Riverside County Plans to Cut Pension Deficit

The Riverside County Board of Supervisors voted Tuesday to issue $400 million in bonds to help fill a gaping shortfall in the county’s pension fund, a strategy that finance officials hope will save the county $150 million over 30 years.

“This is the best way to go,” Supervisor John F. Tavaglione said. “We’ve taken proactive, positive steps to cure a problem that could have ultimately been very serious.”

The $470-million deficit was created by practices in the late 1990s and early 2000s when a strong stock market increased the value of the county pension fund. During such flush times, counties can postpone paying their annual contributions, and Riverside County did this for two to three years, while it also increased pension benefits.

When the stock market declined sharply, so did the pension fund, creating the shortfall.

Tuesday’s move, which was approved on a 5-0 vote, essentially allows the county to repay the deficit at a lower interest rate. If the investments in the county’s pension fund were to flourish, the county would be able to retire the bond debt early, Treasurer-Tax Collector Paul McDonnell said.

McDonnell said the only risk to the county’s economic health would be if the stock market performed poorly for the next three decades, something viewed as extremely unlikely. But he conceded that if the market fell over the long term, “we are in a world of hurt.”

Supervisor Jeff Stone said the county needed to prepare for future market downturns by building its financial reserves. “We need to be more aggressive in putting money away for a rainy day,” he said.

The board also wants to consider ways of reducing pensions costs, possibly by creating a system in which new hires get lesser benefits than current employees.