County officials might take a swipe at its ballooning unfunded pension liability by cutting a $50 million check from extra property taxes and reserves followed by $10 million in each of the next nine years.
Doing so would speed up the county paying down its unfunded actuarial accrued liability which, as of June 30, 2012, stood at $962 million and is 72 percent funded with annual costs of approximately $150 million. Under the proposed plan coming before the Board of Supervisors Tuesday, the county would achieve 90 percent funding in seven years and 100 percent by fiscal year 2023-24.
By that point, the recommended option would slash the county’s annual required contribution by $13 million and continue to approximately $16 million by fiscal year 2041-2042, according to calculations by County Manager John Maltbie.
The county’s pension costs have long been a concern for officials, residents and even the civil grand jury which in April contended the unfunded liability was probably closer to $2 billion. The jury also claimed the pension plan has failed to achieve assumed rates and leaves taxpayers paying the price through slashed services, higher taxes or both.
County officials disagreed with the majority of the jury’s conclusions and recommendations.
The 10-year timeline proposed for the pension reduction coincides with the sunset of Measure A, the county’s half-cent sales tax. The proposal coming before the Board of Supervisors Tuesday doesn’t directly recommend using that tax revenue to prefund retirement but Maltbie said tying the two together will let the county continue programs funded by the tax if voters do no reauthorize Measure A.
Allocation of Measure A revenue led to the suggestion of making a lump sum or extra contributions to the San Mateo County Employees’ Retirement Association. In response, SamCERA’s actuary returned with five options ranging from doing nothing up to increasingly larger contributions. Some of the scenarios called for setting the initial $50 million and subsequent $10 million payments in a separate SamCERA account and calculating contributions as though they had not been made. Doing so would accelerate the increase in the funded ratio.
The lump sum and annual payments would come from a combination of department reserves and excess property taxes known as Educational Revenue Augmentation Funds. The county expects to use a minimum of $40 million in ERAF the first year and $5 million annually after. The county will also transfer 25 percent of its operating department reserves. If the plan is approved, the county would make the first payment in Spring 2014 after reimbursing itself from bond proceeds for expenses from the new jail.
All five options, including the favored alternative, coming before the board each assume that the San Mateo County Employees’ Retirement Association achieves its 7.5 percent earnings target each year. The estimate also excludes the Superior Court and county Mosquito and Vector Control District which both belong to the fund.
Maltbie’s recommendation of what he deems the most aggressive paydown option comes with the caveat the county retain discretion to make a smaller contribution when other funding priorities take precedence or the general fund reserve falls below 15 percent. Reserves are currently 16.6 percent.
The Board of Supervisors meets 9 a.m. Tuesday, Aug. 6 in Board Chambers, 400 County Government Center, Redwood City.
(650) 344-5200 ext. 102