Planning for the Future: The Board of Supervisors' Approach to the Growing $220- Million Problem of Unfunded Pension Liabilities

R5

As part of an approach to the mounting debt problem, the County should consider staff reductions.

R6

As part of an approach to the mounting debt problem, the County should consider limiting salary and pension increases. ⎯⎯⎯⎯⎯⎯ 18 If the County adds personnel or increases salaries, the County should increase the annual additional payments commensurately.

R7

As part of an approach to the mounting debt problem, the County should consider having caps on County executive salaries.

R8

As part of an approach to the mounting debt problem, the County should consider reducing the level or frequency of some County services not directly related to public health and safety.

R9

As part of an approach to the mounting debt problem, the County should consider eliminating County services that duplicate services that the state provides.

R4

“The County’s response to this report should include in detail how much of the money from R2 the County expended each year to reduce its UPL beyond making the minimum amortization payment that CalPERS requires.

R4

“The County’s response to this report should include in detail how much of the money from R2 the County expended each year to reduce its UPL beyond making the minimum amortization payment that CalPERS requires.

R1

The Nevada County Chief Executive Officer should provide a separate presentation to the Board of Supervisors describing the County's current Net Pension Liability and providing a plan for addressing the problem. The presentation should not be hidden in the annual budget report presentation. [County response] 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. The County’s response also stated, “[I]n FY 18/19 the County will consider a Pension Management Policy to provide further direction on managing the pen- sion liability.” The County did adopt a policy in 2019, but, judging from the rise in UPL since 2019, nothing seems to have come of that. The County’s consultants made a presentation to the Board of Supervisors on October 14, 2025. The Board of Supervisors listened to the presentation and then moved on to other agenda items without discussion. The following graph from that presentation shows the County’s past and expected amortization pay- ments. ⎯⎯⎯⎯⎯⎯ 14 Id. Chart 3 The graph shows annual amortization payments rising to a peak of almost $30 million dollars for 2030 and then declining. But the story is missing infor- mation. The figures the graph represents assume CalPERS can achieve its tar- get return. The target return used to be 7.75%, but CalPERS lowered it over the past decade because the original target was unrealistic. It now stands at 6.8%. Lowering the discount rate has extended the payoff period. Neither the graph nor the consultants’ presentation explains why the 2026 amortization payment is lower than the previous year, why it then grows to almost $30 million in 2030, why it then begins to decline until it reaches 2042, after which it increases sharply for one year and falls even more sharply the following year. It does show that as of the end of FY2024, the County could expect to have paid $273.9 mil- lion in pension principal and $175.8 million in pension interest by the theoretical ending date of 2045, for a total of $449.7 million. At the end of FY2015, unfunded liability amount was $117,142,264. The graph also assumes a steady state in the markets, but markets do not exist in steady states. There are surges and there are corrections—declines of 10% to 20%. The Standard & Poors 500 Index—one of many indicators of mar- ket performance—has shown five significant annual losses (losses of 10% or more) beginning in 2000 and smaller losses in two other years. It is not realistic to expect no corrections in the coming 20 years. The policy review and outline that the Board received on October 14 dis- cusses in abstract and general terms steps that the County might take to improve the situation.15 There is no discussion of the feasibility of any of those steps for Nevada County. No one on the Board of Supervisors recalls the County having made Additional Discretionary Payments (CalPERS’s term for annual payments in excess of the required amortization amount) to address the unfunded-liability deficit. One supervisor, when asked about voluntary additional payments, stated that the County had not made any because of other, higher priority expense items. The County’s response to the 2023-2024 report notes, “[S]everal other governmental agencies have implemented a variety of strategies to address the unfunded liability, including making additional payments above and beyond the [CalPERS] required contributions. . . .” That sentence confirms that Nevada County has not done so, and one searches the 2023-2024 response in vain for any indication that the County will even consider doing so. There is no question that the County faces multiple needs, some immediate, some that the County can postpone or fund at a lower level. As the figures of the past ten years show, one effect of postponing measures to deal with the un- funded-pension liability is that the liability grows, making the problem increasingly difficult to address. That is why Chart 3 on shows that as of FY2023, the ⎯⎯⎯⎯⎯⎯ 15 Some of those terms are at war with each other. For example, under “Short-Term Cash Flow Management,” one entry says, “Extend UAL payments over longer term.” On the same page, under “Long-Term Cost Management,” one entry says, “Prepay or accelerate UAL pay- ments.” There is no discussion of how to reconcile those two goals and no discussion about the County’s ability or willingness to accelerate payments. County could expect to have paid $273.9 million in principal and $175.8 million in interest in the process of winding down the then-current UPL by 2045. The chart does not (and cannot) take into account that each year (1) the County may hire new employees; (2) existing employees acquire another year of service and get closer to retirement; (3) some employees leave their positions, and (4) some or all employees get salary increases. Each of those events affects the County’s pension liability, yet none of those events is quantifiable in advance. There is an additional point that no one should overlook. CalPERS amortiza- tion approach is supposed to bring the County back to fully-funded status, as the County acknowledged in the response quoted on . After more than a decade of participation in the CalPERS approach, the County is now farther from that goal than ever before. It is clear that CalPERS’ predictions and calculations are not reliable