MOORLACH UPDATE — Posting/Fair/Pension Debate — August 10, 2010

Sometimes you wake up and find yourself in an article, even though you were not interviewed by the reporter.  Today there are three such articles and they provide an opportunity for me to make some suggestions.

The first article is from the OC Register.  It addresses two topics:  grand jury reports and staff salaries.

Maybe it’s just me, but I keep waiting for a Grand Jury report that really shakes things up.  A report where they find something egregious, everyone agrees with the findings, and major remedies are implemented.  I haven’t seen a report like that in I don’t know how long.  The 2009-2010 Grand Jury released a dozen reports.  Two of its reports provided recommendations for the Orange County Transportation Authority (OCTA).  Its directors summarily dismissed all of them in a unanimous vote at yesterday’s Board meeting.  The Board of Supervisors recently addressed two of its reports, voting to disagree with all of the findings in one report and agreeing with only one finding in the other report.  That knocks out a third of the Grand Jury’s reports.  I guess I’ll just have to keep waiting.  The Grand Jury is a critical component of county oversight.  Maybe my expectations are too high because our Performance Audit Department (PAD) has provided reports that really shake things up in the County.  The PAD is like the Grand Jury, but on steroids, and has issued reports that have really caused us to step back and make major modifications, like reorganizing our Planning Department and reevaluating our IT efforts.  I want to wish the 2010-2011 Grand Jury all the best during their July to June efforts on behalf of the taxpayers.

The title of the OC Register addresses the second topic, staff salaries.  Thanks to the city of Bell, posting salaries is now the exercise du jour.  The County of Orange has had its salaries listed by position with our budget data for as long as I can remember.  The only thing missing are the names of the employees.  What’s really missing are comparisons.  How does the OCTA compare, overall, to neighboring transit districts like San Diego, Santa Clara, or San Francisco?  If cities would provide a grid of their expenses by categories, don’t you think that these salaries would have jumped out much sooner?  And the League of Cities could have called up the city of Bell and asked them to explain themselves or modify.  We call such a grid a best management practice.  It’s an idea that the Orange County Local Agency Formation Agency (LAFCO) has been reviewing.  Someone should be providing a management tool to make sure municipalities are operating within the industry norms.  Some call it “crisis management.”  If you exceed the norms, analyze and modify.   More on this in a future Update.

The second article is from the Daily Pilot on the ongoing saga of the state’s effort to sell the OC Fairgrounds.  My recent Update on the topic (see MOORLACH UPDATE — OC Fair — July 18, 2010) was invoked.  Let me repeat what I’ve said too many times in too many different ways:  “Governor Schwarzenegger, tear down this land sale.”  The Governor’s Fair Board recently suggested paying an annual tribute to Sacramento that would generate an income stream for the Governor to hypothecate.  The Governor would get his funding and keep the land.  Arnold, take it!

The third and final article comes to us from PUBLICCEO.com.  It takes a blog posting from TheLiberalOC on the recent OC Weekly article (see MOORLACH UPDATE — OC Weekly — August 6, 2010).  I enjoy a good debate and this commentary provides for one.

Allow me to make something very clear:  I am an accountant and I am dealing with public employee pension issues that are impacting the fiscal viability of municipalities around this state and nation – I am not demonizing people, I’m just pointing out public sector compensation arrangements that are out of balance and do not “compare” with private sector norms. 

The Orange County Employees Retirement System has been around for more than sixty years.  The recent pension enhancements occurred in 2002 and 2004.  Consequently, we only have the last five to seven years of history to refer to.  However, merging this data with some fifty years of prior data to come up with averages is ludicrous; it’s false data for a thin argument that average retirement benefits are relatively low. 

I get the fact that management employees are receiving higher benefits, that is only logical.  Besides, the union representatives convinced this employee sector to support the pension enhancements.  (And I’m sure that the writer cannot now “demonize” management.)  But, it begs the question:  who is distorting the facts? 

The piece also uses a distractive argument.  The author receives sick leave and vacation pay that he can cash out – electeds do not.  Consequently, this inequity was corrected many years ago with 401(k), which is a common strategy also used by neighboring counties. 

