current employees and retirees. That's turning out to be in the 4 to 8 year range.

The accounting method to implement these requirements is to enter the amount of these items to be recognized in pension expense in the future as "deferred inflows or outflows of resources". In effect these immediately increase either the apparant assets or liabilities. Then these will gradually be eliminated by converting them into either increases or decreases of pension expenses reported over the next several years.

NOTE THREE: State and Local governments report their finances in different columns in their government-wide statement.

This analysis focuses only on Governmental Activites. These are the traditional activities that are primarily funded from local revenues usually mostly taxes such as the costs of the legislative body, general administration, police, public health, and others.

this analysis does not include "Business-Type Activities" that are primarily paid from user fees, such as water, sewer, power, airports, etc. Nor does it include "Component Units" - these are functions that are legally separate from the government but the government is financially responsible.

NOTE FOUR: Financial analysts distinguish between two types of "insolvency". "Balance Sheet Insolvency" is when an entity owes more debt than the value of its assets. This is the meaning I use here. "Cash Flow Insolvency" is when it is not able to make all payments when they are due. The first often - but not always - leads to the second.

NOTE FIVE: Tulare has long had a reputation among reformers for having done things the right way - doing what needed to be done to both provide promised pensions to retirees AND to continue to provide services to its residents and taxpayers. Someday someone should figure out how - and why they were so different.

NOTE SIX: In addition to the usual Assets, Liabilities, and Net Assets governments also report "Deferred Outflows of Resources" and "Deferred Inflows of Resources". Pension Resources are a major part of these broader categories for most of the counties. It's beyond the scope of this page to explain these "Deferred" Accounts. It takes a lot of words to do so and they are a relatively small proportion of most of these counties' Statement of Net Assets. Suffice it to say in this graph "Total Assets" is actually the sum of assets + Deferred Outflows of Resources.

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