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Helping Citizens Understand

Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Mendocino County's Pension Debt


Impact of the Pension Debt:

Fewer County Jobs and Lower Pay & Benefits



Mendocino County's Unfunded Pension Debt


Choices -

Five Main Impacts

Local Taxes Consumed

Staff Cuts

Public Service Cuts - Failing Roads

Pressure to Raise Taxes & Fees

Loss of Local Control

 

Sometimes reality can be very simple.

This shows the percentage changes in 3 "big" numbers in the past 15 years.

Changes in County Revenue - Payments per Employee - Numbers of Employees

Percentage Change from 2000 through 2015

Source: County Budget Books & Audited Financial Statements

Revenue

Total Revenues increased about 50% over those 15 years - a little more than 1/3 of that growth was in local revenues (property-sales-bed-etc. taxes, fees, fines, interest income, etc.) and slightly less than 2/3 was program funding from the state and local governments.

Payments per County Employee

Salaries, other benefits, and the County's share of the yearly "Normal Pension Contribution" (Note 1) grew at the same rate as revenues. These are "normal" components of employee compensation. Whether total payroll is too high or too low compared to - say - private sector compensation isn't the issue in this discussion. The issue is the fourth part of employee compensation - unfunded pension debt payments.

According to every pension funding plan adopted by the County's independent Retirement Board these debt payments are not supposed to exist. But to date that Board achieved less than 60% of their self-proclaimed funding goals. Unlike the "Normal Contribution" paid by both the County and employees - only the County is legally obligated to pay to eliminate unfunded pension debt. Although 6 of the 9 Retirement Directors are employees or retirees (2 of which are elected County officials who will receive pensions when they retire) employees and retirees have no obligation to help pay the debt their Retirement Board created. These unfunded debt payments destroyed the parity between the growth of revenue and payroll.

Number of Employees:

As a direct result of the growth of these unfunded pension debt payments huge staff and salary cuts have been imposed on the County’s workforce over the last several years.


Major Point!

Mendocino County's largest expense is its staff. When payments per employee increase significantly faster than its revenue the County has no choice. It must cut it's staff expense - by cutting its number of employees and/or cutting salaries and other benefits.

Mendocino County had to severely reduce its staff. It had no choice - except to literally run out of money.


Unfunded Pension Debt Goes Up -
Number of County Jobs Goes Down

Unfunded Pension Debt Goes Up - Number of County Jobs Goes Down This shows the 20 year straight-line trend for the value of Total Unfunded Pension Debt (unfunded pensions owed to the Pension Fund and remaining balance of Pension Bonds) and for the annual change in the number of County jobs.

The actual yearly changes were not this "smooth", but these two lines produced by excel "best fit" the data.

It's very clear. Debt went up - Jobs went down.

This trend - over many years - will almost certainly continue.


Cuts in Salaries

This shows changes in the proportion of three categories of total staff compensation (salaries, pension-related payments made by the County, other benefits) in 10 year intervals.

1995 2005 2015
Salaries 67% 63% 54%
Pension-Related 13% 14% 24%
Other Benefits 20% 23% 22%
TOTAL 100% 100% 100%

From 1995 through 2005 the proportion of salary declined slightly - 4%. Other benefits drove most of that small change.

But between 2005 and 2015 a major shift occured. The share that salaries were of total compensation dropped from 63% to 54% - a 17% drop. The proportion of pension-related payments jumped from 14% to 24% - a more than a 70% increase. Other benefits declined only slighty as a share of total compensation.

This is a major shift out of salaries and into pension-related payments - primarily driven by increasing unfunded pension debt payments.

As unfunded pension debt payments increase more pressure will be exerted to constrain or even lower salaries to "make room" for those debt payments.

 

NOTE 1: See Two Types of Payments (Contributions) to the Pension Fund for an explanation of "Normal Contribution" and "Unfunded Pension Payments".

 
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