The 14nov13 Union announced that Supervisor Hank Weston will seek a 3rd term for the county’s fourth district. Among the reasons for his re-election Mr Weston cited his “budgetary experience” that will now be necessary to manage the county’s response to its unfunded liabilities that are coming home to roost. In particular CalPERS has informed Nevada County that it needs to pay $1.3M per year for the next five years to satisfy minimum contribution requirements for its retirement account maintained for country employees.
Seven years ago SESF analyzed the county’s unfunded liabilities which it found to total over $48M as of 2006. These findings were published in ‘TR0712-1: Unfunded Liabilities – Our Community’s Fiscal Time Bombs’, and presented to the Board of Supervisors by Michael McDaniel, the report’s lead author. As I recall, the supervisors politely thanked us for our labors, and promptly dismissed the matter from further consideration. At the time the county had almost $20M in reserve, and all was well.
This was in the heady days of 2007 when CalPERS was reaping double digit appreciations on its portfolio, the real estate market was on its way to the moon, and everyone was drinking the kool-aid. Our warnings of the unsustainable performance of such investments were lost in those days of wine and roses. I think we were judged to be out of our depth; after all county finances, especially public employee pension funding, are a complex matter not accessible to everyone.
The point of this missive is that the liabilities are now starting to come due, with the operational word being ‘starting’. The $6M+ demanded by CalPERS is just the beginning of what the county must start making up if it is not to default on its pension commitments. CalPERS has demonstrated itself to have a deficit in both accounting and investments when it comes to astute portfolio management. Way back when, it was content in calculating its future fiscal health by predicting 7.5% annual returns. The market has delivered these since the depth of the Great Recession, yet now CalPERS is going to the counties and displaying its newly discovered sore finger.
The point here is that Nevada County’s plans should include contingency responses to when CalPERS discovers more shortfalls in its ability to make ever increasing pension payments to the state’s growing cohort of public employee retirees (many from jurisdictions in or teetering on the edge of bankruptcy). I fear that the bills to our county will quickly amount to tens of millions as the markets react to the inevitable ‘tapering’ of the Fed’s $85B/month quantitative easing. Yellen is inheriting Bernanke’s folly, and she will own it if she does not start slowing down the gratuitous printing of dollars that is now going on at a trillion dollar annual rate. This reputed monetary dove will be the one to take away the punchbowl, you can bet on it. And then she will be known as the Fed’s Black Swan.
I wish Hank Weston godspeed in his re-election, and then in his confrontation with the All-devouring Beast.
[16nov13 update] Then there are those who believe that Yellen will launch her chairmanship by really turning on the money nozzles. This will doubly guarantee that there will be no soft landing for the economy, but it sure would blow the lid off the stock markets for a bit.
But it's really our own RL 'Bob' Crabb who in the 16nov13 Union nails the essence of how the present, shown above, pilfers from the future.