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Extracted from Consolidated Report

This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.

Nevada County Grand Jury • 2017-2018

Willthe Public Suffer Because of Unfunded Pension Liabilities

Published: July 19, 2018 87 pages Consolidated Report

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⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.

⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

Findings 10 findings

Nearly every Nevada County agency has a Net Pension Liability. Agree

Many Nevada County agencies, especially schools, lack a sufficient Net Position to successfully comply with the requirement to reduce their Net Pension Liability. Disagree. Responding only for County of Nevada agencies. Annual required contributions (ARC) set by CaIPERS are intended to pay down the Net Pension Liability over a period of time. The County has always met the ARC and expects to do so in the future.

Some Nevada County agencies, especially schools, have a negative Net Position. Disagree. Responding only for the County of Nevada agencies. The County's total net position as of June 30,2017 was positive $270 million.

Transparency demands that financial statements provided by the office of the Superintendent of Schools identify each charter schools Net Pension Liability. Agree.

The strain on Nevada County agency budgets is likely to require cutbacks in services to balance the pension contributions increases. Partially Disagree. The County of Nevada takes this matter very seriously and has taken numerous proactive measures to mitigate the impact of rising pension costs and manage Net Pension Liability impacts. The County maximizes revenue opportunities and has accumulated fund balance to help address rising pension costs. If the economy and revenues drop significantly for a sustained period of time, or there are additional changes from CaIPERS requiring higher contributions than are currently known, there may be impacts to services.

Many agencies may spend down their reserves to avoid cutbacks in services. Partially Disagree. Responding only for County of Nevada agencies. Nevada County has a budget policy, which states that the "budget will only use reserve funds for emergency and one-time expenditures or for purposes that the reserve is designated to fund. Every effort will be used to preserve funds." This policy has been in place since just after the Great Recession and has led to the County generally maintaining or building reserves in recent years. In addition, the County Board of Supervisors has adopted a Fund Balance Policy, which guides decisions on use of fund balances, generally for emergencies or economic uncertainties or targeted priority expenditures. Every economic downturn causes the consideration of spending reserves to avoid cutbacks in services. This finding is not specific to the pension liability issue.

New sources of revenue may be requested by many agencies to avoid cutbacks in services or reduction ofreserves. Agree. Responding only for County of Nevada agencies. The County of Nevada agencies continuously seek new sources of revenue to fund services. Most of these revenues are from State and Federal sources for specific programs.

The public bears most of the risk if CaIPERS and CaISTRS investments continue to underperform. Partially Disagree. Responding only for County of Nevada agencies. The County of Nevada is unable to respond to this finding as we have no way of knowing how CaIPERS and CaISTRS 5 will mitigate the risk of underperforming investments or how much risk will be passed on and to whom. B. RESPONSES TO RECOMMENDATIONS Rl: The Nevada County Chief Executive Officer should provide a separate presentation to the Board of Supervisors describing the County's curent Net Pension Liability and providing a plan for addressing the problem. The presentation should not be hidden in the annual budget report presentation. This recommendation will not be implemented because it is unwarranted. The County Executive Office already reports specifically on the Net Pension Liability issue multiple times during the year. It is presented in depth during the budget hearings, at the Board of Supervisors Annual Workshop and throughout the year as Board actions are recommended by the County Executive Office. Pension costs have been highlighted in the last twelve budget messages delivered by the CEO and CFO.

Higgins Fire Protection District is out of compliance with Govemment Code 26909 by not filing an audited financial statement for 201 5-2016. Agree. However, we would like to note that we have no independent knowledge of this fact and are relying entirely on the Grand Jury's report as to this finding.

F10

Nevada City School of the Arts' financial statements should reflect their Net pension Liability. Agree. However, we would like to note that we have no independent knowledge of the laws applicable to Nevada City School of the Arts and are relying entirely on the Grand Jury's report as to this finding.

