Mariposa County finds itself in somewhat of a pickle with its unfunded Public Employee Retirement System (PERS) liability, but it is no different that any other county in the state. According to County CAO Rick Benson, as of June 30, 2008 the county’s unfunded liability was $13,927,356.

This doesn’t actually represent an unpaid bill on the County’s part since PERS functions differently than typical private sector retirement funds, and there are a number of other factors that are out of the County’s control that can create an unfunded liability.

Every year, PERS calculates the exact amount that would need to exist in Mariposa County’s account, should the county cease to exist or operate on that date. That amount must reflect a balance that would provide the retirement benefits for every county employee who earned them from that date forward.

If it doesn’t, then an unfunded liability is created. Increases in retirement benefits, salary spikes, and even retirees living longer than projected can also jar the PERS’ forecast and produce an unfunded liability.

Benson stated that the County has never missed a payment amount requested by PERS, which occurs every year following the agency’s benefit calculations. However, PERS deposits come from two separate sources. There are employee contributions, and employer contributions. Currently, the County makes both contributions, and according to Benson, “That is something that may be discussed in future negotiations.”

Deputy CAO Mary Hodson said that when PERS was “superfunded” in 2000 and 2001, no payment was requested for the employer contributions by PERS. The board of supervisors at that time, which consisted of Doug Balmain, Garry Parker, Bob Pickard, Bob Stewart and Patti Riley, didn’t set aside any funds for future PERS’ requests. Instead, the funds were spent on various County projects and funding requests. “Super-funded” meant that the PERS investment portfolio on behalf of every county in the state made so much money that required balances were achieved without demanding employer contributions.

After the terrible events of Sept. 11, 2001, the stock market took a hit, as did the PERS portfolio. In July 2001, Mariposa County increased retirement benefits for safety employees. In January, 2003, the benefits of general employees were increased. Those two actions somewhat created the perfect storm for the unfunded liability.

According to Benson, “Normal operating procedure for PERS does not require a county to address their unfunded liability so long as the county pays to PERS what it needs to cover the current year benefits. No additional payment is required. This allows the unfunded liability to compound and grow each year.”

As the state’s and county’s financial situations continued to decline, the unfunded liability grew. The current nationwide recession compounded the problem.

In May 2008, the current board of supervisors enrolled in a program PERS calls “Fresh Start.” Through that process, the County’s rate paid to PERS is higher than what it would normally be required. The extra funds are credited to the County’s account to whittle away at the liability. The first year the County made the extra payment was fiscal year 2008-2009.

For 2009-2010 the County will pay approximately $1,170,000 to PERS, which represents the interest and principal payment toward the unfunded liability. At that rate, PERS projects the County’s liability would be reduced to zero in 20 years, but that’s just a projection.

The unfunded liability is compounded at 7.75 percent per year. However, that rate varies based on the performance of the PERS investment portfolio. It can go up or down, thereby reducing or increasing the amount of the liability.

It also means that when the economy rebounds, the unfunded liability will reduce itself as PERS’ investments create greater returns.

District 5 Supervisor Jim Allen said, “When the economy and the stock market again recover and PERS investments improve, our liability will also lower. As a current board, we would be remiss if we don’t deal with this issue during negotiations this year as all bargaining unit contracts come up for discussion.”

Kevin Cann, District 4 Supervisor and board chairman said, “All four union contracts expire this October. If the board doesn’t deal with this situation now, we should all be recalled because this County will be bankrupt in the not too distant future. A former auditor explained this to the board, but obviously didn’t prevail.”

District 3 Supervisor Janet Bibby believes the County should take extra steps to avoid the liability that exists now. “I would like to see that when our required amounts continue decreasing that the savings are placed in an interest-bearing account so that when PERS experiences large losses or variances in estimations, those impacts to the PERS amounts are covered. Because the amounts provided by PERS are after the fact, you should have funds set aside in a ‘rainy day’ fund for all personnel issues.”

In October, the County will receive a new PERS calculation on the unfunded liability, which reflect the account’s status as of June 30, 2009. It will also enter into negotiations with the four different unions representing County employees.

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