Op-Ed: Sutter County must address rising pension debt problem
Sutter County pension costs continue to go up millions of dollars each year, requiring more and more of our tax dollars to be spent for employee benefits and on servicing the pension debt thus reducing services to the citizens of Sutter County. If changes are not made, the pension debt will eventually consume most of the county's budget. The latest report from the California Public Employees Retirement System (CalPERS) released in October states that Sutter County owes CalPERS $44.8 million as of June 30, 2007.
In just six years, from June 2001 to June 2007, Sutter County went from $28.8 million in the black to $44.8 million in the red — a minus $73.6 million. The increase in costs can be attributed to two factors: 1) decreases in CalPERS investment returns and 2) the 2004 formula increase from 2 percent at 55 to 2.7 percent at 55 passed by the Sutter County Board of Supervisors without a financial analysis and without public discussion. Current stock market losses, which have not been factored into future payments, are certain to increase the county's contribution rate substantially in years to come. The increase in future payments will not be realized until 2011-2012 because CalPERS calculates payments using 2-year-old information and "smooths" increases in contribution rates over a 15-year period.
We are now paying 24.5 percent of each miscellaneous employee's salary and 31.9 percent for safety employees to CalPERS. That includes the employees' share of the pension cost which the county pays — 8 percent for miscellaneous and 9 percent for safety. Employee salaries and benefits are 34.8 percent of the county's 2008-2009 budget and getting larger each year —along with the county's debt to CalPERS. Next year the percentages will rise to 24.75 percent for miscellaneous and 33.3 percent for safety employees.
County officials have repeatedly stated that Sutter County is in "excellent financial shape" and has $30 million to $40 million in reserves. It is quite evident that we now owe more than we have in the bank. This year we are paying $2,851,074 on that $36.8 million debt which includes over $2.6 million annually in interest at CalPERS' 7.75 percent interest rate. Next year the interest alone will cost us more than $3.1 million.
Sutter County pensions are excessive on their face, giving employees with 30 years service 81 percent of their last year's salary. On top of their county pension, they will collect Social Security benefits, giving some county retirees more than when they were working. To be clear, the current pension formula cannot be changed for existing employees unless they agree to the change or the county undergoes reorganization under bankruptcy laws. Action needs to be taken now to bring our pension costs under control. To that end, the Sutter County Taxpayers Association recommends:
1. Change the formula for new employees to 2 percent at age 60+ or aligned with Social Security retirement.
2. Base retirement pay on the more typical three-year average instead of the current last year salary. People are living longer, are healthier and many routinely choose to work into their 70s.
3. Have employees pay their 8 percent or 9 percent share. State employees pay a share into their retirement accounts, the vast majority of the private sector pay into their own retirement; county employees should too.
4. Require a vote of the people for any county pension increases. Orange County voters just passed a local measure with a 75 percent majority to require that any increase in county pensions first has to have an actuarial report of expected future costs and be approved by the voters.
Please contact your county supervisors and urge them to act now to address the problem before the county ends up cutting essential services to pay these padded pensions that are absolutely unheard of in the private sector, and that drain the pocketbooks of Sutter's citizens.
Pat Miller is president of the Sutter County Taxpayers Association.