Sonoma County Pension Fund

A source at the Sonoma County Employee  Retirement Assn.) told me the County pension fund has lost 28.5% YTD (year to date) as of the end of October.  January 1st the fund was roughly $1,560,000,000…the end of October the fund was at $1,100,000,000…sustaining a loss of approx. $460,000,000.  Add the November declines in the stock market and the Sonoma County Employee retirement fund surely has lost over $500,000,000 YTD.   This is a staggering figure with profound social consequences for everyone in Sonoma County including current
and retired  County workers.

The County’s payroll contributions have increased for General Service employees from 11.92% in 2000 to 26.01% in 2007. Sonoma County retirement is a “defined benefit” guaranteed by the taxpayers.  If the fund loses 50% the difference will be made up with our tax dollars that once were relegated to roads and infrastructure, Human Services and Mental Health, grants to volunteer and non-profit organizations.  In order to fund these massive unfunded obligations there will be huge cuts in essential services and/or government will have to change the constitution and void these promises that can’t be kept.

We are in the midst of the largest transference of wealth from younger
generations to older generations in the history of mankind. Either we reform these institutions now or a societal collapse similar to what happened to the Soviet Union will remake our society in the not too distant future (maybe now?). I hope you spend the time to acquaint yourself and your readers with a very complicated issue that places us dangerously close to an abyss we should endeavor to avoid.

Tom Lynch

Member, Sonoma County Taxpayers’ Association

Personnel Costs

There are a few core situations that drive me nuts.
First, it appears that every single Democrat attended a “new-speak”
training session that permanently eliminated the words “tax increase” in
favor of “revenue enhancement”.   And, by golly, it works.   They get so
many people saying to themselves, “Yes, we just need to enhance revenue
to get out of this mess.
Second, isn’t it ironic that the biggest expense of State
operations—-employees’ pay and benefits—is the last thing mentioned
with respect to cost-cutting, because . .
A very high percentage of State employees are unionized, meaning that
there are union contracts guaranteeing cost-of-living pay increases,
change-in-grade pay increases, merit review pay increases, health
insurance, vision insurance, dental insurance, generous sick leave,
generous vacation accruals, 14 or 15 paid holidays, and that wonderful
defined benefit pension plan.

When all of those expense items are virtually untouchable, yes, it will
be painful to accomplish “expense diminution” —oops, I mean
cost-cutting—in other areas.

 Pension plans in particular:   The issue is not really keeping the plans
currently funded.  The more important issue is getting rid of the plans
entirely, just as most private companies have done.  The simple reason:
defined benefit plans are too expensive and too inflexible in bad times;
the promises just keep piling up, regardless of “revenue”.   Private
industry has decided that defined benefit plans are too rich a benefit,
and employees have accepted 401k plans with modest company contributions
instead.

 Government employees participating in defined benefit plans would have
their (diminished) future benefits determined as of the date of
termination of the plans.   Except for underfunded plans, contributions
by city/county/state governments would cease.  Instead, the governments
would contribute an amount equal to a fixed percentage of pay to defined
contributions plans such as 401k plans.   There would be no irrevocable
promise to contribute that percentage of pay.  In tough times,
governments might need to suspend their contributions.  Welcome to the
real world!

 It is simply totally unaffordable to make irrevocable promises to vast
numbers of employees that we will provide pension benefits for the rest
of their lives, ESPECIALLY when every government employee union wants
the same thing public safety employees have:   retirement at age 50 with
up to 90% pay for life . . . and then you claim disability and get the
money tax-free.

Let’s stop the gravy train, please.

 Robert H. Andrews

Jordan & Andrews, Consultants and Actuaries

Phone:  (707) 545-1001

Stop Digging

When you’ve dug yourself into a hole… stop digging. It’s an old sentiment, but useful today. It applies to individuals, business and to our government, whether local, state or federal.

In more normal times there may be a useful debate about government adding new programs or expanding others, but not today. At other times real problems may justify government intervention, but not today.

Our State government has a growing multi-billion dollar deficit and has failed to address a persistent deficit for years. Most of our local governments are suffering from shrinking revenues and exploding costs attributed to past commitments to employee retirement and other benefits. Add to this mix a meltdown in the real estate and mortgage markets and a significant slowdown in the economy and there is no capacity for individuals and businesses to pay higher taxes to bail out the over committed governments. It’s well past time to STOP DIGGING!

The first order of business, for everyone, is to return to prudent financial practices. That means, don’t spend what you don’t have. It means reduce borrowing. It means prioritizing, and cutting some things that are not essential activities. In short it means tightening belts at every level of our society. Better times will come. Market forces have a way to correcting problems like we currently face, and will do so again.

Many public officials have gotten the message, and others are recognizing the new reality. Unfortunately there are still those making the old arguments for new things government “should do”. There well may be things government should do, but not now. It’s just not financially prudent to keep digging a bigger hole.

Jack Atkin

SCTA, President