Recommendations 7

R1

The recommendation has been partially implemented. The County has funded an irrevocable trust to assist in paying increased pension costsl the County maintains a Pension Contributions assignment in the General Fund to prioritize pension stability; the County pre-pays the Safety UAL; in FY 18/19 the County will consider a Pension Management Policy to provide further direction on managing the pension liability.
R2

Public agencies and public employee unions should explore how increasing employee pension contributions can reduce non-funded pension liabilities. This recommendation will not be implemented because it is not reasonable. Employee pension contributions are determined by the Public Employees' Pension Reform Act of 2013 (PEPRA). County staff currently share in pension contributions by the amount specified in the PEPRA.
R3

For the purposes oftransparency and easy access, each agency should provide links to three years of audited financial statements and summary pension data for the same period on the financial page of its public website. Bitney Prep High School has contracted with a professional to add a financial page to its public website and include a link to the Audits for the last three years which are currently posted on the Nevada County Superintendent of Schools website.
R4

Public agencies should consider implementing the suggestions from the League of California Cities. This recommendation will be implemented in part. In reviewing the six stated suggestions from the League of California Cities, the County responds with the following: 1. The recommendation has been partially implemented. The County has funded an irrevocable trust to assist in paying increased pension costsl the County maintains a Pension Contributions assignment in the General Fund to prioritize pension stability; the County pre-pays the Safety UAL; in FY 18/19 the County will consider a Pension Management Policy to provide further direction on managing the pension liability. 2. The recommendation will not be implemented. The foreseeable situation does not warrant the County seeking additional taxes to fund the pension liability. 6 3. The recommendation has been implemented. The County participates in the PARS Section 115 Pension Trust program. 4. The recommendation has been implemented. The County's budget policies require departments and programs to streamline resources where needed in an effort to provide the same level of service each year; streamlining has included major department restructuring and consolidation and investment in technology. The County also contracts with community based service providers where possible to maximize service delivery, efficiency and effectiveness. 5. The recommendation has been implemented. Employee organizations contribute their full share of employee contribution costs to the annual required contributions. The recommendation will not be implemented. The County will not issue Pension Obligation Bonds. The League of Cities report referenced recommends uguinst issuing pension obligation bonds. Council Members GRASS VALLEY CITY COUNCIL Howard Levine, Mayor '125 East Main St., Grass Valley, CA 95945 Lisa Swarthout, Vice Mayor Tim Kiser, City Manager Jan Arbuckle Kristi Bashor, City Clerk Jason Fouyer Ben Aguilar Iuly 24,2018 ,4 ?J The Honorable Thomas Anderson t'/&/t l\} t; Supervising Judge of the Grand Jury 5 - rlqs l(> 201 Church Street Nevada City, CA 95959 ffi{) Dear Honorable Thomas Anderson - The following is the City of Grass Valley's (City) response to the 2017-2018 Grand Jury Report - Will the Public Su.ffer Because o.f Ury/unded Pension Liabilities. The City appreciates the Grand Jury's interest in helping to ensure the City's ability to continue providing uninterrupted high levels of service in the wake of increasing pension liability payments by employers countywide. The City has taken a proactive approach to mitigating the potential impacts of increasing pension payments, particularly as they relate to the annual amorlization payment for the City's unfunded pension liability. As demonstrated in the responses to the report's recommendations noted below, the City remains steadfast in maintaining high levels of service while assuring promised current and future pension benefits due its employees remain intact. The following are our response to the two recommendations noted in the repoft:
R5

