Grand jury dings San Mateo County for failing to rein in soaring pension costs

By Bonnie Eslinger, Daily News Staff Writer -

San Mateo County doesn't have enough money to cover promised retirement costs that could total $2 billion, not the $1 billion estimated by the agency managing employees' pension fund, a civil grand jury concluded in a report released Monday.

The county's unfunded pension liability is the "elephant in the room," San Mateo Civil Grand Jury Foreman Timothy Johnson Jr. told The Daily News on Monday.

"This problem is so huge. A billion or two billion," Johnson said. "All the numbers are appalling."

The San Mateo County Employees' Retirement Association (SamCERA), which handles the county's retirement program, told the grand jury that as of June 30, 2012, the unfunded liability figure was about $1.08 billion. But that assumes the association's assets will perform at a level which hasn't been reached in recent years, according to the civil grand jury.

However, when taking into account actual investment performance and current economic conditions, the grand jury projected a shortfall closer to $2 billion.

"Nobody can accurately predict what's going to happen with the investments, but these pensions are guaranteed obligations. They have to be paid," Johnson said.

If the investments come up short, taxpayers will bear the burden by making up the difference through a reduction of county services, higher taxes or both, the report states.

Although the retirement association's board approved an assumed rate of return of 7.5 percent in May 2012, the actual rate as of June 30, 2012 -- minus a deduction of investment management costs -- was just 5.54 percent calculated over a 10-year period and only 0.12 percent over five years, according to the report.

In an email, association CEO David Bailey said the investments are well-managed and currently earning strong returns. As of March 31, the fund earned 7.7 percent over a 10-year period, he said. He also challenged the grand jury's $2 billion estimate, saying the association's number is more realistic because it's based on projected earnings on the county's existing investments.

In addition to questioning SamCERA's management of the employees' retirement fund, the grand jury blamed the San Mateo County Board of Supervisors for not monitoring the investment portfolio and demanding larger contributions to reduce the financial liability.

Some of the $60 million in annual revenue from the Measure A sales tax increase that voters approved in November should be used to pay down the pension debt, the grand jury suggested.

Board of Supervisors Vice President Dave Pine, who has lobbied his colleagues in the past to allocate more money toward reducing the county's pension debt, said he is glad the grand jury chose to "shine a light" on the problem.

"I think the board overall is interested in taking a look at this," Pine said.

The grand jury said it also believes the county needs to take bigger steps to reduce employee retirement costs, while acknowledging that in recent years the county has trimmed its work force, held back raises and adopted reduced pension programs for new workers.