Budget manager Pat Cochran had some good news and some bad news for the Benton County Board of Commissioners last week.
The good news: Six months into the county's 2017-19 budget cycle, revenues are stronger than anticipated. The bad news: The outlook for the county's employee retirement obligations is worse than anyone expected.
Cochran gave the commissioners the good news first.
"We're in a pretty good position," he told the board during a work session. "Revenues are coming in as expected, and there really are no problems at this point."
Six months into the county's 2017-19 budget, Cochran said, things are going better than planned.
One of the biggest bright spots is the county's system of federally qualified health centers. With the passage of Measure 101 at the state level and the renewal of the Children's Health Insurance Program by Congress, the revenue picture is much stronger than the budget anticipated.
"We had assumed there were going to be issues with Medicaid going forward, and so our budget estimates were very conservative for the health centers," Cochran said.
"But that is not happening ... so we're in good shape there."
A strong housing market ensured the county received the full 3 percent increase in assessed value allowed under state law and, with new construction factored in, property tax revenues are up roughly 4 percent over the prior year.
Construction activity also is fueling additional building permit revenue for the county.
Landfill revenues are up as well, thanks to a combination of increased volume and extra revenue from a contract to take some of the Portland area's refuse that runs through the end of this year.
"Right now we're in good condition," Cochran summarized. "I don't see any flags out there right now that would cause any concern."
Then came the bad news.
In 2002 and 2004, the county sold pension obligation bonds and put the money in a side account with the Public Employees Retirement System. In exchange for that investment, PERS gave the county a lower employer rate, which helped keep the county’s pension contributions down.
Those bonds will be paid off in 2029, and the expectation was that the county's overall retirement costs would go down at that point.
But two other factors will come into play at the same time: The county will lose marginal earnings from its side account, which is expected to close when the bond payments cease; and it also will lose the advantage of a surplus it enjoyed when it entered a PERS funding pool with other local jurisdictions some years back.
Now it appears the county's PERS payments will continue to increase through 2035.
"The bottom line is we're not going to get a lot of relief early," Cochran said.
"We're still going to have a tremendous cost burden out there."
Using a new estimating tool provided by the state just last month, Cochran produced a chart showing the county's expected PERS costs over the next 20 years.
Projections show major cost jumps in the next two biennia, from $14.6 million in the current budget cycle to $19.2 million in 2019-21 and $23.5 million in 2021-23. After that the rate of growth slows substantially, but the numbers continue to rise gradually to $29.7 million in 2033-35 before pension costs finally begin to fall in 2035-37.
The sobering assessment underscores the need for additional budget planning, Cochran said.
"The bottom line is we've got a lot of strategizing to think about," he warned the board. "We've got some huge costs coming up."