Beyond bonded debt, the County carries three significant long-term liabilities — CalPERS pension UAL, retiree health (OPEB), and self-insurance — that together drive the operating cost trajectory the General Fund must absorb each year.
CalPERS Pension Unfunded Liabilities
The County provides defined benefit retirement benefits through the California Public Employees Retirement System (CALPERS) to all qualified employees through three separate retirement plans: Safety, Safety Sheriff, and Miscellaneous. CalPERS acts as a common investment and administrative agent for the County and it's other participating member agencies. Benefit provisions are established by State statute and by County contracts with employee bargaining groups.
The retirement plans cost is paid by employee contributions and County employer charges. The County's charges are determined by CalPERS actuarial valuations performed annually and comprise of two components: a normal cost and unfunded accrued liability (UAL). The normal cost is the total value of the retirement benefits for the upcoming year.
CalPERS amortizes the UAL created each year over different time periods depending on what created the particular UAL. A UAL can result from:
| Type of Change | CalPERS Category |
|---|
| Change in actuarial assumptions | Assumption Change |
| Change in benefits | Benefit Change |
| Investment return compared to required return | Investment Gain/Loss |
| Increases resulting from payroll changes (salaries or personnel) | Non-Investment Gain/Loss |
| Changes resulting from annual Entry Age Accrued Liability Calculation | Non-Investment Gain/Loss |
The UAL cost is substantially the repayment to CalPERS for when their investment experience is lower than the actuarial determined investment rate of return (the Discount Rate), such as the investment losses incurred during the Great Recession when the CalPERS entire pension system went from being overfunded at 101% at June 2007 to funded only at 61% by June 2009 (a system wide 39% unfunded liability). Another source for the UAL cost is when CalPERS periodically determines future costs may be higher than previously assumed (such as the 2021 study that increased life expectancy of members). The UAL is calculated annually by CalPERS, is treated as a new unique debt layer, and is ultimately the difference between the projected future pension costs and the current market value of assets held on behalf of the County.
County of Santa Cruz CalPERS UAL vs. CalPERS Investment Performance — 10-Year History
UAL increases when CalPERS actual return falls below the assumed Discount Rate. Bars show County UAL ($M); lines show return vs. discount rate (%).
Source: CalPERS Annual Valuation Reports for the County of Santa Cruz; CalPERS Facts at a Glance, FY 2024-25.
The table below summarizes the County's allocated share of UAL over the last ten years with the calculated interest rate paid to CalPERS as part of the UAL charge. The interest rate charged by CalPERS is the Discount Rate. The table also compares the CalPERS actual rate of return against the Discount Rate CalPERS actuaries assumed will be earned. In years when the actual investment rate is under the Discount Rate, a new UAL debt is added to the County.
| Fiscal Year |
County Pension UAL |
Amortization |
CalPERS Discount Rate |
CalPERS Actual Rate of Return |
Return Over / (Under) Discount Rate |
| 2013-14 | $311,176,257 | $23,338,219 | 7.50% | 18.40% | 10.90% |
| 2014-15 | $379,307,282 | $28,448,046 | 7.50% | 2.40% | (5.10%) |
| 2015-16 | $491,425,962 | $36,856,947 | 7.50% | 0.60% | (6.90%) |
| 2016-17 | $501,343,674 | $36,974,096 | 7.38% | 11.20% | 3.83% |
| 2017-18 | $575,329,076 | $41,711,358 | 7.25% | 8.60% | 1.35% |
| 2018-19 | $605,528,123 | $42,386,969 | 7.00% | 6.70% | (0.30%) |
| 2019-20 | $648,195,880 | $45,373,712 | 7.00% | 4.70% | (2.30%) |
| 2020-211 | $495,132,533 | $34,659,277 | 7.00% | 21.30% | 14.30% |
| 2021-22 | $614,348,582 | $41,775,704 | 6.80% | (6.10%) | (12.90%) |
| 2022-23 | $657,199,999 | $44,689,600 | 6.80% | 5.80% | (1.00%) |
| 2023-24 | $628,702,630 | Not available yet | 6.80% | 9.30% | 2.50% |
| 2024-25 | Not available yet | Not available yet | 6.80% | 11.60% | 4.80% |
Pension Cost Reduction Strategies
In 2012, the County reformed and lowered its pension benefits by establishing two tiers of benefits for employees in each of the employee plans (Miscellaneous, Safety and Safety Sheriff), based on date of hire ("Tier 1" and "Tier 2"). Benefits were reduced for Tier 2 employees in the Safety and Safety Sheriff's Plans hired on or after June 9, 2012. Benefits were reduced for employees in the Tier 2 Miscellaneous Plan hired on or after December 17, 2012.
