L.A. County Facing $115-Million Hike in Retirement Bills

Los Angeles County is facing a $115-million hike in its retirement bills for the fiscal year that starts July 1, the latest in a series of increases that has ballooned the county’s annual pension costs to nearly $1.2 billion.

“It’s a huge jump,” said Chief Administrative Officer David Janssen, who oversees the county’s finances.

Like public employee retirement programs across the state, the county is still paying for the enormous stock market losses that hit pension fund investments when the dot-com bubble burst in 2000.

“They just lost a huge amount of money in the equity market,” Janssen said. “Everybody lost it.”

The county is also suffering the consequences of its decision a decade ago to borrow nearly $2 billion in bonds to plug budget shortfalls. The way the bonds were structured, the annual payments on the debt will peak over the next three years.

The increasing cost should disturb people on both sides of the political spectrum, said Jon Coupal, president of the Howard Jarvis Taxpayers Assn., which is spearheading attempts to reform local government pensions.

“Liberals should be offended because this is money that could have been going to education, police, fire,” he said. “Conservatives should be offended because this is money that could be given back to taxpayers.”

The spiraling cost to taxpayers of retirement plans across California has fueled efforts to pull back from the generous retirement packages many local governments offered during the 1990s.

Gov. Arnold Schwarzenegger last week dropped a controversial plan that would have brought state pensions more in line with private sector 401(k) plans, but he promised to pursue the change again next year.

Pensions guarantee government employees a set percentage of their final salary in retirement. Critics argue that switching to a system more in line with the ones used by private companies would make pension payments more predictable for local governments and potentially lower costs.

But supporters of the current system contend that such a move would shift investment risks from government to workers who are not eligible for Social Security benefits. And they note that payments by local governments also fall when investments do well, just as they rise when they do poorly.

Indeed, Los Angeles County drastically reduced its payments to the Los Angeles County Employees Retirement Assn. in 1997 and 1998 when profits were up.

“I don’t see these great calls for reform when the local agencies are given a free ride and make no payments,” said Will Pryor, a Los Angeles County firefighter who also sits on the retirement association’s Board of Investments. “It fluctuates.”

Next year’s retirement bill includes $836 million in pension contributions to the association, which manages the county’s public service employee pensions. Over the last three years, the county’s contributions have increased 62%.

The bill also includes $357 million to pay off bond debts. In all, the county will have spent $2.9 billion in interest payments by the time it pays off the money it borrowed in 1994. But since then, the money, which the retirement association invested, has also brought in a $3.4-billion profit, according to figures provided by the group.

Nevertheless, association actuaries last week reported that the pension fund had a record shortfall of $5.6 billion as of last June. Deficits in municipal pension funds must be made up by taxpayers and contributions by employees.

The report, by Milliman Consultants and Actuaries, said the county’s pension fund had enough money to meet only 82.8% of its future obligations. That is a sharp decline from 2001, when the fund had enough to pay for all of its future retirements.

But Dallas Salisbury, president of the Washington, D.C.-based Employee Benefit Research Institute, said Los Angeles County is “relatively healthy” among local government pension funds.

He said a March study by Wilshire Associates, a Santa Monica-based consulting firm, found state-run pensions reported that, as of June 2004, they could pay off 83% of their future retirements. But some states were well below that figure. Illinois reported that it could pay only 54%.

Los Angeles County retirement officials said their pension fund is doing better than the latest report suggests.

Actuaries often deliberately undercount the most recent gains or losses -- a practice designed to avoid making financial decisions based on single-year changes in investments. Using this method, the stock market losses from the high-tech bust are being counted fully only now, forcing local governments to increase their contributions.

In Los Angeles County, that means the latest figures do not take into account an investment gain of $1 billion between 2003 and 2004, according to the Milliman report. Instead, those figures will show up in future reports.

Bruce Perelman, an engineer in the county Department of Public Works who sits on the retirement association’s Board of Investments, said the group is doing well. “If we do as well in the next few years as we did last year, we’ll be fully funded.”

Increases in pension payments are expected to level off after next year, said Janssen, the chief administrative officer.

Los Angeles County may be in a better position than most to recover from the stock market’s decline, he said.

In the late-1990s, when the stock market soared, scores of local governments flush with cash boosted pension payouts for police officers and firefighters.

The L.A. County Board of Supervisors offered much less generous pensions, leading to protracted labor disputes with unions representing sheriff’s deputies and firefighters.