Marin public agencies have a $1 billion unfunded pension liability — the amount of future pension obligations guaranteed public workers but not currently held in reserve, according to a new Marin County Civil Grand Jury report.

The 61-page report — “The Budget Squeeze: How Will Marin Fund Its Public Employees Pensions?” — calls the $1 billion shortfall “disturbing” and says leaders need to take immediate action, such as forming a special citizens panel, to prevent county agencies from sliding further into pension red ink.

PENSIONS > MORE COVERAGE

“Marin Board of Supervisors should empanel a commission to investigate methods to reduce pension and debt and to find ways to keep the public informed,” the report says. “(The new commission) should be allowed to engage legal and actuarial consultants to develop and propose alternatives to the current system.”

Marin Supervisor Judy Arnold, board president, said she had not yet had a chance to fully review the grand jury’s report.

However, she said she was “not opposed to their recommendation to establish a citizen advisory committee. As a matter of fact, I discussed this issue recently with the League of Women Voters.”

County Administrator Matthew Hymel said he was glad to see that the county was acknowledged in the report for its progress in reducing pension liability. Over the past five years, he said, the county has been able to reduce its pension liability by $93 million.

“The county has agreed for a long time that pension liability is a serious issue,” Hymel said. “One example (of county efforts on the issue) is that we made a $32 million accelerated payment to our pension fund in 2012-13 — that helped to reduce the ongoing payments going forward.”

Contributions

According to the grand jury, Marin County “is in a strong financial position, spending 7.9 percent of its revenues on pension contributions,” the report says. “The county of Marin’s balance sheet has assets of nearly $2 billion, yearly revenues of over $600 million and cash of over $400 million.”

Given that scenario, “the county does not currently appear to be financially strained by its pension obligations,” the report says.

In contrast, the grand jury found that San Rafael and Ross had the highest contribution percentages, with San Rafael contributing 19.2 percent to its pension fund and Ross contributing 14.5 percent.

“The city of San Rafael’s contribution rate has been consistently high for the last five years,” the report said. It noted that the Marin County Employees Retirement Association, San Rafael’s pension administrator, “projects that contributions will remain high, with only a slight decline over the next 15 years.”

Belvedere and San Anselmo had the lowest contribution percentages of 4.2 percent and 2.4 percent respectively, the grand jury said.

Liabilities listed

The report, which was released Monday and is available online, pegged the net pension liability for last fiscal year at $204 million for the county of Marin, $142 million for San Rafael, $32 million for Novato and $25 million for Mill Valley. Among school districts, it was $61 million for Novato Unified and $61 million for San Rafael high school and elementary districts, $58 million for Tamalpais Union and $46 million for the College of Marin. The Marin Municipal Water District had a $70 million net pension liability, according to the report.

Jody Morales, founder of Citizens for Sustainable Pension Plans, said she appreciated the grand jury’s attention to detail.

“Marin County is fortunate to have such dedicated, intelligent, concerned citizens,” she said. “I hope all of our local officials will read this report and respond to its findings.”

The jury, in researching the study, gathered fiscal information from 46 Marin public agencies from 2012 to 2016. Data collected included net pension liabilities and yearly contributions of each agency, as well as key financial details from balance sheets and income statements.

Those 46 agencies are required by law to respond to the report’s findings. In addition, five lawmakers and pension officials are also asked to respond: Assemblyman Marc Levine, state Sen. Mike McGuire, Gov. Jerry Brown, CalPERS CEO Marcie Frost and CalSTRS CEO Jack Ehnes.

Report findings

Among findings of the report:

• All of the Marin public agencies in the report had pension liabilities that exceeded their pension assets as of fiscal year 2016.

• A prolonged period of declining global investment returns has led pension plan assets to under perform their targeted expected returns.

• The three public employee retirement systems that cover Marin public employees — MCERA, CalPERS and CalSTRS — have lowered their discount rates, which will result in significantly higher required contributions by Marin County agencies in the next few years. The discount rate is the interest rate used in present value calculations.

• If pension plan administrators discounted net pension liabilities according to accounting rules used for the private sector, increases in required contributions would be vastly larger than those required by the recent lowering of discount rates.

• The required contributions of Marin school districts to CalSTRS and CalPERS will nearly double within the next five to six years due to mandated contribution increases.

• Pension contribution increases will strain Marin County agency budgets, requiring either cutbacks in services, new sources of revenue or both.

• Taxpayers bear most of the risk of Marin County employee pension plan assets under performing their expected targets.

• Retirees’ pension benefits would be reduced if an agency were unable to meet its contribution obligations.

“As bad as this report may make things look, they will almost certainly look worse in the next few years because of the lowering of discount (interest) rates by pension administrators,” the report states. “We believe that these actions by CalPERS, CalSTRS and MCERA are well-founded and prudent, but they will result in increases to the (net pension liability) of every agency, necessitating higher payments in the near term to amortize the higher (liability).

“The result will be,” the report concludes, “that budgets, already under pressure, will be squeezed further.”