Mendocino County Employees Retirement Association

First MCERA Response in 5 Months - Flawed Conclusion

YourPublicMoney.Com released our first Mendocino County Long-Term Debt Report on 10/16/08. Five months and two days later the first (and as of 2/4/10 the only) attempt by anyone from the County or MCERA to rebut the analysis, concerns, and conclusions in the Debt Report was issued - MCERA's "Results of Pension Systems Study". (Click here to get a copy from MCERA's page on the County's website.) As stated in the introduction to the Study:

... this memorandum is intended to address only one significant assertion made by Mr. Dickerson (note - that's me): "... the County Pension Fund's return on investment was the worst of any county system in the State."

The Findings section of the MCERA Study is;

1. For the five year period ending June 30, 2008, the Mendocino County Employees' Retirement Association Total Return exceeded all retirement systems that responded except three ... The Total Return for the five year period was 10.74% ... For the three and one year periods ending June 309, 2008, the Total Returns of 8.36% and (3.82%) were only exceeded by three and four systems, respectively.
2. For each of those time periods, the Association's Total Return exceeded that of CalPERS which creates a comparison to the Total Return of the 37 California counties that were not formed under the 1937 (County Employees Retirement) Act or are independent.
3. (The third finding was a discussion of statistics - not necessary for this discussion.)
4. The collective findings above demonstrate the assertion by Mr. Dickerson that the MCERA has the lowest reutrn on investment is false...

Then, in the Assumptions and Disclosures section is this:

Mr. Dickerson's assertion that the Association's return on investment was the lowest of any of the 1937 Act counties over the past ten years is being rebutted with a five year analysis. ... We have not, and do not anticipate at this time, doing the same analysis for the prior five year period. Therefore, the time horizons in our analyses differ. We do believe that it is a resasonable hypothesis, though not tested, that our comparative position would not differe greatly for the previous five year period...

The Problem with MCERA's Study

MCERA's disclosure above explicitly states they only looked at five years whereas our Debt Report looked at ten years of data regarding MCERA's returns. But MCERA's five years aren't the last five years of our study.

As stated on the cover of our County Debt Report:

The purpose of this paper is to clarify the nature, causes aqnd effects of the County of Mendocino's Long-Term Debt to the citizens of the County.

Our question was "Why did the County borrow a total of about $110 million for underfunded pensions in 1996 and 2002"? The most recent data we had from the State Controllers Office was for 1996 through 2005. That timeframe allowed us to look at the period leading up to the December 2002 County borrowing and a couple of years after that. The statement that MCERA had the worst return on investment of any non-CalPERS County Retirement System was based on data for those 10 years.

MCERA's Study didn't mention that the Public Retirement Systems Analyst at the State Controllers Office confirmed that I used the correct data, analyzed it correctly, and my conclusions "seem logical and reasonable".

MCERA looked at 2004 through 2008. I looked at 1996 through 2005. They didn't look at 8 years in my analysis, and included 3 that weren't. There is no way their findings contradicts ours - they are an almost totally different time frame.

Please note - If I’m shown I’m wrong about something important I’ll communicate that to the citizens and apologize if warranted. When my County Debt Report was released County and MCERA officials were quoted as believing several significant aspects of the Report to be incorrect. It's been over 5 months now since I released the Debt Report and this is the first attempt by any County or MCERA official to lay proof before the citizens that any aspect of the Debt Report was wrong.

However, in a meeting with Supervisors Smith and McCowen and MCERA officials Andersen and Knudsen, several related issues were discussed and some information came out that definitely bears both on this specific issue of MCERA's relative returns vis a vis other County systems, and the larger question about to what extent did MCERA's performance contribute to Mendocino County's debt. The next page reports ...