Are we going to talk about this bomb that County Supervisor Dianne Jacob dropped the other day in her State of the County speech (emphasis mine)?
… Wall Street has delivered a jaw-dropping blow to our pension fund.
With a 30 percent decline, we have fared better than most. Still, our $2.5 billion loss is staggering.
Even if the market bounces back, the required contribution by the County is expected to triple over the next five years.
Excuse me? Triple? What happens if the market doesn’t bounce back?
She didn’t want to go there.
Let’s review. At the beginning of this decade, the county’s contribution to its employees’ pension fund was nil. They didn’t put any money in because it didn’t need any.
But in 2002, the supervisors decided that they wanted to increase their own and their workers’ pension benefits by 50 percent. Yes, 50 percent (for perspective: If you retired with a high salary of $70,000 after 25 years at the county, your expected pension went — in one day — from $35,000 a year to $52,500 a year). The fully funded pension plan immediately became a horribly underfunded mess.
The county scrambled, and borrowed hundreds of millions of dollars from investors, which it took and put in the pension plan. Then the pension plan lost money in the market and county officials borrowed hundreds of millions more.
In the meantime, the county went from putting nothing in its pension plan to both having to contribute $200 million a year and having to pay off these loans the supervisors decided to get.
We often, in San Diego, think of pension scandals as being associated with the city. But, as longtime readers know, I think the county’s pension enhancements and subsequent scramble is the most under-appreciated fiscal atrocity to have occurred in the last decade in local government.
Perhaps now that Jacob’s jaw has dropped too, we can try to deal with it.
Here’s how she followed her dire news alert Wednesday:
The hard reality is this: current benefits are not sustainable. Many governments are considering drastic changes.
From returning to a two-tiered pension system, to increasing the retirement age, to asking employees to shoulder more of their contribution, all of these ideas should be on the table to keep the fund healthy.
I believe our employees and our labor unions understand the gravity of our economic situation.
A government that cannot stay afloat helps no one. There are really only two choices here: pick up an oar and row, or watch as we take on water.
Not that long ago, this board managed to curb the rising costs of retiree health care. At that time, guaranteed pension benefits for our retirees were in jeopardy, along with the County’s credit rating.
The process wasn’t popular or pleasant. In the end, we saved taxpayers $1.8 billion while preserving health benefits for the most needy and elderly of our retirees.
More unpopular decisions are on the horizon. Fewer dollars mean fewer services and fewer people providing them. We will do more with less.
We are handling this situation the best way we know how: by being open and direct.
This could have all been avoided had Jacob and her colleagues not decided, in 2002, that in order to retain and recruit quality employees they needed to give the most generous benefits package in the region without a care to how they might pay for it. The retirement plan they had before was just fine.
What’s funny is that though the increased benefits were meant to recruit and retain these indispensible public servants, the moment the new benefits became law, experienced workers flooded the county with notices that they were retiring. The supervisors had basically given them a retroactive bonus. In order to recruit good employees for the future, they could have made the benefit effective from that point forward, but they decided instead to make it apply to all the years of service that current employees already had.
It was a flat giveaway.
And now we’re supposed to believe that “Wall Street” has caused this mess for the county.
No. That is not true.
Had the county just stayed with the respectable pension plan it had, had the supervisors been happy to leave things as they were in 2002, they’d have hundreds of millions if not a billion dollars more available to cushion the blow of this financial crisis.
Unfortunately, they rolled the dice, bet the house and lost.
Now Jacob is hinting that they’d like to get back to the old pension plan.
This fiscal consciousness is seven years late, and hundreds of millions of dollars short.
If Jacob is correct that the county’s contribution to its pension system will be triple what it is now, that means taxpayers will have to invest up to $700 million a year. Add this to the tens of millions the county still pays each year to retire the loans it took off to bail out the pension fund, and you have an investment into the pension fund larger than the current budgets of the Sheriff’s Department and the District Attorney’s Office combined. That’s talking thousands of officers and prosecutors. This doesn’t even include the hundreds of millions of dollars that employees themselves are investing in the mammoth hole.
Yet, in 2002, when the supervisors agreed to enhance their employees’ retirement deal, they were told it would only cost the county about $32 million a year.
It appears that estimate is about 20 times too low — a scandal if I’ve ever seen one.
And that, of course, is only the case if the stock market bounces back.
Are they really going to gamble on that again?