Once upon a time this guy — who was supposed to be a watchdog over how the county spends its billions — did a lot of hand-wringing over weird investments that he feared would invite disaster.
No one much listened, and he didn’t much yell, and Orange County went bankrupt.
Well! There have been many changes since then to make government more transparent since 1994, and seeing as how the County of Orange spent upwards of $8 billion last year, we figured we’d take some time over the coming weeks to tell you more in bite-sized nuggets. Today we’ll focus on one of our favorite topics: pension debt.
First, some cool tidbits about O.C. itself that you can drop at the water cooler (if those still exist):
• Per capita personal income in O.C. has shot up tremendously between 2013 and 2022. Then, it was $54,827, and now, it’s $84,479.
• We’re older! The median age then was 36.2, and now it’s 39.2.
• Public school enrollment is down. There were 501,801 kids enrolled in K-12 schools back then, and 448,728 now.
• The unemployment rate is way down! It was 6.7% then, and 2.8% last year.
These fun facts come to you via the Orange County Auditor-Controller’s annual report on county finances, reports that were once hard to come by — and even harder to understand — back in bankruptcy days. Now, though, they’re not only posted online, but the auditor issues a “public report” that’s sort of the Reader’s Digest version of the 288-page official report.
We can tell you that the county spent $1.47 billion on public protection in 2018, and $1.37 billion last year.
And that public assistance cost $1.1 billion in 2018, and $1.2 billion last year (down from a pandemic high of $1.36 billion in 2021).
But our focus here today is on the county’s pension debt.
Shrinking hole
We’ve told you ad nauseam about how officials dramatically boosted pension formulas for workers with the misguided belief that a surging stock market would pay for them. It hasn’t, so governments and workers have had to kick in more and more to cover what was promised but hasn’t materialized.
The good news is that the shortfall is shrinking! The not-so-good news, perhaps, is that folks are paying more to make that happen. (And this snapshot ended last July — next year, we’ll see how the stock market’s current shimmy-shimmy shake affects all this.)
Anyway, there are two ways of looking at this shrinking hole.
The one highlighted in the Reader’s Digest version looks at what’s called “Net Pension Liability” or NPL. Here, we see liability peak at $4.92 billion in 2019, down to just $2 billion in 2022. Wow!
The big report paints a more complicated picture with what’s called “Unfunded Actuarial Accrued Liability,” or UAAL. By this measure, the county’s liability decreased from $4.48 billion to $3.88 billion. Still a wow, but perhaps not with the exclamation point.
So what’s the difference, you ask?
Both measures project how much the county owes to workers but doesn’t yet have in the pension fund.
The UAAL calculates this using “actuarial value of assets” — a model that includes long-term projections on interest rates, demographic changes, inflation, etc.
The NPL, meanwhile, calculates it using the current “market value of assets.”
Why, you ask, is the hole shrinking? “The decrease … is primarily attributable to favorable investment returns (after smoothing) and salary increases less than expected, slightly offset by actual cost-of-living adjustment increases greater than expected,” the big audit explains.
It pegs the funded ratio of the county’s pension system — the amount on hand vs. what’s needed to pay in full — at 81%, which is up from 76.5% in 2020.
Everyone has been forking over more money in recent years to help make this happen. The county’s pension contributions went from $379 million in 2015 to more than $557 million last year.
That’s almost real money. It translates to pension contributions equal to 34% of total payroll back in 2015, versus 42% last year. Ouch.
There’s hope that most of the worst is behind us. In 2008, voters approved Measure J, which requires voter approval for any future pension benefit enhancements.
See? Wasn’t that fun? Stay tuned for more fun facts on these billions!
Source: Orange County Register
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