OK — The Real Answer Please (Updated 02-03-12)
03/03/2012 5 Comments
SESF has been raising the issue of unfunded liabilities since 2007 and again in 2009. The County keeps telling the public that we are getting it all wrong, move along no problem here. This comment is from the CEO Friday Memo:
Pension Liability Article
This past Saturday there was an Other Voices opinion article that grossly overstated the cost per county employee at $222,000. The fully loaded cost per employee is well below half of that erroneous number. This outrageous statement was apparently derived at by the author because he divided the entire County budget by the number of employees currently budgeted. This was an erroneous methodology.
OK, where did Mike McDaniel, who wrote the Other Voices, go wrong? How much is “well below half” The CEO does not explain, thus missing a perfect learning moment to explain the correct methodology for all to see. How much of the Budget should have been used? How many employees should have been considered?
I am sure there will be some more explaining by folks who are more expert on this issue. Maybe we will finally get to the real answer. Stay Tuned!
Update (02-03-12, 12:12) I asked for some answers and this came in over the e-mail transom:
The fundamental points behind Mike McDaniel’s research article remains the same, regardless of semantics and variances in calculation methods.
1) Salaries and Benefits are continuing to rise–both in real dollars, and as percentage of the budget.
2) The 47% share of the budget allocated to “Salaries and Benefits” is unhealthy.
3) Salaries and benefits per employee have increased by over 73% during the past ten years.
The projections in Mike’s McDaniel’s research article are based on these facts:
The $81 million in budgeted “Salaries and Benefits” includes the benefits to all current retirees. We have a lot of retired county employees, and many of them retired at close to full salary beginning at age 50 or 55. Their pension is promised to continue for the rest of their lives. So when a full time employee with 33 years of services retires, there is no significant decrease in Salaries and Benefits. The only change is that the dollars that were paid to a working employee are now paid to a retired employee. This is precisely what explains why a reduction of 278 County employees over 10 years is accompanied by a $30 million increase in Salaries and Benefits.
Based on the composition of the current County employees, it’s reasonable to anticipate that the number of retirees will increase.
Based on economic realities, it’s reasonable to anticipate that the County will have to reduce staffing to balance its budget.
Confronted with these realities, McDaniel’s projection is very reasonable: Tax dollars will increasingly be allocated to paying retiree pensions, while the taxpayer receives decreasing levels service. This will lead to special taxes to fund core services. And we’re seeing this now. Penn Valley fire department secured a special tax to sustain its department in 2010. And the Nevada County consolidated fire district is seeking a special tax increase in 2012.
We are still waiting for the County’s answer. According to Rebane’s Ruminations, CPA Dai Meagher has an excellent article on this issue in the Union today. I have not read it due to the pay-wall.