Another small detail is not mentioned in the argument about recovering from previous unfunded actuarially accrued liabilities:  the formulas were not increased by 50 percent in the period from 1970 to 2000, like they were in 2002 and 2004.  Nice history lesson, wrong conclusion. 

With all that said, at the conclusion we agree on two matters.  The first is that the pension debt is akin to a mortgage.  Agreed.  That’s the argument we are making in our efforts to rescind retroactive benefits.  The second is that our public employee unions have made concessions and have displayed leadership that provides a model for the rest of the state.  As we continue down this collaborative road, let’s hope that we can continue making the necessary adjustments to protect the fiscal well being of the County of Orange and its pension system.

Since the OC Weekly was invoked, the Five-Year Look Back provides one of their tongue-in-cheek articles (being very prescient) on the very topic of public employee pensions.

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OCTA to post employee pay, benefits

By ALEJANDRA MOLINA

Orange County Transportation Authority officials discussed the grand jury’s criticism on transportation projects at Monday’s board meeting and announced that OCTA salaries will be posted online.

Toward the end of the meeting, OCTA’s CEO Will Kempton announced that OCTA employee salaries and benefit information will be posted on their website this week.

Board member Curt Pringle suggested that board member stipends also be included.

"I know how little we get but I think it’s part of the whole public scrutiny issue," Pringle said.

More than a dozen Orange County cities have posted salary information on their websites after revelations that the city manager of Bell in Los Angeles County was making nearly $800,000 a year plus other benefits.

Monday, Kempton also provided responses to two grand jury reports – one regarding the agency’s bus system and another that suggested Santa Ana officials used a "compromised" process in a streetcar project’s design and planning.

The board approved Kempton’s report in a unanimous vote early during the meeting but discussed the issue later when board member John Moorlach asked board member Miguel Pulido – who arrived approximately 30 minutes late – if he had any comments on the matter.

"I am stepping into dangerous territory," Pulido said, adding that his staff will release its take on the report soon. "We strongly disagree with their findings as well as their methodology."

Pulido also said the grand jury may have been "tainted."

Regarding the streetcar project, the grand jury suggested OCTA exercise stronger oversight on city procurements involving Measure M funds.

In response, Kempton said OCTA approved an agreement with Santa Ana that would ensure Measure M funds were used appropriately.

The other report, titled, "A Short Ride on The Bus: OCTA’s Mission Imperiled," criticized the OCTA for allowing the bus system to worsen and that recommended the agency re-examine its Measure M spending decisions.

In his report, Kempton said: "It would be illegal to alter the (Measure M) allocation formula without a vote of the people."

The Transit Advocates of Orange County, an all-volunteer group that works to improve bus, rail, biking and walking in the county, agreed with the grand jury in that OCTA should re-examine its spending decisions.

"A 30-percent reduction in ARTIC amenities would greatly assist in restoring bus service that has been severely cut," the Transit Advocates said in a statement.

Contact the writer: amolina@ocregister.com or 714-704-3795

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Group protesting city’s fairgrounds partnership

Original group that was negotiating with Costa Mesa to buy 150-acre property says council played favorites.

By Mona Shadia, mona.shadia@latimes.com

COSTA MESA — American Fairs and Festivals, the group that Costa Mesa once negotiated with to finance the purchase of the Orange County Fairgrounds, is protesting the city agreement granted to the winning company, Facilities Management West, calling the deal unfavorable and biased.

In a letter to Costa Mesa City Manager Allan Roeder, American Fairs argues that Facilities Management, the Newport Beach-based real estate company that would finance and operate the fairgrounds for the city, was given preference and an unfair advantage over any other interested financier or operator.

"If our client would have been aware that certain objectives set out by the council would be ignored, while others were placed on a pedestal, we would have had an opportunity to submit a more favorable proposal," the letter stated. "In effect, the deviation of the council’s objectives for the other party gave them an advantage that our client did not have. As such, we are left with no other recourse but to appeal the council’s decision."

In its deal with Facilities Management, Costa Mesa, which is working on buying the fairgrounds from the state for $96 million, ignored many of the eight objectives it established in its search for a fit operator and financier of the fairgrounds, including a governance process where the operation would be under community oversight, the letter states.

