The Business Recorder posted today that Moody’s Investors Service downgraded its rating on $359 million of Contra Costa County, California 2001 and 2003 pension obligation bonds to A1 from Aa3, noting concerns about the county’s inability to raise taxes for debt service.
“The downgrade to the pension obligation bonds reflects the nature of this type of debt which is unsecured and paid from any of the county’s funds, pressured by factors which affect financial performance such as steeply rising service costs,” Moody’s said in a statement.
“The pension obligation bonds are an unconditional county obligation payable from any legally available funds,” Moody’s added. “However, the county does not have the ability or authority to raise taxes to meet debt service.”
Two things… OK, three. 1. Downgrades mean higher interest rates to service the debt; more money the County don’t got. 2. Please understand, this is just one example of how public pension debt will take us all down the path to bankruptcy (preferred) or receivership run from Sacramento (which won’t fix anything). 3. Since the County already has a captive co-signor (taxpayers), don’t be surprised when the County Supervisors start scrounging for new taxes (sales, user fees, etc) to get around that “(In)ability or authority to raise taxes to meet debt service.”
Bill Gram-Reefer is Editor & Publisher of Halfway To Concord, founded in 2004. Halfway To Concord is the leading online source for community-driven political news, events, and opinion for Contra Costa County and the San Francisco East Bay.
{ 7 comments… read them below or add one }
This County overbudgets, and underspends. $14 million surplus FY 11/12. Though the County will only admit to $7 million. Does anyone know what the “teeter” fund is? Contra Costa is the original teeter county. Ask what the balance of that fund is.
Start putting your target on the people who have really caused this financial conumdrum in Contra Costa County, which is your elected officials on the Board of Supervisors.
The public employees and Unions only did what anyone would do. They asked, and the electeds caved and gave. The BOS has historically been very shortsighted.
Can the County finances be salvaged? Yes, but only if the people at the top start listening to the people who do the work, because we are the people who know where the money is and how it is being spent. The BOS and the CAO are fed bull from the departments.
The pension debt is what it is because you the public elected those who sit on the Board of Supervisors. This debt will continue because the BOS gives department heads, CAO, and upanagement lucrative raises of up to $30,000 more per year.
Example CAO. Example new EHSD Dept Head. Example 4 assistant sheriffs. Example Public Works director.
All the while the lowest paid public employees now qualify for public assistance.
It is a sad situation. The public will suffer while the dept heads and CAO will walk away with Contra Costa gold, the new California gold.
I agree on most points but disagree a bit with your conclusion about who elects these incompetent leaders as employee unions and their allies in bug labor, the democratic party, public safety, education, and the social service industrial complex, not to mention the usual stable of interests willing to pay to play, far outweigh the public interest when it comes to influencing outcomes of county district elections.
If the county’s pension plan investment earnings assumptions were capped at 6.25%, as the writer of this article suggests (http://bit.ly/ZmspPa), how would the scenario play out?
First there would be severe budget cuts/service reductions.
Then, after the initial shock, perhaps the county would become more discerning about what services it provides and, more importantly, it would find cheaper ways to deliver services (e.g., contract out to cheaper private sector provider).
Eventually the county may declare bankruptcy, which would offer an opportunity to restructure debt and pare back unaffordable pension benefits by challenging the “California Rule.”
Is this potential scenario better or worse than continuing the status quo . . . which is leading to bankruptcy, anyway, but in a manner that is messier and more costly?
Total overhaul of the Board of Supervisors of Contra Costa County is needed. The ideal arrangement would be to have an elected county executive who, like a governor, could veto measures, especially spending measures, passed by the board of supervisors. A county executive’s veto of a bill could only be overridden by a vote of 3 or 4 supervisors.
Richard Colman
Orinda, CA
We ain’t seen nothin’ yet. After the new pension reporting standards are in place in 2015, more accurate and complete reporting of public pension debt will be available. The more complete picture is bleak, indeed.
Pension analyst John Dickerson of YourPublicMoney.com made a brief presentation today on the new standards before the Contra Costa Taxpayers Association. Here’s a brief write-up and some film clips from the presentation prepared by Contra Costa Times columnist/reporter Lisa Vorderbrueggen: http://bit.ly/VBJt41
Read it and weep.
The Governing Magazine article at the link below contains a notable quote:
“Filing for bankruptcy is a legal event, with a public declaration occurring on a precise date. Insolvency, however, is a financial condition that creeps in unannounced. Cities like Stockton and Central Falls were insolvent long before they declared bankruptcy….Once a city is in deep trouble, the only way citizens are going to be protected long-term is through bankruptcy. When a city declares bankruptcy, citizens can begin to get their services back. In bankruptcy, the city can determine the “net present value” of a reasonable stream of taxes and fees and then spread the pain among bondholders, employees and citizens to bring expenditures in line with that value.”
Read it all here: http://bit.ly/YK5xXP
See the original Moody’s report on the down grade of the pension bonds. Look at items 2 & 3 under CHALLENGES. It says it all.
- Notable but manageable social service burden
- Combined lease and pension obligation requirements which are the among the highest relative to similarly rated credits
- Weak fiscal position relative to similarly rated credits