Riverside County Supervisors Talk Budget, Pension Costs

Riverside County is on solid footing in regards to its budget and pension obligation, according to the county’s chief executive and financial officers.

“The good news in this report is that from the time that we adopted the budget to the mid-year, that ended at the end of the calendar year, our reserves are up,” Jeff Van Wagenen, Riverside County CEO, said. “Our discretionary revenue is up, our net county cost is relatively consistent. We did have the $16 million that we increased the net county cost related to some capital improvement projects. 

“The net savings from the adopted budget — which as this board will recall, we adopted the budget balanced for the first time in recent memory — we’re now showing a net savings of $73 million,” he continued. “Our ending reserves that were originally at the time of the budget, and we were pretty excited at that point that reserves were [$368 million], we are now projecting our reserves at the year end of this current fiscal year to be $537 million.”

Van Wagenen said the additional revenue was due in part to increased property taxes, interest earnings and Prop 172 sales tax revenue (which can only be used for public safety activities), but cautioned that the county should be prepared for a flattening of revenues in the future.

“What that means is that, at least for now, we are not projecting our revenue to decrease, but we are seeing it flatten, and certainly not grow to the extent that we saw over the last couple of years,” he said. “At the same time that we’re seeing revenues flatten, we know that there are increased pressures on all of our departments for costs.”

Some of those financial pressures include inflation, cost escalation and increased labor costs — which includes salaries, benefits and pension costs.

“And again, that is just knowing what the pressures are in our departments to stay flat, not add any additional programs or services, but we know that we do need to add, we know that we have strategic priorities that departments want to initiate,” Van Wagenen said. “We also know that there are a number of capital projects that we must undertake either new facilities, or replacement of our existing and aging facilities.”

Throughout the county’s strategic financial planning process, Van Wagenen said there were more than 150 strategic initiatives and more than 90 capital improvement projects identified by departments. The cost of those requests, he said, came in at more than $350 million in new funding.

“We know that we cannot afford all of those things, we know that there are going to be tough choices that we have to make moving forward,” Van Wagenen said. “The process that we’re engaging in with departments will allow the executive office to bring to the board of supervisors better recommendations on how we do spend those limited dollars.”

He also said the county was looking at other funding sources for some of the initiatives and improvements such as grants, additional funding from the state or federal government, the Unincorporated Communities Initiative or financing.

Van Wagenen also said his office was “stress testing” the county’s budget plans to see what the impact would be to the county if certain revenue streams were to decrease in the coming years. He also recommended that the supervisors consider increasing the amount of money the county must have in its unassigned fund balance.

Currently, the county’s policy is to have 25% of the annual estimated discretionary revenue in the unassigned fund balance (general fund reserves).

“We put that floor in place 10 years ago or so when we were really spending at the depths of the recession and coming out of the recession,” Van Wagenen said. “And it made sense to set a floor so that we didn’t go below it, but we also recognize that 25% of discretionary revenue is not really a best practice.”

According to the Government Finance Officers Association, the best practice is to have two months of general fund operating expenditures in reserves, which Van Wagenen said should be the county’s goal — an increase from $276 million to $611 million.

“What we want to do is start having us think about increasing the policy,” he said.

Along with the mid-year budget report, the supervisors also received an annual report from the Pension Advisory Review Committee which showed the county’s CalPERS pension funded status increased from 76.4% to 86.6% for the reporting period ended June 30, 2021 compared to the prior year.

“[D]espite the past year’s financial market reversals experienced by most long-term investors, the county’s retirement plans are projected to remain on a solid footing as measured by funding status, and the long-term trends to remain intact for that key indicator of pension plan health,” the report states. “In addition, even in the face of annual cost increases, prior pension reform measures of the past decade are expected to keep those costs under control and bend the cost curve downward in the coming years.”

And while Don Kent, Riverside County CFO, said pension costs would continue to increase, the supervisors’ decision to issue a Pension Obligation Bond to pay down the CalPERS unfunded liability was continuing to pay off for the county in the form of savings that are put into a trust for the pension fund.

“We made some good decisions on our money, especially the Pension Obligation Bonds of 2020 that are continuing to save us money and build up our trust fund balance,” Supervisor Chuck Washington said.

Though the county’s funded status is expected to drop to 77% for the year ended June 30, 2022, it is expected to be above 80% by June 30, 2032 and hit 100% funded by June 30, 2042.

“To be fully funded at 100% would be a nice thing,” Kent said. “To be fully funded at 80% would be very nice as well, but that 100% funded status does not guarantee that you will never have an unfunded liability, because the very next year, if the markets were [down] and the performance were lesser than the assumed rate of return of 6.8% beginning in July, then you would have a new unfunded liability that needs to be paid down, so I also wanted to make sure that that’s understood as well.”

In other board news: The Feb. 28 meeting was adjourned in memory of Norco City Councilmember Ted Hoffman, Alameda County Supervisor Richard Valle, educator Nicholas F. Ramos, photographer Johnny Rios Gonzalez and Victor Manuel Maldonado, a close personal friend of Supervisor V. Manuel Perez.

A full recording of the Feb. 28 meeting can be found here.