Nearly $618,000 in unfunded future pension obligations for former employees of the Tuolumne County Economic Development Authority will have to be addressed before the agency can be fully shut down.
The amount, referred to as an “unfunded liability,” was revealed in an audit of the TCEDA’s finances that was released Monday morning and presented to the agency’s governing board at a public meeting on Tuesday afternoon.
California law requires the county and City of Sonora to agree on how much each will pay to fund the obligations before the TCEDA can be dissolved, because it was formed as a joint powers authority through an agreement between both governments.
There are three former employees who worked for the TCEDA and are due to receive retirement benefits through the California Public Employees’ Retirement System, or CalPERS — former Chief Executive Officer Larry Cope and former administrative assistants Beth Hartline and Malorie Sperry.
The TCEDA participated in CalPERS, the largest public pension fund in the United States at $362 billion, by including its employees in the county’s contract with the system.
County Auditor-Controller Debi Bautista said that having an unfunded liability for retirement benefits through CalPERS is not uncommon for public agencies in the state, as “almost every single jurisdiction in the state of California that’s a PERS member has an unfunded liability.”
Bautista said the entire system has about 70 percent of what it would need to pay all future obligations, while Tuolumne County as a whole has about 68 percent funded. The county’s total unfunded liability for retirement benefits is about $104 million.
Higher salaries, employees retiring later in life, and living longer after retirement are among the factors Bautista cited that have contributed to the unfunded liabilities in jurisdictions across the state.
In 2012, state lawmakers passed the California Public Employees’ Pension Reform Act that required new employees in the system to pay for a larger share toward their retirement plans and reduced benefits as a way to rein in costs and pay down the liability.
The law also required any new joint powers authorities that were formed after it went into effect to have their own contract with CalPERS, but those that were formed before that — such as the TCEDA — were exempt
Bautista said numerous counties throughout the state included employees of a joint powers authority in their contracts with the system prior to the law.
David Goldemberg, of Sonora, asked how much of the nearly $618,000 was specifically for Cope’s future retirement benefits, but Bautista said it’s calculated as a whole pool as opposed to individuals.
Goldemberg remarked, and Bautista agreed, that the “lion’s share” of the amount will go to Cope because his salary was much higher than his two assistants. CalPERS benefits are based on a formula that involves an employee’s salary, retirement age, and how many years they worked.
Cope’s annual base salary at the end of his tenure in March was about $163,000, which is roughly four times greater than what his most recent assistant was earning before she quit in March of last year.
County Counsel Sarah Carrillo noted that Cope’s original contract when he was hired by the TCEDA board in 2009 stated that he would receive the same benefits as county employees in the management labor group at the time.
“Essentially that meant that he and the other staff members that were there would be placed into the county’s CalPERS contract and that is something that, to my understanding, both the city and county understood when they created the entity,” she said.
Carrillo stated in an email yesterday that she was not involved with the formation of the TCEDA at the time.
The board decided to delay formally accepting the audits until its next meeting on June 14 after several of the roughly 10 people who attended on Tuesday took issue with the timing of the release of the audits, including TCEDA board members Jim Garaventa and Matt Hawkins, both of whom are elected members of the Sonora City Council.
Hawkins said he couldn’t accept the reports until the public gets more time to review them in the best interest of transparency, something that drew applause from those in attendance.
“I don’t think it’s fair,” he said. “We’ve had the grand jury looking into everything, and I don’t necessarily think it’s transparent.”
A lack of transparency was one of the concerns cited by the Tuolumne County Civil Grand Jury in its report on the TCEDA that was released last June and led to the board ordering the audits, which cost about $41,000.
Hawkins and Garaventa both joined the board after the report was released in hopes of being able to help correct the issues.
Garaventa said he received the audits about 30 hours before the meeting, about the same time they were released to local media outlets, and the background information for the meeting less than 26 hours before it began.
“I’ve worked one shift and a good portion of another and slept,” he said. “I haven’t read the audits, and there is no way I’m going to accept something I have not read.”
County Supervisor Karl Rodefer, who serves on the TCEDA board, noted how there was nothing that could be changed about the audit reports even if they delayed the acceptance of them until June.
Bautista gave an overview about the findings from the audits, which she described as a unsurprising because they confirmed much of what had already been publicly reported by the grand jury.
The audit on the agency’s management practices stated that the TCEDA’s travel and business expense policy approved by the board originally in 2009 put the agency at risk for fraud and mismanagement, because it essentially allowed the CEO to overrule every limitation in it.
Bautista, who provided input on the policy when it was being created, said that she personally has learned from the experience with the TCEDA and previously believed it was OK for it to have separate policies from the county’s because they were separate legal entities.
“In hindsight, we should have still made sure that the board understood that the policies and procedures that were adopted way back when were basically not policies and procedures because the director can overrule anything,” she said. “And we will never, ever do that again.”
At the end of the meeting, Carrillo also updated the board on the progress of dissolving the TCEDA and provided a report that stated her office was notified last month when Cope left that he was overpaid by $4,381.26 due to a clerical error made by the Human Resources Department.
The report stated that an inadvertent mistake in the payroll system gave him a 3 percent salary increase last June as a cost-of-living adjustment for the current fiscal year, but his contract was amended in 2017 to exclude such pay increases.
Minutes from a TCEDA board meeting on March 10, 2017, stated that Cope told the board he didn't feel comfortable accepting the cost-of-living adjustments because his contract also included annual raises of 5 percent over the next three years.
According to Carrillo's report, the issue was considered fully resolved. He refunded the overpayment when her office contacted him about it.
Contact Alex MacLean at email@example.com or (209) 588-4530.