County Pension Funds in California

Twenty one counties in California don't participate in CalPERS - they have their own separate Pension Funds; twenty are organized under the County Employee Retirement Law (CERL), sometimes called the “1937 Act”. San Luis Obispo is in a legal category by itself.

These are the 20 CERL counties:

Alameda, Mendocino, San Mateo, Contra Costa, Merced, Santa Barbara, Fresno, Orange, Sonoma, Imperial, Sacramento, Stanislaus, Kern, San Bernardino, Tulare, Los Angeles, San Diego, Ventura, Marin, San Joaquin.

These 21 counties have nearly 80% of California’s total population – from 10 million in LA to less than 100,000 in Mendocino.

This shows the relative size of each County System’s Total Pension Obligation. The Los Angeles County Employees Retirement Association is “the largest independent pension plan in California and the largest county pension plan in the nation ”.

The Total Pension Obligation (Liability) for all 21 counties was about $125 to $130 billion in 2010. They range from nearly $50 billion for LA County down to not quite $500 million for Mendocino County.

I’m preparing a “Citizens Guide to County Pension Reform”. One section will present analysis of all 21 non CalPERS County Pension Funds. One question I address is “Which counties have been most “hurt” by unfunded pensions – which are doing “OK”?”

I wasn’t able to find an existing method of comparing counties in terms of this question so I developed a model. Total Pension Liability is shown on the horizontal axis. The vertical axis is the “score” assigned to each county by the model – the higher the score the worse the impact of unfunded pensions; the lower the better.

These results are still being evaluated – they may change with further examination of this new model. But it appears Tulare and Imperial – especially Tulare counties are doing very well. On twelve comparative measures Tulare was “best” in seven and second best on three. It’s “worse” position was 6th out of the 21 counties.

These are the only two county Pension Funds that achieved more than 80% of their pension funding requirements based solely on the only two sources of funds that should be needed – Normal Yearly Contribution and investment profits. At the other end of the spectrum is Kern County – the most negatively impacted. Their debt payments and interest expenses are the highest percent of county expenditures. Interest consumes nearly all the county’s property tax income. Debt payments and interest expense are the highest percentage of total expenditures of all 21 counties. Merced is to Kern as Imperial is to Tulare – not the “most” (in bad shape instead of in good shape) but noticeably different from the rest.

As we say the model developed for this analysis can be “improved”. But the basic picture – Tulare in pretty good shape with Imperial not that far behind, Kern in really bad shape with Merced not that much better, and everyone else lumped in between – is almost certainly accurate. Kern and Tulare are neighbors. How does one wind up on top of the heap, the other on the bottom?

Again – these results may change as we evaluate our model.

This shows the proportions of the causes of total county debt – current Pension Fund deficits (Net Pension Liability), Pension Obligation Bonds, and all other reported debt. It does not included unfunded retiree healthcare county debt.

The heavy black lines in the graph separate the debt caused by unfunded pensions on the left from that caused by all other debt on the right.

Pension deficits and Pension Bonds are different forms of debt but they are both caused by unfunded pension liabilities. These debts exist because these counties failed to achieve their pension funding requirements. On average 77% of these counties’ debt was caused by unfunded pensions. Ninety percent of Kern’s debt was caused by unfunded pensions! Only Tulare County has less than half its debt caused by unfunded pensions (1/3). Unfunded pensions are the dominant form of long-term debt for all but one of these counties.

Very high percentages of County Budgets are consumed by interest expense on and payments of unfunded pension-created debt. Increasingly high amounts of discretionary county income from its local tax base are being swallowed by this debt thereby greatly reducing local control over county budgets. Except for the notable exception of Tulare County these counties have been very seriously hurt by unfunded pension debt – some not as much, others perhaps terminally so.