Humboldt County services and infrastructure face a significant threat from $232.2 million of unfunded county pension liability — more than twice the county’s annual revenue, a gap that could “decimate” county services within the next five years if left unaddressed, according to a county civil grand jury report released on Friday.
“There is an opportunity to address the pension liability issue, and to significantly reduce its potential harm,” the report states. “Possibly, we could even eliminate it over the next 15 [to] 20 years. The remedy must have commitment from the present Board of Supervisors, and from future boards, to stay the course.”
County Administrative Office Public Information Specialist Sean Quincey provided the following statement on Friday:
“We’re in the early stages of reviewing the report, and will most certainly respond in the established timeframe as defined by law, both to the grand jury and to local media,” Quincey wrote. “We appreciate the grand jury’s role, as well as the due process involved which allows us investigate and respond to these reports in a thoughtful and helpful manner. The county is committed to fiscal responsibility and sustainability, and we will continue to work internally and with the community towards those ends.”
A second report that was simultaneously released states that the county’s decision to merge the sheriff’s office with the coroner-public administrator’s office in 2015 has resulted in improved operations overall, but also found the coroner’s office still has “deplorable” physical working conditions.
PENSION PROBLEMS
The grand jury states that the most recent record of the county’s unfunded liability — the difference between the retirement benefits promised to county employees and the current funding available to provide those benefits — as of June 2015 was about $232 million dollars.
Similar shortfalls are occurring on a statewide level. The grand jury found that the unfunded liability for all 130 state and local government pension plans is $241 billion.
The county’s retirement benefits are funded through three sources, with county employees contributing about 13 percent, the county contributing about 25 percent, and the remaining 62 percent coming from investment funds generated through the California Public Employees’ Retirement System, the grand jury states.
When these investments do poorly, such as during recession years, and the state fails to bring in enough revenue to cover retirement plan costs, the backlog is placed on to counties in the form of an unfunded liability, according to the grand jury.
The state created a 30-year plan to eliminate the county’s unfunded liability by adjusting employee retirement plans over the past four years so that employees are now working longer but receiving less benefits, according to the grand jury. The county is also being asked to make payments to the state to make up for some of the lost investments. Humboldt County is expected to pay nearly $16.8 million in the upcoming fiscal year, the grand jury report states.
The grand jury reports that County Administrative Officer Amy Nilsen said she expects the county to pay off its liability within 17 years. But in the event of a recession, which Nilsen cautioned may occur within the next two to three years, the state will likely begin asking the county to pay more back each year, which would impact county programs.
A large unfunded liability will also increase interest rates when the county borrows money, the grand jury states, due to a change in federal accounting rules implemented in 2014.
In order to address its unfunded liability, the Board of Supervisors created a trust fund in 2015 to begin paying off the liability, which the grand jury called a positive step. As of December 2016, the trust held $750,000, according to the grand jury. The proposed 2017-2018 county budget does not propose to place more money into the trust fund.
Nilsen reportedly stated to grand jury that the county is proposing to increase departments’ contributions to the trust fund.
The grand jury states it interviewed county Department of Health and Human Services financial employees who stated that the state and federal funds it receives cannot be used to boost the trust fund because those funds must be used for the purposes they were given.
The grand jury found that there was no legal argument against the department contributing more to the trust fund by increasing the amount of money that is taken from its employees’ salaries.
The grand jury states the department’s “failure” to pay into the trust fund undermines efforts to address the unfunded liability.
DHHS Public Information Officer Christine Messinger deferred all questions to Quincey, stating that the report refers to county issues.
The grand jury report states that this trust fund is not free money, and that investment into the fund will eventually allow the county to pay off its liability and free up more funds to fix roads and infrastructure.
“It will require discipline in spending, and may have a dampening effect on desired increases in a given year, such as for new hiring or raises,” the grand jury states.
The grand jury is recommending the county add $2 million to the trust fund in the upcoming fiscal year that begins on July 1 and to increase all department contributions to the trust fund.
The Board of Supervisors, DHHS and County Administrative Office are required to submit responses to the recommendations within 60 to 90 days. Board Chairwoman and 4th District Supervisor Virginia Bass said she will comment on the report after she is able to review it.
CORONER-SHERIFF MERGER
The Board of Supervisors’ argument to merge the county sheriff’s office with the Coroner-Public Administrator’s Office starting in 2015 was that it would allow greater access to funding, cut overtime and salary costs and increase personnel, especially for the coroner’s office.
The grand jury report found that most of these arguments have held true two years later, with the coroner’s office budget increasing by 26 percent for the upcoming fiscal year compared to the 2015-2016 fiscal year. The grand jury found that personnel costs have increased due to the addition of another deputy coroner, but stated that is a remedy to the low staffing issues from before.
The grand jury also noted that about $30,000 in sheriff’s office patrol funds had to be shifted to the coroner’s budget to due to high number of homicides in 2016 causing its forensic autopsy costs to go over budget.
The grand jury is recommending Sheriff-Coroner William Honsal consider hiring a civilian to take over duties of the public administrator position in order to cut costs and to demand better physical working conditions for the coroner’s office.
The Times-Standard was not able to connect with Honsal on Friday afternoon.
June 9, 2017
Eureka Times-Standard
By Will Houston
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