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Helping Citizens Understand Mendocino County's Debt and Finances

How the County of Mendocino Managed Its Debt
Two Stories

7/6/09: These two stories give a sense of how Mendocino County's Board of Supervisors has approached issues relating to the County's debt.

"Careful Consideration of Future Actions "
Board Policy 40

The County has twice borrowed money by selling Pension Obligation Bonds (POB). They sold the bonds because they were being forced to eliminate their pension fund's deficit and didn't want to take that much out of the County's operating budget.

The first POBs were sold in December 1996; the second POB was sold in December 2002. The total of the two bonds was $110 million.

In 2002 some citizens were just beginning to wonder what was going on with these unfunded pensions and bonds. In order to calm the public the Board of Supervisors adopted "Board Policy 40" at the same time they sold the 2002 bonds. Some quotes:

With the goals of (i) maintaining the highest possible credit rating and reputation for prudent financial management in the market place; and (ii) providing assurance to the County’s taxpayers that the County is well managed and financially sound, the County will endeavor to avoid the creation of additional UAL (Unfunded Pension Liabilities) in the future.

Specific objectives in support of this policy shall include: ...

Careful Consideration of Future Actions: The County will endeavor to carefully consider all proposed actions, including future retirement plan enhancements that might impact the determination of the UAL (Unfunded Pension Liabilities) and/or result in funding requirements by the County ...

Then in 2004 - a year and a half later, the Board of Supervisors increased pension benefits for about 50 employees retroactively without funding the immediate increase of Unfunded Pension Liabilities or reporting the retroactive increase in expenses to the people.


Unfunded Retiree Healthcare
GASB Statement No. 45

The Government Accounting Standards Board (GASB) issued new accounting standards in 1994 that required the County to report the funding status of its pension benefits. Because of these requirements the County was forced to report its growing Unfunded Pension Obligations.

This new requirement regarding pensions immediately led to a decade-long public debate about whether the same reporting standards should apply to all other post-employment benefits, including the County's retiree healthcare benefits.

GASB finally issued Statement 45 in June 2004. Statement 45 required the County of Mendocino to report the financial status of its retiree healthcare benefits in its June 2008 financial statements - four years in the future.

On November 1, 2005 I attended a joint meeting of the Board of Supervisors and the County's Retirement Board. I pointed out the County had three years before it would be forced to disclose the financial condition of its retiree healthcare fund, including any unfunded liability.

I encouraged the County to find out what the financial status of this benefit was asap. "If there's a problem, give yourself three years to come up with a plan."

County staff responded "staff is aware of these pending regulatory changes and these issues are being monitored by staff."

At the very last minute - two years later - the County contracted with an Actuary to prepare a report. The County received the report in August, 2008 - two months after the deadline set by GASB.

The result? Mendocino County's retiree healthcare fund was underfunded by $136 million!

They squandered three years in which they could have been figuring out what to do. Instead, as of June 2008 the County's unfunded retiree benefit debt doubled overnight.

So - as citizens of the County, do you believe these stories indicate the County is well managed and financially sound as Board Policy 40 assures us it is?