Mendocino County Today: December 26, 2012

BREAK THROUGH LEAD SENTENCE by Derek Moore in the Press Democrat's Christmas Eve weather story: “After a break in the weather, rain is expected to return to the North Bay Christmas Day right around the time kids are jonesing to get outside to try out their new trikes.” Quite lively by the PD's soporific standards, even startling with the dope reference as a verb. “Jonesing”? Looking for dope, especially heroin.

SUPERIVSOR JOHN PINCHES complimented the county's road crews for their extra work during the recent heavy rains. “There has been a significant change in in the operation of the Department of Transportation this year. It used to be that when washouts happened we would go out there the next morning and apply for FEMA funding and get it fixed. But the Department of Transportation due to these storms kept some of our road crews out there 24 hours a day through the night, driving around to keep the culverts open and keep them from plugging up. That virtually amounted to, given the amount of rainfall we had in a short period of time, may have saved this county hundreds of thousands of dollars if not more. So it's really a change in the operations of the Department of Transportation. It's a lot to ask road workers to stay up all night. Before they used to get off after eight or ten hour shifts and go home. But it's really made a significant difference in these big storms. Thanks to them and thanks to Howard and the crews. It's a new way to do business but it is certainly paying off, especially since we took some of those transportation dollars.”

CALLING TRANSPORTATION DIRECTOR DESHIELD: We need the names of those intrepid road crewmembers. The local and County road crews deserve choruses of attaboys for their dedicated labor keeping Anderson Valley's roads clear.

WHEN THE BOARD of Supervisors discussed adding a new discounted retirement tier for new employees on Tuesday, December 11, Supervisor John McCowen asked Pension Manager Rich White (the regal former Orange County Sheriff's Sergeant who runs the County's pension system) what kind of return on their stock market investments the pension fund would need to get themselves out of their $130 million-plus hole? White, paid $130k plus the usual array of fringes undreamed of by most Americans, repeatedly found ways to say nothing by way of response, forcing McCowen to answer his own questions.

McCowen: “At our last discussion of this I seem to recall that you had projections of what the anticipated rate of return would be for the future. I know we have our assumption that gets built into the formula which is based on — we are assuming 7.75% rate of return currently. But did you have some projections, the assumption notwithstanding, what we thought reality would hold for us in say the next five years?”

White: “I don't think so, Mr. Chair.”

McCowen: “I thought you had a list of percentages that you read off and they were, you know, 2.5%, 2% —”

White: “I don't think we did any forecasting as far as what the economy is going to do going forward and what our projected rates of return are going forward. I think we may have done some modeling with, if we made this, or if the economy did this, this is what it would look like, but I don't think we made any projections of what the economy or what the market would return to us in the future. If we did, I don't remember it.

Supervisor John Pinches: “If Richard [White] can make those accurate projections, five years into the future, he sure as hell wouldn't be working here.”

White, wit to the fore: “You'd still be a friend of mine and we would share that.”

McCowen: “But the reality is that if we don't— if the return on if the return on investment isn't a minimum 7.75% plus a 1% contingency plus the amount to cover the administrative costs then the unfunded liability increases.” (These fanciful, Madoff-quality figures are pure fantasy even in flush times.)

White: “I think that the information you received from the CEOs office is a very good discussion. You are right. The actuarial of assumed rate of return is set at 7.75%. That's the interest rate that we assume that we are going to earn going forward. Those interest rates, the administration of the fund, is paid for from the returns that the trust fund generates. That was the first slide that Kyle [Knopp] showed you which is how the pension fund is funded. And then the benefits are paid from that. And as Kyle correctly told you if the assumption rate is not met then the plan sponsor, the County of Mendocino, is essentially on the hook for that difference. I would also point out that if it's more than that, I mean, these days, it's hard to see that that there is a light at the end of the economic tunnel, but the news — one of the things about the chart that Kyle put up there that you have in front of you showing the returns over the past 10 years is that the economy in the past 10 years has been just horrific. That chart starts in 2002 which is the.com bubble. We had Y2K before that which was devastating and which was hard on the markets. and then we had this, the greatest recession ever. So even though the, I think, the number that you use was 6.something over 10 years essentially, it is below our assumed rate of return, in some ways it was the most challenging 10 years of economic and market history that perhaps that we've had. I don't know that that's necessarily the case over decades. But the past 10 years has just been devastating to everybody from counties to individuals to pension funds trying to do what they do. So it's very difficult. But as you say, if the pension fund — and the point was if the pension fund makes more than 7.75%, the employer, the plan sponsor, benefits from that as well. Whereas the employees would not see any change in their contribution rate going forward.”

McCowen: “But right now our hole is about $125 million. So in the current environment, at least for the foreseeable future, my crystal ball doesn't tell me we're going to be making our assumed rate of return. I think a lot of the projections are that things are likely to be relatively flat perhaps for the next few years. So if that is how it develops then the greater the employer's contribution, the greater benefit we obligate ourselves to, then at least in the short run the greater the unfunded liability will grow.”

White: “I think that with new employees — part of the exercise you're going for is to see where the savings are going to occur. And we all know that the savings are going to occur sometime in the future because you have liabilities for your current employees that are not impacted by the actions that you are going to take today (with a new tier).”

McCowen: “Correct. But even in the short term there is an impact. It depends on how many employees you hire in part. But starting with the first employee you hire, we hire, there will be an impact. It may be incremental and it builds over time.”

White: “A new employee comes in without an unfunded liability. A brand-new employee. So when you hire someone new the calculations and the contribution rates which the board of retirement adopts is to fund the normal cost of that pension benefit so that you won't have an unfunded liability certainly for the first year. After a period of time if the assumptions that the retirement, the board of retirement has adopted, if those don't come true, then you may have an increase or decrease in the cost.”

McCowen: “Well if they don't come true, we will have an increase in the cost and we will then be building that unfunded liability when new employee by one new employee.”

White: “Uh-huh.”