Napa County’s prudent fiscal management of employee pensions and post-employment benefit costs have put it in a stronger position than other California counties confronting the state’s pension crisis, a new report from the Napa County grand jury states.
The grand jury evaluated the county’s practices regarding managing pensions and post-employment benefits this year, and found that while the county’s in a better spot than others in California, significant risks remain for its unfunded liability of $173 million.
The county’s 1,330 employees and retirees receive benefits through a contract Napa County has with CalPERS, which was funded at 60 percent when the economy was recovering from its crash in June 2009, according to the grand jury’s report.
The county was able to increase that level of funding to 73 percent in 2011, and has raised employee cost-sharing and decreased pension formulas through negotiations with unions. Its decision to pre-fund other post-employment benefits has it on a path to fully cover the unfunded liability over the next 20 years, the grand jury report states.
It’s also avoided “spiking” retiring employees’ final salary levels by barring them from tacking on bonuses, vacation time that was never used, overtime, and other compensations. This practice has allowed some public employees to collect higher income in retirement than they did on salary, according to the report.
Napa County was one of the first counties in the state to opt to pre-fund post-employment benefit liabilities once the state Legislature changed its policies in 2008. The changes acheived through union negotiations will allow the county to save $12 million over 10 years, according to the report.
“There is no doubt that Napa County’s strong and stable economic climate has facilitated the ability to be proactive in managing all of its assets,” the grand jury report states. “The county is fortunate in that it is a relatively young public entity measured by the high number of active employees supporting the retirement income of retired employees, and has a high-valued land base and well-established agricultural and tourist commerce supporting tax revenues.”
Still, the report faults the county for allowing retroactive benefits in 2004 and 2005; coupled with a market downturn, this caused the county’s annual pension costs to jump from $7.5 million in 2005 to $11.2 million in 2006.
But, the county got agreements with the unions to share future shifts in the annual required contribution, a move the report labels “an action of great foresight.”
Ultimately, the grand jury determined that there’s more cause for concern regarding other post-employment benefits costs than the pension program.
“At the heart of the county concerns are the steep increases in healthcare premiums, which have risen faster than the cost of living adjustments that affect pension funds,” the report states.
The report predicts that every municipal government in California can expect to see the annual required contribution increases due to a planned overhaul of CalPERS’ investment policies.
“By 2015, several of the state’s largest cities estimate that as much as 33 percent of their operating budget will be consumed to make the annual required contributions to CalPERS,” the report concludes. “Even Napa County, with a significant and stable economic base, no incidence of abusive pension practices, and no risk of bankruptcy has had to confront tough choices as the shortfall in funding of retirement obligations over the last decade has created larger and larger (annual required contribution) payments to CalPERS.”
Overall, the grand jury praised the county’s practices when it came to managing its pension programs and other post-employment benefit costs.
“The grand jury found that the county has been collegial in proactively working with its employee bargaining units, CalPERS and citizens to make positive changes to its retirement benefits program,” the report states. “The county has shown very good stewardship.”