Then, on September 12, 2012, the Governor signed into law the California Public Employees' Pension Reform Act of 2013 ("PEPRA"), which made changes to CalPERS Plans, most substantially affecting new employees hired on or after January 1, 2013 (the "Implementation Date"). For the County, this created another benefit tier (PEPRA Tier 3). Ultimately, the County's reforms and PEPRA will continue to reduce the County's long-term pension obligations and normal pension costs.
For non-safety CalPERS participants hired on or after the Implementation Date, PEPRA changed the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increased the eligibility requirement for the maximum age factor of 2.5% to age 67. PEPRA also: (i) requires all new participants enrolled in CalPERS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary to a maximum of 8% of salary, (ii) requires CalPERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date, and (iii) caps "pensionable compensation" for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for members not participating in social security, while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off.
The table below shows the County's normal pension cost as a percent of payroll for each retirement plan for the last six years and projected by CalPERS for the next four years. This illustrating that due to the cumulative effect of pension reforms, the County's normal pension costs are beginning their expected decreasing trend as the amount of members in the lower Tier 1-3 plans continues to increase.
Other Post Employment Benefits Liability
Employees of the County who retire through CalPERS, their spouse, and eligible dependents may receive health plan coverage through the Public Employees' Medical & Hospital Care Program Plan ("OPEB Plan"). The cost the OPEB Plan are determined through CalPERS' regulations and requirements and are substantially paid for by the retiree. The County provides a contribution based on longevity schedules with fixed dollar scaling that varies by bargaining unit as negotiated by each group or bargaining unit. For Fiscal Year 2022-23, the County contributed $7,872,181 to the OPEB Plan. The County pays 100% of its annual required contributions to the OPEB Plan. Accordingly, the OPEB Liability is a calculated, non-cash liability based on the future value of the County's contribution. Unlike with the CalPERS UAL, there are no required payments for this internal OPEB Liability.
| Fiscal Year |
OPEB Liability |
County OPEB Contribution |
| 2020-21 | $199,161,983 | $7,502,010 |
| 2021-22 | $198,067,559 | $7,798,262 |
| 2022-23 | $164,055,184 | $7,778,586 |
| 2023-24 | $154,745,887 | $7,872,181 |
| 2024-25 | $157,936,305 | $7,746,808 |
Obligations from Self-Insurance
County has chosen to establish self‐insurance internal service funds to accumulate assets for losses up to certain limits for all general liability, workers' compensation employer's liability, cyber liability, all property losses and other liabilities. The county mitigates and manages its self-insured risk by participating in a joint risk pool, Public Risk Innovation, Solutions, and Management (PRISM) and was a founding member in November 1979. Currently, 55 of the 58 counties are members of PRISM. The table below summarizes the actuarial determined future liabilities by program area at the end of the last ten fiscal years.
| Fiscal Year |
General Liability |
Workers' Compensation |
Dental, Medical, Unemployment |
Total Future Liabilities |
| 2022-23 | $22,201,000 | $34,927,000 | $519,829 | $57,647,829 |
| 2023-24 | $21,821,000 | $37,738,000 | $441,098 | $60,000,098 |
| 2024-25* | Not available yet | Not available yet | Not available yet | Not available yet |
* FY 2024-25 actuarial figures are not yet available. This table will be updated once new figures are available.