Score: -8 (14/64/22)
Contra Costa County Grand Jury • 2015-2016

To: Board of Supervisors

Published: April 29, 2016 23 pages
Ver PDF original

Findings and Recommendations 9 findings

F1
The County’s largest outstanding debts relate to its pension liabilities. The unfunded pension liabilities of the County (including ConFire) as calculated by the CCCERA actuaries in September 2015 total $1.155 Billion. In addition to this UAAL figure, the County (again including ConFire) has outstanding $329 Million of long-term pension obligation bonds.
No recommendations for this finding
F2
The County’s unfunded pension liability will increase in any year in which the rate of return on the CCCERA pension fund does not reach at least 7.25%.
No recommendations for this finding
F3
According to the most recent CCCERA actuarial report, for every 1% drop below the CCCERA assumed rate of return of 7.25% the County’s unfunded pension liability will increase by a figure equal to 9.9% of the County payroll of employees enrolled in the CCCERA pension plan. Based on its current payroll of over $572 Million that means the reported return of 1.9% achieved by the CCCERA pension fund in 2015 could result in an increased County UAAL of over $300 Million before actuarial five-year smoothing adjustments are made.
No recommendations for this finding
F4
Unlike all other elements of compensation that it negotiates with the labor organizations, the County does not negotiate the rate of pension benefits employees will earn in future salary periods.
No recommendations for this finding
F5
The reason the County does not negotiate such pension benefits is due to a long- standing legal precedent in California, known as the California Rule, which holds that public employees are covered by an implied contract on their first day of service guaranteeing that the level of pension benefits they earn each year may not be decreased in future years unless replaced by benefits comparable in value for the employee.
No recommendations for this finding
F6
The California Rule is based on a case that was decided before public employees had the right to organize and engage in collective bargaining in California.
No recommendations for this finding
F7
The County has not taken steps to challenge or seek legal clarification of the California Rule in a California court.
No recommendations for this finding
F8
Negotiating the terms of future pension benefits to be earned could result in substantial cost savings for the County if permitted by a court ruling.
No recommendations for this finding
F9
There are legal avenues open to the County to seek judicial clarification or reform of the rule without subjecting the County to major financial risks if the challenge proves unsuccessful.
Related Recommendations (4)
R1
The Board of Supervisors should seriously consider adopting a policy of seeking judicial clarification or reform of the California Rule.
R2
The Supervisors should consider empaneling a task force, a study group, or an internal committee to examine options for challenging the California Rule that would weigh the following considerations:  Potential cost savings for the County;  Potential resources to be freed up for other priorities such as service enhancements and other wage and benefit improvements;  Opportunities to participate as an amicus curiae in existing legal cases;  Opportunities for challenging the California Rule through legal proceedings such as a declaratory relief action that would not expose the County’s financial position to undue risk in the event of an adverse result; and  Whether the County should undertake the legal challenge alone or in cooperation with other jurisdictions or organizations with a common interest in the issue, such as the California State Association of Counties (CSAC).
R3
The Supervisors should consider issuing a formal statement on their policy toward seeking reform of the California Rule, with an explanation of how they propose to manage their unfunded pension liability in the event no steps are taken to reform or adjust the California Rule.
R4
The Supervisors should consider securing a legal opinion from outside counsel experienced in the field of pension and collective bargaining law on the merits of a legal challenge to the California Rule based on the argument that the Rule should now be modified based on California’s collective bargaining system for public employees.

Conclusions 1

Agency Responses 12

Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.