BY JAMES BURGER, Californian staff writer email@example.com
There is no swift path out of the financial crisis Kern County faces because of its troubled pension plan.
So far the county has attempted to roll back pensions for future employees and require increased contributions from current employees to their retirement accounts.
PENSIONS IN PERIL
This is Part Three of a three-part series examining Kern County's troubled pension system and possible fixes.
PART ONE: How big the problem is now and what will happen if we don't act.
PART TWO: A slew of bad decisions and flat-out malpractice helped create the mess. And lots of little pay bumps compound the problem. Plus, not all county pensioners live large.
PART THREE: There are proposed solutions, but none is a quick fix.
But neither would do much over the next two decades to strengthen the health of the Kern County Employees' Retirement Association investment system, county pension fund analysts recently made clear.
And, while employees' cash contributions to pension and health care benefits would soften the pension blow to the county's budget, the vast majority of the impact from pension costs is not touched by the tactic.
County Administrative Officer John Nilon said the Board of Supervisors has not discussed exploring any changes to pension plans or employee contracts other than those already at issue in union negotiations.
But a growing number of options are under discussion around California.
A LONG, DARK WAIT
One of the most popular pension solutions discussed across the state is lowering pension benefits for future employees.
Eventually all the employees who have a right to the higher pensions will retire, grow old and die. The cost of enhanced pensions would gradually end.
Kern County has aggressively pursued a reduced pension formula since 2007 when the county and the Service Employees International Union agreed to give new workers a hybrid retirement made up of a smaller pension and the government version of a 401(k) investment plan.
But the problem with this solution, professionals from KCERA's contract actuarial firm Milliman Inc., explain, is that it will take two decades before enough retirees and beneficiaries die to make a major difference for Kern County.
Until then the "solution" won't reduce pension debts or keep retirement costs from gutting Kern County operations.
In fact, because the economy has slowed county hiring and triggered layoffs, there are relatively few new workers who get the hybrid retirement.
Nevertheless, supervisors are pushing the county unions representing firefighters and sheriff's deputies to reduce the benefits for future safety employees as well.
Kern County unions have generally not opposed changing benefit formulas for future employees.
Joe Pilkington, president of the Kern County Sheriff's Command Association, said his union told county officials they were open to investigating ways to modify pension formulas several years ago, only to be told the change wasn't needed.
But county public safety unions are fighting hard against current county contract proposals that include the change because the package deals give employees nothing back and push for dramatic out-of-pocket payments into health care and retirement from all current county workers.
Major controversy surrounds the push by supervisors for all county employees to make cash contributions to the pension fund from their paycheck every two weeks.
Newer county workers, most of them Service Employees International Union members hired after the union agreed in 2004 to have new county staff contribute to retirement, already make those payments. Thousands of older county employees do not.
The county has estimated that requiring every employee to make that payment would bring in about $31 million -- offsetting some of the county's annual contribution to retirement.
Supervisor Mike Maggard asked KCERA actuarial Karen Steffen recently, during a meeting of the board, if "more contribution from employees will create a more stable fund?"
Steffen bluntly answered "No."
What the money would do is give Kern County more cash to build a budget with, not solve the pension problem, she said.
Supervisor Zack Scrivner, who has made a name for himself pursuing pension roll-backs as a solution to what he terms "unsustainable" pension formulas, said the retirement account is not at risk of failure.
"As long as we continue to pump money into KCERA, the fund is stable," Scrivner said. "What I'm focusing on is the stability of the county."
But while $31 million is lot of money, it represents only 12.6 percent of the $245.9 million in contributions, bond payments and bond interest Kern County will have to spend this fiscal year to fund its pension obligations.
And unions argue that the damage the increase in expenses will do to employees who have planned their lives around their current income is out of proportion to the benefit the county will receive.
Pilkington said there are Sheriff's Department employees who will be forced to retire. The average monthly cut his members are looking at is around $1,500.
"If you take $1,500 off the top -- I can't take that kind of hit," he said. "I'd lose my house."
One of the least talked-about solutions being pursued in Kern County may actually be a more effective strategy for reducing the county's pension debt in the short term.
KCERA's actuarial plan assumes the county's payroll will grow by about 4 percent a year. If the county can give out fewer raises, keeping payroll growth below that level, the amount of money needed to pay for pensions based on those raises is reduced.
The pension fund would get healthier.
Kern's supervisors have already started cracking down on county promotions and, in the current round of contract negotiations, have refused to support raise requests from county unions.
But following this path over the long term will require sustained discipline from supervisors who are routinely brought promotions for approval.
Nilon acknowledges the county dropped the ball on this solution in 2007 when, in exchange for reducing the pension benefit for future general county employees, supervisors voted to hand out substantial raises to thousands of workers.