Nevodo County Superintendent of Schoots should report the Net Pension Liabitity for chorter schools thot ore port of its ogency's oudit. Because the charters schools that report under the NCSoS financials are considered to be part of the organization for audit purposes, the cost to split out each LEA's portion of the unfunded liability may not be practical. The Net Pension Liability that is reported under the NCSoS annual audit does include each charter schools portion. We will explore the possibility of projecting and reporting each agencies portion of the liability r"pu.ut.ly with our external auditor. Once again, I would like to thank the Grand Jury for looking into this issue that has the potential for dire consequences to our local schools. My office, alongside the professional organizations we belong to, will continue to voice our concern and lobby our elected officials to pay down this unfunded liability at the state level where it originated. The Governor and the Legislature need to look at the budget surplus as one potential source to help pay off the debt. Sierra Montessori Academy Sierra Monlessori Academy shall not discriminate agqinst any individual in admission, the administration of programs or employment on the basis ofrace, religion' color, ethnicity. gender, natiinal origin or sexual orientation or any other basis proii'brteZ byfederal or state law. 44 45 Twin Ridges Home Study Charter School 111 New Mohawk Road Nevada City, CA 95959 (s30) 478-181s www.trhs.us September 6,2018 {l /. !,;.\, a/r p The Honorable Thomas Anderson J il \. \-r' l / |I l - - LOf:-*- / - Jury - Souuppeerrvvrissirnngg JJuudoggee ooTf trhnee Gurraannod Jury , I I churchstreet qillillt L \/, 201 NevadaCity,CAgs9s9 l!'tl'"--, t ,' 1 ' i'q, ,'ill / ! { (-' , Dear Honorable Thomas Anderson The following is the required response to the 2017-18 Nevada County Grand Jury report entitled, "Will the Public Suffer Because of Unfunded Pension Liabilities?". o Twin Ridges Home Study Charter School for Recommendations R3, R4, and R6 by 9 September 2018. As required by Penal Code Section 933.05, the Twin Ridges Home Study Charter School response in regard to Recommendations is as follows: RECOMMENDATIONS:
R6

Nevada County Superintendent of Schools should report the Net Pension Liability for charter schools that are part of its agency's audit. We were not able to separate out the NPL for each agency. In our response to the report we indicated that this may not be an option due to the excessive amount of time and cost involved in having this calculation performed. Once again I apologize for the delay in this response and hope that our responses meet the need of the Grand Jury. '-r- Bitney Prep High School Director Bitney Prep High School- A BIG PICTURE LEARNING SCHOOL. Joerschke Dr. , Grass Valley. CA 95945 530.477. ll35 bitneyprep.net 18 CHICAGO PARK SCHOOL DISTRICT 15725 Mt. Olive Road, Grass Valley, CA 95945 '1\- - (s30) 346-2153 Fax (s30) 346-8ss9 n.rz6 Dan Zeisler, Superintendent Katie Kohler, Principal '1U,tf-uQt July 16, 2018 ?D/r4/n( The Honorable Thomas Anderson Supervising Judge of the Grand Jury 201 Church Street Nevada City, CA 95959 Dear Honorable Thomas Anderson: Schools across the state have taken on the burden of a multi-billion dollar shortfall in CaISTRS and CaIPERS. As a result, school districts are enduringsignificant increases in employee benefit contributions that far exceed cost of living adjustments allocated by the state. This is jeopardizing the quality of education (extra-curricular studies, small class sizes, etc.). With declining enrollment and teacher demands for salary incredses to offset their personal increased personal retirement contributions, we have some very challenging years ahead of us. Throw in the inevitable recession, and it will be very difficult to sustain a budget that is not qualified by the county. Here is the requested response from the Chicago Park School District regarding "U nfu nd ed P e nsion Lia bi Iiti es :" RECOMMENDATIONS:
R7

Nevada City School of the Arts shoulci report its Net Pension Liability in its financial statements. The recommendation will not be implemented at the present time but will be implemented in the future. As mentioned above, because Nevada City School of the Arts audits its financial statements as a non-profit organization, the School has not determined a possible net pension liability. In the School's next audit report, there will be an added disclosure footnote that will include the calculated amount of any net pension liability. NUvada City School of the Arts 35 (fi,r,,7r'4. ,''<'t-b b,,,gT .[lrt- .[uly 30, 2018 The Honorable Thomas Anderson Supervising Judge of the Grand Jury Counry of Nevada 20L Church Street Nevada ciry, cA 95959 RE: ''Wili Re spoi-.se io Gr-aild iury R.eport: the Pubirc Because of Unfunded Pension Liabilities?" Recommendations #2, 3, and 4. 'u1Jer Dear Honorable Judge Anderson: The following is the Nevada Joint Union High School District's statutorily required response to the 2017-18 Nevada County Grand Jury report entitled, "Will the Public Suffer Because of Unfunded Pension Liabilities?" The district appreciates the opportunity to provide information and perspective on an issue of significant concern to this and all other local education agencies (LEAs) in Nevada County.