American Fairs, the group made up of the stakeholders and the vendors already operating at the fairgrounds — including Tel Phil Enterprises Inc., the company that runs the weekly O.C. Market Place swap meet — contends that the deal between the city and Facilities Management satisfies only one objective: "The potential for economic benefit to the city."

But even that objective is not sound for the city because unless major changes are implemented, the fairgrounds cannot generate enough revenue to fulfill its debt, and hence the transaction could later put Costa Mesa in a financial predicament. The letter cites Orange County Supervisor John Moorlach and the city’s financial advisers’ analysis to back up American Fairs’ argument, saying its numbers and the city advisers’ numbers mirror one another.

Roeder would not comment on the numbers that were shared with American Fairs, saying they were discussed during negotiations and he has not agreed to make them public. But he said it’s a matter of how the numbers are interpreted.

"We have a very different understanding of the numbers and their characterization than American Fairs," Roeder said. "We simply disagree on that point."

The city also disagreed with American Fairs’ findings.

Costa Mesa City Atty. Kimberly Hall Barlow on Monday responded to Adorno Yoss Alvarado & Smith, the firm representing American Fairs, saying the City Council and the Orange County Fairgrounds Authority disagree with its findings.

"There is no administrative appeal process currently available to your client with respect to the council’s decision," Barlow’s letter stated. "The MOU [memorandum of understanding] was entered into on June 18th.

"Any request for rehearing or reconsideration would have been required to be filed within seven days of the date the MOU was approved … thus, even if there was a basis for your client’s ‘appeal’ of the decision, your request was not timely. Thus, no rehearing request will be agendized for discussion."

PUBLICCEO.com

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Time To Stop Demonizing Public Employees, Their Pay And Pensions

Written by  Chris Prevatt   

Last week, the OC Weekly’s R. Scott Moxley wrote about the roaring debate over public employee pensions in "Death and Taxes."

While I appreciate his highlighting the contributions of Dan Chmielewski and myself to the debate with Steven Greenhut and Supervisor John Moorlach, I do have to take issue with the way he presented some of my comments, including the attribution of some statements out of context.

In his commentary Moxley writes:

"The battle is sure to remain intense because the LiberalOC blog’s Chris Prevatt (who is also a county union official) isn’t willing to concede that government pensions is a topic for public debate. He even says that specific retiree benefits-like the ones causing so much outrage-should be secret, and he has blasted inquisitive reporters."

First, to claim that I feel that government pensions are not a topic for public debate is not accurate. I believe that the public does have a role in participating in debate over public employee pensions. That is accomplished through the election of officials to manage our government. The public is entitled to know what benefits have been negotiated, and in Orange County the voters even approved a county ballot initiative that requires a vote of the public to increases public employee pension benefits. In fact, the Orange County Employee’s Association (OCEA) spent no time or effort opposing that initiative. In a July 14th OC Register Guest Commentary OCEA General Manager Nick Berardino pointed out that OCEA has saved the taxpayers millions:

"This past year OCEA and the county negotiated a truly innovative option that provides employees the ability to select (and pay more for) a straight defined-benefit plan or, in the alternative, select a lesser defined-benefit plan combined with a defined-contribution plan. In both cases, OCEA-represented employees will continue to pay their entire employee contribution and a portion of the employer contribution."

Moxley went on to attribute the following quote from me incorrectly as though it was a justification for not revealing actual pension payouts.

"It is not the job of individual taxpayers to evaluate the performance of public employees."

Moxley’s misapplication of my comment resulted in the following from Greenhut:

"How arrogant to want to further shut down public records," responds Greenhut, who can’t hide his contempt that union leaders want "a shield from accountability."

From his view, "Taxpayers have every right and duty to be concerned. Actually, Prevatt’s ‘It’s none of your business; we know best’ attitude epitomizes the core thesis of my book. The public servants have become the public’s masters. It’s time for the public to remind the government-employee class that it is supposed to work for us."