indicators of what the future holds. When CalPERS shifted from a 30- to a 20-year amortization period in 2019, its predicted end date was 2039. Each year, however, that end date has receded by one year, an admission that the previous year’s projection has turned out to be inaccurate. In fact, CalPERS has had a graph similar in shape to the graph on ever since it began to require annual amortization payments. The shape of the graph never changes; the length of the graph in years since 2019 never changes. But each year, the graph moves one year further out. The 20-year amortization period of 2019 (end date 2039) is now the 20-year amortization period of 2024 (last figures available) (end date 2044). Each of those five additional years represents an another multi- million dollar amortization payment. The County’s behavior contributes to that phenomenon. CalPERS estimates annual salary increases at 2.75%. When the County gives increases that exceed that figure, that adds to the County’s pension burden. New hires have the same effect, provided that the new employees remain for at least five years, when their pension rights vest. The County has now hired a consultant and a law firm to help it address un- funded liabilities.16 The County thus concedes that its previous approach is fail- ing. It comes after the 2017-2018 Grand Jury Report and the 2023-2024 Report made clear that the County’s position was deteriorating. The County’s Smokescreens a. Empty Words Certain language in the County’s annual budget document repeats, with only the numbers changing. For example, the current budget document, commenting on the unspent balance in the General Fund, says: It is imperative that these reserves be maintained at sufficient levels for pos- sible future financial threats. For example, the County continues to monitor increases in pension costs. Those costs increased by $2.1 million in 2024- 25 and although they decreased slightly in 2025-26, the drop is anticipated to be temporary before increasing in 2027-28, as shown below in Figure E- 6. The County’s pension management policy adopted in 2019 will be up- dated this fiscal year alongside a comprehensive long- term pension funding plan. The plan will provide the Board with recommendations on how to im- prove the County’s overall pension health to ensure long-term sustainability. Almost identical language appears in the budget documents for FY 2022 through FY 2025.17 Year after year, the County says the same thing . . . and does nothing other than pay the minimum amortization amount. Year after year, the UPL in- creases. The fact remains that for all the repeated talk about pension manage- ment and the County’s assurance in its response to the 2018 Jury Report about ⎯⎯⎯⎯⎯⎯ 16 The consultant and the law firm each come with a cost. Exhibits A and B show the cost fig- ures for each. The older documents make no reference to the updating the old pension-management pol- icy and the new “comprehensive long-term pension funding plan its “numerous proactive measures,” since then the County has made no volun- tary additional payments to reduce its unfunded pension liability. b. The Small Piggy Bank From time to time, County representatives talk about the trust (known as a 115 Trust, the formal title being California Employers' Pension Prefunding Trust) the County has established, obliquely suggesting that it has some significant ef- fect on the problem, though never discussing what that effect might be. The County mentioned that in its responses to the 2018 report and the 2024 report. The County’s responses never state how much is in the trust, how it uses the trust funds, or how much it contributes to the trust annually. On December 31, 2025, the trust balance was $4,129,940, less than one- quarter of a single year’s required amortization payment. The trust provides sup- plemental funding in case CalPERS’s amortization assessment for a particular year is unusually large. In the words of one witness, Nevada County’s trust “smooths out” variations in the annual amortization requirement. It can have no appreciable effect on the total UPL. Recap In 2015, the County’s unfunded pension liability was $117,142,264. From 2015 through 2024, the County paid a total of $169,688,442 in pursuit of the CalPERS goal of bringing the pension to fully funded status. At the end of FY2024, the unfunded pension liability was $223,565,943. Since 2018, the County has been saying that everything is under control. The Grand Jury begs to differ and hard data of what has happened plus the clear rec- ord of County inactivity support the Jury’s concern. The County, as it has for the past decade, continues to rely on what it predicts will happen or what it says it will do. “Has” is a fact; “will” is an intention. The Board of Supervisors hired consultants in July, 2025, to assist in prepar- ing a plan. Perhaps they will help the Board of Supervisors take a realistic look at how the CalPERS amortization plan has worked for the County. The Board’s passivity in the face of dramatic increases in the County’s UPL is unacceptable. All it accomplishes is kicking the can down the road—postponing the ever-grow- ing problem. The County has been making required amortization payments timely. Using that approach, the UPL has increased by almost 91% from 2015 to 2024. It appears that the situation will get better only if the County begins to make regular, sizable additional voluntary payments. That may require reductions in the levels of some County services, reduced hiring, smaller (or no) salary in- creases for County employees, elimination of duplicative services, or additional annual taxes on County residents so that the County can fulfill its legal obligation to former and future former employees who count on their pensions being ready when they are.

R10

The County should develop a realistic plan that will fully amortize the UPL by 2037 and will maintain the pension plan fully funded.

R2

The County’s response to this report should include in detail the “numer- ous proactive measures” that its response to the 2018 Jury report said it had undertaken.

R10

The County should develop a realistic plan that will fully amortize the UPL by 2037 and will maintain the pension plan fully funded.

R3

The County’s response to this report should include in detail the amount of money those “numerous proactive measures” generated or saved.

R11

As part of that plan, the County should annually devote a substantial part of unexpended budgeted funds to reduce its unfunded liability debt.

R11

As part of that plan, the County should annually devote a substantial part of unexpended budgeted funds to reduce its unfunded liability debt.