SPECIAL REPORT: County retirement costs are busting the budgets

The bad news just keeps coming for the men and women who lead San Luis Obispo County government.

The Board of Supervisors has watched its work force dwindle by nearly 13 percent, from a high of 2,700 in 2002-03 to an expected 2,350 on July 1. And for the third straight year it is facing a budget deficit of roughly $20 million.

How did the county get into this mess?

The most common replies are the real estate downturn and the concomitant loss of property tax dollars, as well as the volatility of the stock market.

But there’s another root cause: the county’s pension system.

There are 1,741 retirees in San Luis Obispo County receiving an average of $22,200 a year, said Tony Petruzzi, executive secretary for the San Luis Obispo County Pension trust. The trust is the operations manager for the county’s pension funds.

Paying retirees is a growing cost to the county, which faces a projected budget deficit of $19 million for the 2010-11 fiscal year. Its budget is $467.7 million. Pension costs are an estimated 11.2 percent of that.

The situation is worse when you look at the general fund alone. The county’s pension bonds and unfunded liabilities equal about 119 percent of its annual general fund budget.

The general fund budget accounts for most unrestricted spending decisions made by an elected governing body. It doesn’t include money restricted for specific programs by state or federal laws.

Generous benefits negotiated during the relatively flush 1990s and early 2000s helped create the problem, mirroring a dynamic that was taking place at the state level and rippling through other levels of government.

Giving away the store

In colloquial terms, the shelves were fully stocked, so management gave away the store, critics say. A compliant Board of Supervisors went along.

In a sense, you can’t blame them, Auditor-Controller Gere Sibbach told The Tribune. “You can’t sit back and not do the same (as others). There was pressure from unions all over the place.”

Pressure came from top management as well. Then County Administrative Officer David Edge warned supervisors repeatedly that they were in peril of losing good people to other counties and had to sweeten the pot.

The generous pension packages began with the Deputy Sheriffs Association, and spread. The DSA sought a formula of “3 at 50” — a negotiated recipe that would allow a deputy who had worked for 30 years to retire at 90 percent of his salary. The phrase “3 at 50” refers to 3 percent of salary earned as a retirement benefit for every year worked, effective after age 50.

Other employee associations were not far behind.

Sibbach argued against the “3 at 50” formula, insisting that it went against the county’s stated goal of retaining experienced people.

Letting people retire at 90 percent of their pay? he asked. “How is that going to retain them? The incentive is to leave.” Nonetheless, “The dep-uties dug in their heels, and the county folded,” Sibbach said, adding “that was happening all over the state.”

Comparable counties

In addition, a phenomenon known as “comparable counties” began to take costs higher.

For negotiating purposes, employees were compared to those in other counties.

Deputies did not like being compared, as they then were, to rural counties such as Butte and Merced. The cost of living in San Luis Obispo County, they argued, was more akin to the costs in wealthy coastal and wine-growing counties such as Monterey, Santa Barbara, Marin, Sonoma and Napa.

After protracted litigation, the DSA won and, again, other bargaining units were close behind, although not all units use the same comparable counties.

The comparable-counties dynamic filtered upward as well as down, and Sibbach sees a personal incentive for top administrators to raise employees’ salaries, pensions and other benefits — they could then argue that they, too, should be compared to Napa and other pricey counties.

“It helped them personally,” Sibbach said.

Elected officials running the county went along, trusting their top administrator. When the board hired Edge in 1998, they made it clear that they would set policy and keep hands off as he carried it out.

What now?

When pension costs hit the fan a couple of years back, along with other costs, the county moved into belt-tightening mode. Among the many steps it has taken:

• A hiring freeze, except in rare cases determined by the administration and Board of Supervisors;

• Consolidation of jobs;

• Cross-training;

• Encouraging early retirement;

• Longer-range planning;

• Scaling back on capital projects; and

• Amortizing losses over 10, rather than five years.

Two steps are more controversial and are likely to run into resistance from employee associations, with whom they must be negotiated: a two-tier pension system, and a change in the formula that determines how much employees would pay. Under a two-tier system, new employees would receive lesser benefits than current employees. The county’s largest labor group, the 1,400-member San Luis Obispo County Employees Association, has said it is willing to talk about two-tier.

However, two-tier, because it affects only new employees who are decades away from retirement, works only in the long term, Assistant County Administrator Dan Buckshi said.

“You can try to shaft the new people a little bit (with two-tier),” Sibbach said, but you still have to pay for the current people.

In the shorter term, Buckshi said, county management is seeking to have employees pay more. SLOCEA has been cooperative to a point, deferring pay raises, for example. Its general manager, Kimberly Daniels, said she and its members want to help.

But, as Sibbach noted, “that goodwill runs out in the long run,” and the county is in fiscal trouble for the foreseeable future.

Unions beware

One thing seems certain: Public employee unions face a tough road ahead. In San Luis Obispo County, there is already resentment against them because there is a widespread perception that they have a better deal than workers in the private sector.

Guaranteed retirement formulas like “3 at 50” attract animosity from people who are receiving zero at 65, or own a 401(k) that has lost 40 percent of its value.

County Supervisor Frank Mecham has alluded to possible “draconian” ballot initiatives put forth by a disgruntled public. He has not elaborated on what those might be.

Despite the severity of the county’s pension problem, it has never caused the county to consider bankruptcy, board Chairman Bruce Gibson said.

Those who work for or support the county consider the hostility unfair.

Petruzzi said it is a “misconception that the pensions are overly generous.” He said many people who come to this Central Coast location are well along in their careers and thus have higher benefits.

Those who receive a more generous package have more knowledge and experience to offer, he added. “Tenure means something.”

That may or may not resonate with the general public. Longtime government watchdog Charlie Whitney, chairman of the Santa Margarita Area Advisory Council, thinks the government has not cut enough.

He said, for example, that the Planning and Building Department, which is processing far fewer permits during this recession, has been shifting its workers to future plans that may never come to fruition.

“There are people in the planning department who don’t need to be there anymore,” Whitney said. “They should be talking about layoffs.”

That sentiment may or may not be fair — and certainly county planners don’t think it is — but it reflects a wide public attitude.

What does the future hold? A tougher stance with bargaining units, Mecham said, as well as the other changes the county has initiated or hopes to initiate. Beyond that, there is little to do except to take the long view, he added.