My objection was over where the line between the public right to know crosses over the right to some level of privacy. Pensions are not as claimed in the OC Register investigation I was commenting on, "paid by the taxpayer." Pensions are paid by the employer, in this case public agencies, and the employees. Even if the employer picks up 100% of the employee share of retirement contributions, it is the employee’s contribution and was negotiated by those employees as part of their regular compensation when they were employees. The only interest the public has is in what compensation, including benefits, an active employee is being paid. Unfortunately, the state courts have ruled differently, so that "point" is moot.

The resulting revelation of pension benefits for County retirees has proven what I and union officials have been saying all along. The rank and file employees do not receive excessive or bloated pension benefits. In fact, senior executives are the people getting bloated pension payouts. These managers contribute nothing to the employee share of their pension benefits, and they get the highest payouts. And even with the excessive retirement payouts for managers factored in, the average annual payout for General Members in the entire OCERS system was $30,108 in 2009 (Fig. 1).

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Figure 1

My comment, taken in context, was related to the overall debate about how much of a role the general public has in the details of in the administration of government functions. My point was simply that a municipality cannot be effectively or efficiently managed directly by each resident individually. In the case of the County of Orange, we elect a Board of Supervisors and task them with the responsibility to hire and supervise managers to run the nuts and bolts of county government functions. That is what I meant when I wrote "It is not the job of individual taxpayers to evaluate the performance of public employees."

Far from objecting to accountability, union leaders have been on the forefront of calling for management accountability. What union officials and I object to is the abuse of public information requests for the purpose of distorting the image of public employees. Given the way Greenhut and Moorlach have distorted facts, I think there is a valid cause for concern.

Moxley also quotes Greenhut saying:

"The public increasingly understands the level of plundering that has gone on, as public employees have used their union power to gain an unsustainable level of pay and especially benefits," he says. "People are starting to understand that this is an issue of fairness. It’s not fair to create a society in which those who are supposed to serve the public get to live much better than the rest of us."

Greenhut here is using the excessive salaries of government executive managers to portray ALL public employees as being overpaid and living better than the "rest of us." I am not sure when Steven Greenhut became a member of the down-trodden working class, but I am pretty sure he "earns" significantly more than the average county worker while sitting on his tail pontificating about public employees living high on the hog. I am having a difficult time figuring out who he is referring to when he uses the phrase "rest of us." County workers do earn more than the average salaries of the general population. But when those salaries are compared to salaries of similar private sector professions, public employees – for the most part – earn less than their private sector counterparts.

As far as public employees getting better pension benefits compared to people retiring on Social Security alone; yes they get more. Public employees contribute about double the amount to their pension plans than private sector workers pay into Social Security and draw about double the benefit of those receiving Social Security. It is disingenuous to characterize all public employee pensions as excessive. It simply isn’t the case.

Moxley quotes Orange County 2nd District Supervisor John Moorlach from his July 28th guest editorial in the Orange County Register.

"The voters have seen public sector greed (thank you, city of Bell), and they have had enough," wrote Moorlach, who says it’s time for a voter referendum against "Rolls-Royce" public pension plans.

Again, we have another example of how hypocrites like Moorlach – who will benefit from the same county pension plan I will while also taking home an additional 8% of his salary in a 401(k) style defined contribution plan – tailor their rhetoric to raise public ire against public employees. He, like all county executives and managers, doesn’t pay any of the employee normal costs towards his pension benefits, and doesn’t pay for the 401(k) style pension program (Managers and elected officials do contribute a small percentage to cover the pension enhancements of 2005).

Unfunded Pension Liabilities Do Not Mean Insolvency

Moorlach and Greenhut incorrectly portray "unfunded pension liabilities" as some looming catastrophe hanging over our heads ready to crush our government services into oblivion as well as taxpayers into financial ruin. That is simply not the case.

  • FACT: In the 1950s through 1970s, pension funding levels were the same or lower than today’s levels, without rampant municipal bond defaults or bankruptcies;
  • FACT: The Pew Center on States, authors of a definitive study on pension funding and a major critic of unfunded liabilities, points out that average state pension funding was at 84% in 2008, higher than the average in the 1970s, and a "relatively positive outcome, because most experts advise at least an 80 percent funding level";
  • FACT: Even states with some of the weakest pension funding rates, like New Jersey, had enough assets at the end of 2009 to cover their pension costs by 10 times or more.

