Many of the new financial reports are out for cities, counties and special districts in California and as expected they show a significant drop in the “net position” (aka “net value) of major California counties due to the inclusion of large unfunded pension liabilities.

Several years ago the Government Accounting Standards Board (GASB) discovered a loophole in the accounting standards that allowed public agencies to exclude unfunded pension and retiree health care liabilities off of their official accounting statements. 

Accounting expert and certified CPA Marcia L. Fritz has been involved in lobbying for the accounting changes before GASB when they were first considered back in 2005.  

Fritz agrees that the changes represent a significant accounting change and have served to mask a huge amount of pension and OPEB debt from public agency balance sheets.  

Fritz stated that the previous GASB rules “provided an environment for pension abuse in California” and have greatly contributed to the current crisis.  Fritz notes that if alternate rules were adopted earlier, the state’s pension crisis may have been prevented. 

Effective June 30, 2015, public agencies in California and across the nation were forced to bring their unfunded pension liabilities onto the books and include these large negative balances for purposes of calculating their “net position”—perhaps the best single indicator of a public agencies overall financial position. 

The net position for public agencies will take another large hit in 2017, when they are forced to bring liabilities related to retiree health care and “other post employment obligations” (OPEB) onto the books.

Net position is calculated by totaling the public agencies total assets (i.e. value of capital assets, reserves) and subtracting total liabilities to produce a “net position” figure.

Below is a quick roundup of the results for some of the major counties.  As a point of comparison, San Francisco reported a $6.6 billion positive net position on its 2015 statement, which is likely the largest positive net position in the state for a county, or among the largest.

But most urban counties are either insolvent, or headed that direction, as this quick round-up will illustrate.  It must be noted that there are 58 counties total, and many of the rural counties are expected to be in fair shape.

(Additional Notes:  This is just a quick sampling of some major urban counties and by no means comprehensive due to the amount of work involved.  Some of the statements are still not out yet, so estimates were produced from the 2014 statements.  Statements must be submitted by the end of February 2016, but 30-day extensions are granted and many counties are taking the maximum amount of time):

Counties “Officially Ruled” or Estimated to Be “Balance Sheet Insolvent”

 Los Angeles County:  Los Angeles County will not officially be “balance sheet insolvent” until 2017 when the OPEB liabilities come onto the books, but came close in 2015.  The 2015 statement shows that the counties total net position is $285.9 million, down from $9.7 billion in 2014.   The county’s outstanding OPEB liabilities total a whopping $27 billion, which will push the county far into the red in 2017.

Contra Costa County:  The 2015 financial statements show that Contra Costa County is officially “balance sheet insolvent.”  The county has a negative net value of $191.8 million, which is down from a positive net value of $852 million in 2014.  The county has another $794 million and growing in unfunded OPEB obligations that will come onto the books in 2017, further eroding the county’s financial position.

Mendocino County:  The draft 2015 audited financial statements show that Mendocino County is officially balance sheet insolvent.  In 2014, the county reported a positive net worth of $80 million, but now the county is negative $56 mil.—a reduction of $135 million due to unfunded pension obligations, according to information provided John G Dickerson (  The county solved its OPEB unfunded problem by eliminating retiree health coverage on December 31, 2013.

Kern County:  The 2015 statement is not yet out for Kern but the 2014 statement showed a net position of $1.9 billion but if the estimated $2.2 billion in unfunded pension liabilities and $132.5 million in OPEB obligations is brought onto the books—the county would be in the red to the tune of more than $300 million.

Borderline “Balance Sheet” Insolvent Counties

Sonoma County:  The 2015 statement is not yet out for Sonoma County, but the 2014 statements indicate that the county is rapidly approaching “balance sheet insolvency.”  The 2014 net position was stated as $1.5 billion.  But according to 2013 figures, the county has an unfunded pension liability of $449.4 million and an OPEB unfunded liability of another $331.7 million—which will cut the county’s net value by more than 50%.  The county has another $459 million in outstanding pension obligation bonds, which are registered as capital liabilities, but are really public employee compensation liabilities.

Sacramento County:  Sacramento County is approaching balance sheet insolvency but not quite there yet.  The county’s net position declined to $831 million in 2015, down from $2.73 billion in 2015.  The county has another $116 million OPEB obligation, and $1.1 billion in pension obligation bonds, which are included as a liability.

Other Counties Which Experienced Large Balance Sheet Declines in Net Value

Orange County:  Orange County recorded a $2 bil. net position in 2015, down from $5.45 billion in 2014.  The county has another $418 million in unfunded OPEB liabilities, which is only 27.1% funded.

San Diego County:  San Diego County recorded a 2015 net position of $2.6 billion, down from $4.6 billion in 2014.  The county had to bring a $2 billion unfunded pension liability onto the books.

San Bernardino County:  San Bernardino County recorded a 2015 net position of $1.5 billion down from $3.7 billion in 2014.