Two decades of ballooning debt for the San Diego County pension system is cooling, with the fund lopping off $462 million from its multibillion-dollar unfunded liability over the last year.
The strength of the stock market and the end of a 20-year amortization of past losses have helped put the San Diego County County Employees’ Retirement Association in a spot where it’s seeing strong returns and a boost in the financial assets it holds, according to the pension fund’s latest annual financial report.
In the last year, the fund posted an 11.2% investment return. Meanwhile, its debt fell from $5.1 billion to $4.6 billion, according to the report.
Tracy Sandoval, the CEO of SDCERA, called it a “pretty significant decrease.”
“We continue to grow the strength of the fund,” Sandoval said. “Overall, it was a very positive year from a valuation standpoint.”
Since the 1930s, the county has operated its own fund separate from statewide pension systems like the California Public Employees’ Retirement System or the California State Teachers’ Retirement System.
The fund serves 52,000 current and former county employees and their families, including 20,000 current employees, 23,000 retirees and 9,000 members with deferred benefits.
The county pension fund has long averted the kinds of controversy courted by that of the city, where mismanagement in the late 1990s and early 2000s earned the city the nickname “Enron by the Sea.”
But since the Great Recession, the county’s fund has seen its debt increase nearly tenfold.
The debt — formally called the unfunded actuarial accrued liability, or UAAL — stood at $485 million in 2008. In 2023, it peaked at $5.1 billion.
With the recent reduction in the fund’s debt, its unfunded liability now also amounts to a smaller share — 23% — of the fund’s total $19.7 billion in assets. Two years ago, the debt amounted to a third of the assets.
Sandoval said the debt does not pose any significant concerns for the future of the county pension system.
“We look to see that continued decline over time,” she said. “The risk from any year is obviously the performance of the markets and depending on what’s going on in the world — and I guess that would be my biggest concern, as is any other pension fund.”
An improving though historically high debt does pose challenges for the county, which has seen increasing budget gaps in recent years that could worsen.
When the pension system’s debt rises, the county has to shovel more taxpayer money into its annual contribution.
Those payments have created growing strain on county coffers. In 2020, the county’s contribution to the fund totaled $589 million. This year, it reached $918 million.
That most recent contribution caused so much strain to the county’s budget that it contributed to a $200 million deficit in the county’s cash flow earlier this year.
In June, county supervisors issued $200 million in bonds to patch the hole and prevent disruptions to its cash flow. Only Supervisor Jim Desmond voted against issuing the bonds.
Spending for the repayment of the bond accounted for $5.4 million in the county’s budget this year.