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Old Mendocino County Courthouse Around 1915

California County Pension Debt


Stories and Evidence

Put Off Difficult Financial Issues

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


New Retiree Healthcare Reporting

 Logo of Governmental Accounting Standards Board

In June 2004 the Government Accounting Standards Board (GASB), the organization with the highest authority to establish Generally Accepted Accounting Principles for State and Local Governments in the United States, adopted GASB Statement 45 - "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions".

This new standard required the County of Mendocino to put a footnote in its audited financial statements about the financial status of its retiree healthcare benefit no later than June 2008. This made state and local governments provide that information in the same way they had disclosed the finances of their pension benefits since 1998.

County Puts Off Dealing With It for Four Years

On November 1, 2005 the County Board of Supervisors and the Retirement Board held a joint meeting. During public comment I made the following statement to the two Boards (paraphrased from memory):

The Government Accounting Standards Board (GASB) announced new rules in 2004 that will require the County to disclose its Unfunded Retiree Healthcare Liability in its June 2008 audited financial statements. No one in the County knows what that number will be, but those of us who have thought about it expect it to be big.

You've got 2 and a half years before you have to disclose that unfunded liability. I strongly urge you to find out as soon as possible what that number is. Give yourself and the retirees at least 2 years to come up with a plan about what to do about what is almost certainly going to be a big debt.

The BOS minutes of the meeting include:

In response to public comment, Mr. Knudsen stated that Mendocino County is a "pay as you go" county, to which Mr. Dickerson reiterated the upcoming changes in the reporting mandates association with unfunded pension liabilities (sic - I said "unfunded retiree healthcare liabilities") in the State (sic - this is a new national requirement of GASB). Ms. Glassey (Alyson Glassey - then Assistant County CEO) responded that staff is aware of these pending regulatory changes and these issues are being monitored by staff.

The County did nothing for the next 2 and a half years about this.

$136 Million Unfunded Retiree Healthcare!
Report on Mendocino County's unfunded retiree healthcare

At the last possible moment they hired Aon Consulting Actuaries to determine the County's unfunded retiree healthcare obligation.

Aon's report was dated August 21, 2008 - two months after the end of the fiscal year for which this disclosure was required.

They reported an unfunded liability of about $136 million.

This is an excerpt from the minutes of that meeting:

Ms. Jeanine B. Nadel, County Counsel, referencing the Board's 1998 resolution, noted that the Board could consider adopting of a new resolution, seeking Board interest and direction to conduct an analysis. She clarified that the County's financial responsibility to the Retirement System would not become effective until excess earnings are no longer available.

Supervisors Pinches and Delbar reflected on the commitment the County made to protect the health benefits of employees hire[d] prior to 1998, with Supervisor Delbar also expressing his opposition to adopting a superseding resolution.

No action was taken at this meeting, and none was taken for over a year.

The rest of this sad story is told earlier in this section in The Retiree Healthcare Benefit.

New Pension Financial Reporting

GASB initiated a formal project to examine and revise local and state government reporting of their pension finances in 2006. Over the following 6 years they conducted an intense and very public process that resulted in the approval and publication of GASB Statement 67 and 68 in June 2012. GASB 67 reformed the way government Pension Fund report their finances, and GASB 68 did the same for state and local government employers.

Government Employers, including the County of Mendocino, are obligated to implement the provisions of GASB68 in "fiscal years beginning after June 15, 2014. Therefore, Mendocino County's audited financial statements as of June 30, 2015 must conform to GASB 68.

Impact of GASB68 on 2014 Balance Sheet
($Millions - Rounded)
  As Actually
GASB68 Impact on
Net Assets
  Net Pension Asset 31 0 (31)
  Other Assets 184 184 0
  TOTAL ASSETS 215 184 (31)
  Pension Bonds 72 72 0
  Net Pension Liability 0 142 (142)
  Unfunded Pension Debt 72 214 (142)
  Other Liabilities 62 62 0
  TOTAL LIABILITIES 135 277 (142)
>NET ASSETS 80 (93) (173)

As discussed previously in the section The End of Government Pension Reporting "Fraud" GASB68 will have a profound impact on Mendocino County's financial statements.

This shows my calculation of what the County's 2014 "Balance Sheet" (Statement of Net Assets") would have looked like if GASB68 had been in force.

The "phony" Net Pension Asset would have been written off as worthless - which it always was.

A $142 million Net Pension Liability would have been added.

The result would have been a "write-down" of Mendocino County's Net Assets (Net Worth) of $173 million.

And that would have meant that instead of being $80 million in "the black", the County was really $93 million in the hole.

Negative Net Worth is one definition of "insolvent".

Once Again - County Puts Off Dealing With It

Once again I made sure County officials knew about these new reporting requirements. This time I constructed a "GASB68 Model" that estimates (quite accurately I believe) what the impact would be on local government financial statements. I put Mendocino County's numbers through that model and sent the results to County officials. I offered to give them my model. I encouraged them to find out what was going to happen to their financial statements so they could think through any implications on issues like credit, compliance with various state laws regarding balanced budgets and such, and prepare residents - and employees and retirees - for the shock that was coming in 3 years.

And - once again - they did nothing.

There are many examples of this "head in the sand" behavior.
Head in the Sand  

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