MOORLACH UPDATE — OC Register — August 15, 2010

Sunday’s OC Register had two interesting pension-related editorials.

The lead editorial, “Appeasement, not reform, on pensions,” cited Nicholas Bavaro, president of Bavaro Benefit Advisors in Modesto.  Mr. Bavaro understands pensions.  But, the OC Register and Mr. Bavaro do not understand negotiating union contracts for public employees in California.  Righteous indignation, combined with complete ignorance of the states codes and the current political climate, make for a sadly ignorant and inaccurate editorial.  

For a good editorial on defined benefit versus defined contribution pension plans, check out http://www.contracostatimes.com/daniel-borenstein/ci_15771072?nclick_check=1.  Mr. Daniel Borenstein is an editorial writer that really knows the topic.  Here’s one quote from his Sunday column in the Contra Costa Times:

Whitman would limit the majority of new employees to defined contribution plans. That would require the blessings of the state Legislature or the voters. While changes for future employees are needed, the savings won’t be fully realized for decades as new workers slowly replace existing ones.

Only changes for existing employees will generate meaningful immediate pension cost reductions. Toward that goal, Whitman proposes raising the retirement age for current employees, who are in defined benefit plans. She would increase the age at which general workers can leave and receive full pensions from 55 to 65. Put another way, workers would receive smaller pensions unless they worked longer.

This is what your Board of Supervisors has been doing.  And negotiating changes with existing employees is what I just stated in a recent guest editorial on their very editorial pages one recent Sunday (see MOORLACH UPDATE — Rollbacks — July 30, 2010).

On these points, the OC Register “doesn’t get it.”  Maybe they can hire Daniel Borenstein?

Speaking of an inaccurate editorial, Wayne Quint’s submission deserves a blow-by-blow clarification as well.  Today I’ll provide his piece twice, once with my comments and then without.

On Dec. 4, 2001, after extensive collective bargaining negotiations, the Orange County Board of Supervisors unanimously voted to increase the retirement formula for deputy sheriffs from "2 percent at 50" to "3 percent at 50" and to apply the increase to all years of service. 

Extensive bargaining is not what I would call a “reopener.”  Extensive bargaining would indicate that the County received something back of similar value, like the bargaining unit paying for the newly created unfunded actuarial accrued liability, an UAAL, (a la the Orange County Employees Association in 2004).  Regretfully, the vote was unanimous, with Supervisors Smith, Wilson, Silva, Coad, and Spitzer voting in the affirmative.

               

The improved formula was specifically authorized by state law, and the identical formula had already been adopted by the majority of other counties, cities, and other public sector entities throughout California. At the time, the county stated that it made the change to ensure that our fine county could recruit and retain the very best and brightest public-safety officers.

                One does not “recruit” by offering “retroactive” benefits.

Eventually, all 21 cities in Orange County that have individual police departments voted to approve the same formula – with retroactivity – with 103 of the 105 individual mayors and city council members in Orange County who voted on the issue, supporting it, including Chris Norby, then a Fullerton councilman.  

It reminds me of the parent tape, “If Johnny jumps off of the bridge, does that mean that you have to jump off the bridge?”  If what you are doing is unconstitutional (as we believe it is), it does not matter if you are in the majority.

 

In 2007, Supervisor John Moorlach and his then-chief of staff, Mario Mainero, devised a plan that they claimed would give the county a way to back out of its existing contractual agreement with the deputy sheriffs. The county would claim that it had acted unconstitutionally in adopting the new formula, and it therefore should be allowed to rescind its agreement. Even though three different law firms the county hired to advise them on the issue all told the Board of Supervisors that its legal theories lacked merit, the board still voted to proceed with Mr. Moorlach’s plan. They sued the Orange County Employees Retirement System and the Association of Orange County Deputy Sheriffs. 

The claim that three different law firms advised the County that this lawsuit lacked merit is false (when this case is over, I’ll disclose how false).  Mr. Quint’s repeating every time he gets the chance does not make it true.

AOCDS’ legal team extensively researched the county’s theories and explained to the supervisors in detail why their lawsuit would fail. And in 2009, Los Angeles Superior Court Judge Helen I. Bendix dismissed the county’s lawsuit. Judge Bendix confirmed what AOCDS has been saying all along – the county is "wrong on the facts, wrong on the law."

The county’s lawsuit, which has so far cost county taxpayers over $2.2 million, is now on appeal.

Recently, J. Edward Ketz, an accounting professor from Penn State University, wrote a column in the Register ["Pension appeal on solid ground," July 19] discussing a "friend of the court" brief that he and some fellow accountants filed in support of the county’s appeal. In a nutshell, Mr. Ketz claims the improved retirement formula violates the constitutional rule prohibiting the county from incurring a "liability" that exceeds the county’s annual income because (according to the county and Mr. Ketz) the total unamortized, estimated cost of the improved retirement formula over all years – present and future – was the equivalent of a fixed "liability" that exceeded the county’s income for the fiscal year in which the improved formula went into effect. 

The County of Orange has four “friend of the court” amicus briefs.  AOCDS only has one, written by an Attorney General who is running for Governor with the assistance of public employee union political contributions.

Appellate briefs AOCDS has filed with the court explain in detail why this argument is a failure. And, looking past his rhetoric, what does Mr. Ketz really say? That, under the Governmental Accounting Standards Board’s existing standards for pension accounting, the county is right, and AOCDS is wrong? How is this really relevant? 

