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Old Mendocino County Courthouse Around 1915

California County Pension Debt


Stories & Evidence

The County Plans to Increase Unfunded Pension Debt

Stories and Evidence

Choices -

Who Done It?

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 1

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 2

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 3

San Diego - IRS - Excess Earnings

Increase Pensions When Already Deep in Debt

Staffing & Compensation Chaos

Deeply Flawed Pension Fund Financial Statements - Part 1

Deeply Flawed Pension Fund Financial Statements - Part 2

Deeply Flawed Pension Fund Financial Statements - Part 3

Retiree Healthcare

Assumed Investment Profits Too High

Plans to Increase Debt

County Puts Off Bad News

The Myth of 80% Funding

Numerous Financial Errors


Negative Amortization

As shown in County Pension Related and Debt Payments the County was forced to begin to pay unfunded pension amortization payments in 2010. Mendocino County made two decisions about these amortization payments - how long to take and which of two "methods" to use.

How Long?

How many years are 7 counties taking to eliminate unfunded pension debt?

In general county employees are expected to work about 18 more years on average then retire. This shows how long the 6 Bay Area counties with Pension Funds and Orange County in southern California plan to eliminate their Unfunded Pension Debt. The light-green shading is the general range these counties' staffs will retire on average. Mendocino County chose to take the maximum allowable - 30 years - by far the longest.

That means the decision imposed a significant part of these debt payments on a future generation that will not receive any services or infrastructure for their money.

Which Amortization Method

The word "amortization" is based on the old word "amort" which means "to put to death" (a mort = to death). Amortization is the process by which a debt is paid off.

The County had a choice of two general amortization methods.

  • "Level Dollar" - like the 30 year home mortgage. The County would pay the same amount each year. But the county chose ...
  • "Level Percent of Payroll" - The County assumed yearly payrolls would grow 4% a year for 30 years. If payments were about 11% of every payroll the debt would be paid off after 30 years.

Although the actual amortization calculations were more complex this simplified model demonstrates the difference in these two methods.

As of June 2009 the County had a $132 million unfunded pension debt using the market value of the Pension Fund's investments. It assumed its "pensionable compensation" would grow 4% a year. The Pension Fund's assumed rate of return was 8% at that time. And - they'd take 30 years.

Level Percent payments are less than Level Dollar for 12 years then more over the last 18. Payments triple over 30 years.

Comparison of Level Dollar v. Level Percent of Payroll Payments

In fact, level percent payments are less than the interest for the first decade - the pink part of this graph. That's "negative amortization" - instead of eliminating debt it's actually increasing in those years.

Level Percent of Payroll Produces Negative Amortization - the Debt Actually Increases

Here's what happens to the debt. Unpaid interest increases the debt $21 million over the first decade.

It takes another 7 years to get back down to the original debt. And that means the County's plan is to make residents two decades in the future pay the value of today's debt.

Level Percent of Payroll Pushes Today's Debt Onto County Residents Two Decades From Now To Pay

Level Percent produces $85 million MORE interest expense than Level Dollar - and therefore forces the County to pay that much more. But the County gets to pay about $25 million LESS in the first 10 years while the officials who made that decision are in office.

They plan to pay $200 million before today's staff retires on average and shove nearly $240 million of payments onto the next generation which won't get a minute of services or a dime of infrastructure for it.

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