"Part of the issue in 2007, everybody thought the economy was going to go on the way it was," Nilon said. "In that context it appeared to be an appropriate decision."
Chuck Waide, director of SEIU Local 521, said the union is willing to discuss trade-offs at the bargaining table, but supervisors wanted only to impose pay controls unilaterally and "by decree" from the board dais.
And that, Waide argued, constitutes the county breaking the promises it made to workers in exchange for past union concessions.
LITTLE HOOVER COMMISSION
In late February, California's Little Hoover Commission, a bipartisan government watchdog group, released a report that sharply criticized state and local governments' handling of public pensions over the past decade and called for swift and serious pension reform.
The report included a large number of recommendations for immediate action -- and for new policies designed to limit a repeat of the ill-advised decisions of the recent past.
Arguably the most controversial of those is the suggestion that the California Legislature pass laws that would allow local governments to freeze benefits like 3-at-50 and 3-at-60 and allow current workers to earn retirement credits in future years under a cheaper formula.
Legislators have criticized the idea, saying it wouldn't pass legal muster.
Other solutions suggested by the Little Hoover Commission include:
* Capping the salary that can be used to determine pensions.
* Computing a worker's final retirement pay on an average of five years to prevent pension spiking.
* Encouraging older retirement ages "to discourage early retirement of productive and valuable employees."
* Legislation to prohibit retroactive pension increases.
* Requiring all pension increases to be submitted to the voters.
Kern County public employee unions were generally critical of the Little Hoover Report, saying it parroted the political rhetoric of Republicans who are trying to earn some political capital from bashing public employees.
And the Little Hoover report has drawn heated criticism from other state officials including Treasurer Bill Lockyer, a senior state Democrat.
But there are some ideas in the report that county unions say deserve more study.
Bob Jefferson, a former member of both the KCERA board and the negotiating team for the Service Employees International Union, said both he and his union are willing to talk about the proposal to compute a worker's retirement over a longer period.
Kern County Probation Supervisor Jon McGowan, who sits on the board of the Kern County Probation Officers Association, has developed some solutions of his own and is bringing them to the Kern County Board of Supervisors one at a time.
"There is no one silver bullet that's going to solve this," he said.
McGowan focused his ideas on saving the county money since many of the solutions to the structural problems of Kern County's pension system -- such as the drain on earnings from the Supplemental Retiree Benefit Reserve -- cannot by law be reversed.
He suggests diverting any new revenue the county receives -- such as the property tax payments expected to be generated by new wind and solar power projects -- to reducing the pension liability during the financial emergency.
McGowan agrees that employees need to make some sacrifices to help the county react to the crisis.
But he said supervisors should implement those cuts to employee income gradually to avoid pushing workers into financial crisis -- something he believes the current county proposal is sure to do.
"It's unconscionable that they would think people could take that," he said. "People live too close to the edge, financially. It's not their fault, it's our culture."
The county also needs to take advantage of the financial trauma, McGowan argued, to make an aggressive effort to push departments out of their comfort zone and push for reforms that would streamline county services.
Any retroactive benefit increases in the future must be pre-funded, he said, and everything should be done to prevent spiking of retirement benefits.
Even the most bitter critics of public pension levels agree the most effective solution -- retroactively eliminating pension benefit enhancements given to public employees across California over the last decade -- is not allowed by law.
But some pension critics feel that has to change.
Marcia Fritz, director of the Foundation for Fiscal Responsibility -- an activist organization dedicated to pension reform -- said her group is preparing to release reports calling for aggressive challenges to public employee pensions. Reversing the decisions giving enhanced benefit packages retroactively to public employees over the last decade is at the top of her list.
Fritz has no illusions that what she is proposing is easy, or that public unions won't fight what she's trying to do.
"What has to be done has to be done by a vote of the people," Fritz said.
Similar issues are already on their way up the legal chain of appeals. The California Court of Appeals for the Second District recently shot down an Orange County effort to argue the retroactive award of benefits to county workers was an illegal gift of public funds to county sheriff's deputies.
"The county emphasizes its current difficult financial situation and the 'ruinous fiscal irresponsibility' of the prior board of supervisors," the court wrote. "Imprudence, however, is not unconstitutional."
One final solution is for county supervisors, union leaders and pension officials to change nothing.
It is a fact that there is a billion-dollar-plus deficit brewed by retroactive pension increases and the biggest market crash in almost a century.
But, said KCERA Executive Director Anne Holdren, "If all the assumptions hold true, and the contributions are made as required, that amount will be paid off over time."
The variable in that statement, of course, is the rate of county contributions to KCERA.
If the fund struggles, another market shock hits, pay increases or pension benefits spike again, then the county, courts and special districts that are members of KCERA will have to lift the financial weight of that on its shoulders.
Most of that weight would fall to the county of Kern to bear.