Here is where we have our disagreement.  Judge Bendix did her best to get our lawsuit out of her Superior Court.  The state constitution does not allow an elected body to approve a debt that cannot be paid off in the year that it is created.  If the elected body wishes to encumber its agency, then it must get two-thirds voter approval for that debt.  The UAAL is that debt.  Judge Bendix said that it was not a debt, but a lease, and that the lease payments could be paid within the constitutional limits on an annual basis.  This is factually incorrect.  Claiming that the UAAL is not a debt is a big deal.  Even Chris Prevatt (see MOORLACH UPDATE — Posting/Fair/Pension Debate — August 10, 2010 and MOORLACH UPDATE — PUBLICCEO.com — August 11, 2010) opined recently that it was tantamount to a mortgage.  No rhetoric here.  If it were not a debt, does the County have the option to not pay it?  No.  That’s how “relevant” this point is.

Mr. Ketz and Mr. Moorlach do not like that law that has been in place for over 60 years, so they asking the courts to make new law. That’s not what courts are for, and they know it.  

This is not an effort to create new law.  It is an effort for the state to recognize a critical requirement about the acceptance of new debt that has been on the books since the 1800s.  Why?  Because cities and counties were adopting debts to build infrastructure, for railroads as an example, that did not come and left the community broke.  The constitution has this provision in place to save us from the very nonsense that we find ourselves in, a debt that is too large and pushing out the services that we are supposed to be performing.

It sure does generate a lot of political headlines and publicity for them, however. But at what cost to the taxpayer? 

Thank you for the publicity, Mr. Quint, but I didn’t do it for that.  I’ve had my share of publicity, thank you, with the OC bankruptcy sixteen years ago.  I pushed the filing of the lawsuit because it was the right thing to do.  I am supposed to uphold the constitution of the state of California.  And, I’m doing my best to prevent a potential second filing for Chapter 9 Bankruptcy protection by this County.  It begs the question, is spending $2.2 million a bad thing?  Or is encumbering the taxpayers of Orange County with billions of dollars in unfunded liabilities for paying someone twice for doing the job once a bad thing?

AOCDS is proudly defending against the county’s unfounded lawsuit, not only on behalf of its own members, but also on behalf of the thousands of public-safety employees throughout the state who have received benefit increases that take past service into account and whose pensions are threatened by the county’s lawsuit. 

Translation:  We picked the taxpayers’ pockets fair and square and we are unrepentant.  Mr. Quint, as much as you may believe that it is your money, it is not.  It is the taxpayers’ money and all that is being disputed is the over-reach of applying “the increase to all years of service.”  This money grab was unconscionable and nothing to be proud of.

Reader Rebuttal: Sheriff deputy pensions

By WAYNE QUINT

President, Association of Orange County Deputy Sheriffs

On Dec. 4, 2001, after extensive collective bargaining negotiations, the Orange County Board of Supervisors unanimously voted to increase the retirement formula for deputy sheriffs from "2 percent at 50" to "3 percent at 50" and to apply the increase to all years of service.

The improved formula was specifically authorized by state law, and the identical formula had already been adopted by the majority of other counties, cities, and other public sector entities throughout California. At the time, the county stated that it made the change to ensure that our fine county could recruit and retain the very best and brightest public-safety officers.

Eventually, all 21 cities in Orange County that have individual police departments voted to approve the same formula – with retroactivity – with 103 of the 105 individual mayors and city council members in Orange County who voted on the issue, supporting it, including Chris Norby, then a Fullerton councilman.

In 2007, Supervisor John Moorlach and his then-chief of staff, Mario Mainero, devised a plan that they claimed would give the county a way to back out of its existing contractual agreement with the deputy sheriffs. The county would claim that it had acted unconstitutionally in adopting the new formula, and it therefore should be allowed to rescind its agreement. Even though three different law firms the county hired to advise them on the issue all told the Board of Supervisors that its legal theories lacked merit, the board still voted to proceed with Mr. Moorlach’s plan. They sued the Orange County Employees Retirement System and the Association of Orange County Deputy Sheriffs.

AOCDS’ legal team extensively researched the county’s theories and explained to the supervisors in detail why their lawsuit would fail. And in 2009, Los Angeles Superior Court Judge Helen I. Bendix dismissed the county’s lawsuit. Judge Bendix confirmed what AOCDS has been saying all along – the county is "wrong on the facts, wrong on the law."

The county’s lawsuit, which has so far cost county taxpayers over $2.2 million, is now on appeal.

Recently, J. Edward Ketz, an accounting professor from Penn State University, wrote a column in the Register ["Pension appeal on solid ground," July 19] discussing a "friend of the court" brief that he and some fellow accountants filed in support of the county’s appeal. In a nutshell, Mr. Ketz claims the improved retirement formula violates the constitutional rule prohibiting the county from incurring a "liability" that exceeds the county’s annual income because (according to the county and Mr. Ketz) the total unamortized, estimated cost of the improved retirement formula over all years – present and future – was the equivalent of a fixed "liability" that exceeded the county’s income for the fiscal year in which the improved formula went into effect.

Appellate briefs AOCDS has filed with the court explain in detail why this argument is a failure. And, looking past his rhetoric, what does Mr. Ketz really say? That, under the Governmental Accounting Standards Board’s existing standards for pension accounting, the county is right, and AOCDS is wrong? How is this really relevant?

Mr. Ketz and Mr. Moorlach do not like that law that has been in place for over 60 years, so they asking the courts to make new law. That’s not what courts are for, and they know it. It sure does generate a lot of political headlines and publicity for them, however. But at what cost to the taxpayer?

AOCDS is proudly defending against the county’s unfounded lawsuit, not only on behalf of its own members, but also on behalf of the thousands of public-safety employees throughout the state who have received benefit increases that take past service into account and whose pensions are threatened by the county’s lawsuit.

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