Unfunded pension liabilities have existed before (Fig. 2), and they will exist in the future. In a cyclical manner, unfunded pension liabilities will rise and fall with economic conditions. Greenhut and Moorlach would have us believe that a fully funded pension plan is required for fiscal solvency and financial stability. This is not the case as public employee pension funding ratios have grown and declined over time. Funding levels were as low as 50% in the 1970s, 80% in the 1980s, and only reached 100% in the mid- 1990s after stock market returns averaged 28% per year.

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Figure 2

Unfunded liabilities are not, as Steven Greenhut would have us believe, like credit card debt. Credit Card debt is based upon unsecured debt; public employee pensions are not. Pension debt is more akin to a home mortgage. You have a liability secured by some cash and a projected market value of an asset if sold. You do not have a responsibility to pay that debt in full unless you sell the home (cash out).

While lower than average pension funding levels are not equivalent to insolvency, they are certainly important and should be addressed to prevent further erosion of pension reserves. Full funding is an ideal goal, but not required to maintain stable pension reserves. OCERS’ independent actuary, Segal, Inc. performed an actuarial valuation as of December 31, 2009 and determined that OCERS’ funding ratio of actuarial assets to the actuarial accrued liability is 68.77%, which decreased from the prior year’s funded status of 71.34%. (See Letter of Transmittal, page 3 of CAFR).

Public employees are not opposed to responsible pension reform. Public employees and their union leaders in Orange County have worked with the County to, create options including hybrid pension plans, increase the retirement eligibility age for new employees, and require pension contributions from employees who previously paid nothing towards the employee portion of their pension contributions.

The Orange County Employee’s Association, representing the vast majority of employees in the County retirement system, has taken the lead in offering innovative solutions that help relieve future county costs while protecting existing benefits. Government workers are willing to be part of the solution, but they are not the only participants in this process. Management needs to step up to the plate and start paying a portion of their pension costs. If management and public safety employees paid their full share of the employee share of their pension contribution, or even a portion of it, we would be on the path to full funding of our pension liabilities. From my perspective, that of a county worker, everyone needs to pay their share of the costs.

FIVE-YEAR LOOK BACKS

2005

August 12

The OC Weekly had a classic piece that summarizes the life I enjoyed before the pension crisis arrived.  With the hindsight of only five years the article, The First Annual OC Weekly Pension-Crisis Essay Contest!,” is on point.  Sadly, I do not recall any essays being printed and there have not been any further “annual” contests.

Heard about the Orange County pension crisis? The one that County Treasurer John Moorlach says could make the 1994 bankruptcy seem like a penny lost in the couch? The one that the grand jury found in June has fund liabilities $1 billion higher than expected, and that pensioners get to cash in retroactively . . . yawn.

See, that’s the problem. Citizens should care about this issue—taxpayers will have to pony up about $114 million extra a year just to make up for the pension shortfall or face massive cuts in services. But no one is paying attention outside of The Orange County Register editorial board and the wonks at OC Blog.

Sad reality: the Orange County pension-problem story is boring. There’s nothing that sexes up the plot—no strippers, kickbacks and resignations like what’s going on in San Diego; no conflicts of interest or document forging à la the case against former Huntington Beach Mayor Pam Houchen; no sexy cameo by the Haidls or Jaramillos of the world that could make an otherwise boring financial scandal gripping. Instead, our protagonists are the Orange County Board of Supervisors, who increased the pensions of county workers last year despite warnings by Moorlach. . . yawn.

So here’s the deal: if you can craft an OC pension-crisis piece in 500 words or less that is not only informative but can also entertain Weekly music editor Chris Ziegler (who, when approached, predicted nothing could possibly make him care about pensions that aren’t his), we’ll publish your piece and give you $75. Entries must be submitted via e-mail to garellano@ocweekly.com by Aug. 18, must include a daytime phone number and can be written in any format. Just remember: make people give a damn about a looming debacle that increases pensions by 62 percent and will allow county workers to retire at age 55, with 81 percent of their final pay after 30 years . . . yawn.

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