On October 15th MOFD presented to its Board of Directors the audited financials for the fiscal year ending June 30, 2014. This 90 page document has reams of numbers, pages of text, and even some pictures. But the one item missing was the answer to the big question: “is MOFD going bankrupt?” This is usually found in the balance sheet but this year’s balance sheet remains the same piece of fiction as it has been since the District went “under water” in 2008.
The District wants us to believe that their assets exceed their liabilities by $10 million. In reality, nothing could be further from the truth. While the District does have $10 million in capital assets, which it needs to provide us service, and $4 million in cash, its liabilities overwhelm these meager savings. (1) It has $17 million in unfunded retiree medical benefits. (2) It has $160 million in pension liabilities with only $120 million in pension assets as an offset. (3) It still owes $20 million on a bond it borrowed in 2005 when its pension was previously underwater. That is $67 million in net liabilities covered by $4 million in cash and it wants us to think it has net assets.
While the “official” balance sheet may follow GASB (Government Accounting Standards Board) guidelines, it does not tell the Board, none of whom are accountants, nor the public, what MOFD’s financial situation is. To do this they need an Executive Balance Sheet which really tells the story of where MOFD stands financially.
The Task Force has provided such a document. The major revisions to the balance sheet in the Audited Financials are:
This shows a true balance of a net liability of $64 million as opposed to the audited financial balance of a positive $10 million; a $74 million difference! With such a huge difference between what they are being shown and reality, no wonder our decission makers make bad decisions.
The revised balance sheet also compares this year’s values, both audited and “revised”, to those of the previous four years.
In addition, the revised balance sheet also shows the full value of the liabilities (not just the discounted present values) and the expected future value of the pension assets (including assumed earnings). The reason for this is that the discounted numbers assume a discount rate which is debatable. For the pension liabilities (and assets) it is currently 7.25% which is what CCCERA assumes its assets will earn over the long term. Many people, including professional fund managers, do not believe this return will be achieved or that the types of assets which would provide such a return create a risk that is not appropriate for a government pension fund. The total undiscounted liabilities, due over the next 50 years, could be as high as ¾ of a billion dollars.
The Task Force has reviewed the returns actually experienced by CCCERA over the past 11 years
In 2012 CCCERA reduced their assumed rate of return, and thus liability discount rate, by 0.50%, from 7.75% to 7.25%. This increased MOFD’s gross liability by 8%. If MOFD or CCCERA decided that it was more prudent to assume a 6% discount rate, it would increase the present value of MOFD’s liabilities, and thus its required assets, by 20%. That would be over $30 million.
This is information that the Board and the community should have. The fact that the MOFD annual financial statement does not include it is regrettable.