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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Mendocino County's Pension Debt


What Happened - Really?


Deeply Flawed Financial Management & Culture
Mendocino County Government

Fundamental Cause #1



Fundamental Causes of Unfunded Pension Debt


Choices -

Immediate v. Fundamental Causes

Failure of County Government

Perverse Incentive & Conflict of Interest

Profound Lack of Accountability

  City of San Diego

The first major contemporary public pension scandal blew up in the City of San Diego in 2003. Many officials lost their jobs, some were prosecuted, and the City was hit with numerous penalties and judgments. Voters in that Charter City restructured the Retirement Board and kicked all the incumbents out.

The most penetrating analyses I've read about any local government pension crises is the "Kroll Report" about the City of San Diego issued in 2006. The Executive Summary is an amazing document - if you are concerned about local and state government financial crises you should read it. There are issues specific to the City of San Diego - but its analysis of the City's systemic and government cultural problems is painfully relevant to thousands of local and state governments across the US.

Here's an excerpt from the Executive Summary with one change. Instead of "City of San Diego" I say "County of Mendocino". I could substitute "Mendocino County Retirement Board" and it would be just as accurate.

Evidence made available in this investigation demonstrates numerous failures of Mendocino County government - on the part of government officials and outside professional "gatekeepers" alike - to conform to the law, to adhere to principles of sound governance and financial reporting, and to protect the financial integrity of the County's pension system and thereby the welfare of the County itself.... The evidence demonstrates not mere negligence, but deliberate disregard for law, ... for fiduciary responsibility, and ... for the financial welfare of County residents over an extended period of time.

The County's pension system was not brought to a crisis ... as a result of abnormally low investment returns. Nor was the system brought to a crisis as a result of a "perfect storm" of unpredictable catastrophes. What brought the system to a crisis was a number of completely foreseeable financial challenges to a pension system debilitated by years of reckless and wrongful mismanagement involving any number of County and pension board officials.

... the evidence suggests that at root Mendocino County officials fell prey to the same type of corruption of financial management and reporting that afflicted Orange County and Enron ... (they) cultivated and accepted a culture of financial management and reporting premised upon non-transparency, obfuscation, and denial of (financial) reality. Under the pressure of short-term needs, County officials gave expedience a higher priority than fiscal responsibility and came to view the law as an impediment to be circumvented through artful manipulation.

Exacerbating the County's culture was a deplorable lack of accountability. It seems that no one within County government viewed himself or herself as accountable for the accuracy of County financial disclosures.

This EXACTLY describes what happened in the County of Mendocino government and its indepdendent Retirement Association.

No fundamental cause of the County's debt is more powerful than this deeply flawed financial culture inside County government and the Retirement Board and a huge lack of accountability.

There is no doubt we need to change WHAT the retirement benefit is. But that won't change the financial culture that imposes severe damage in many other ways. Nothing is more important than curing this dysfunctional financial culture. And the medicine is transparency, accountability, competence, and the fundamental commitment that the purpose of government is to appropriately "Serve the People" - not government itself.

 
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