MOORLACH UPDATE — Retiree Medical Benefits — September 10, 2010

“Promises to pay” are interesting to negotiate.  The thinking goes something like this: “Our agency cannot afford to give you a pay increase, but we can offer you a lifetime medical benefit (which, theoretically, doesn’t cost us anything right now).”

In a world where term limits have produced a short-term mentality, it’s not hard to see how decisions made by previous city council members are fiscally impacting current city council members.

A promise to pay creates a contingent liability.  Liabilities should be reported somewhere in the agency’s books.  Consequently, the Government Accounting Standards Board recently issued Statement number 45 (GASB 45) requiring the recording of these negotiated benefits.  As a result, we now have actuarial reports prepared for municipalities that can be utilized to prepare comprehensive annual financial reports (CAFR).  It also provides, finally, data for the media to utilize.  This time consuming task was pursued by Tony Saavedra of the OC Register.  Tony Saavedra is one of the best “pick and shovel” investigative reporters in the county.  The article will probably run on Sunday, but it is on the OC Register’s website today.

In 2006, shortly after I was elected County Supervisor, the Orange County Employees Association (OCEA), after negotiating a massive pension benefit increase two years earlier by forgoing pay raises, wanted a . . .  pay raise.  Then Board Chair Bill Campbell invited me to participate, in my Supervisor-elect role, in the negotiations.  The County responded by agreeing to pay raises if OCEA would modify its retiree medical plan.  The negotiations concluded in reducing a $1.4 billion unfunded actuarially accrued liability (UAAL) to one at $412 million.  It was a plan that took a “pay as you go (pay-go)” approach to one that actually paid the annual required contribution (ARC) of some $26 million (versus $131 million with no modifications).  The County made a major move to follow GASB 45 and we did it quickly.  If the County has a population of 3.1 million, then our per capita cost is $137.   It’s a great story to tell.

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Health benefits for retirees will cost O.C. agencies $1 billion

By TONY SAAVEDRA

THE ORANGE COUNTY REGISTER

Orange County and its cities are on the hook for nearly $1 billion in long-term costs for health benefits for retired public employees, an Orange County Register analysis has found.

Almost all municipal retirees receive some health benefits until they die. But most Orange County cities are paying the bare minimum to cover the benefits and allowing the 30-year cost – called the unfunded liability – to grow untouched.

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Supervisor John Moorlach says cities are "kicking the can" when it comes to retiree health care debt.

H. LORREN AU JR., The Orange County Register

"They are kicking the can down the street. It’s going to start affecting their budgets," said county Supervisor John Moorlach, an outspoken supporter of pension reform.

Officials in Santa Ana, one of 17 cities paying the minimum, said they are trying to determine how to attack the city’s $103.8 million unfunded debt.

"We’re still trying to get our hands around the liability and having discussions to see what will be our long-term strategy," said Francisco Gutierrez, city finance director. "It can build up pretty quick."

The Register’s analysis, based chiefly on financial documents filed with the Governmental Accounting Standards Board, found:

• Orange County and its cities paid nearly $50 million in fiscal 2009-10 for retiree health care. The benefits are on top of the tax-funded pensions that give many government retirees most – if not all – of their salaries for life. For instance, sheriff-turned-felon Mike Carona gets $2,184 a year in health care on top of his $217,457 annual pension. Former assistant sheriff Charles Walters gets $5,466 in health care – the maximum for the county of Orange – plus his $231,990 pension.

• Retiree health benefits vary from city to city, and from union to union. Benefits range from a maximum of $15,892 a year in Anaheim to $632 annually in San Juan Capistrano. The money is intended to help retirees pay for health insurance coverage. Kristine Ridge, Anaheim human resources director and acting finance director, said only six retirees qualify for the maximum benefit in her city and reforms make it unlikely that any more will be eligible. Throughout the county, public safety retirees tend to get the highest health benefits. In Fountain Valley, all retired department heads and police get health care for life, while general employees get lifetime care only if they were hired before 1986.

• Westminster, Fountain Valley and Placentia have the largest retiree health care debt, per capita. All three cities are just paying the minimum as the debt grows. "It’s a major concern for us. We’re working with our labor groups to try and work out a plan," said Westminster Finance Director Paul Espinoza. Four South County cities have few if any retirees and are not required by the Governmental Accounting Standards Board to calculate their long-term costs. Two other cities, Laguna Hills and Villa Park, do not offer retiree medical benefits.

BARGAINING CHIP

Generous health benefits, like pensions, are completely legal and were created during stable economic years. In the past, retiree health care benefits have been used as a chip during employee negotiations, sometimes offered in exchange for lower pay raises.

In both public and private sectors, agencies and businesses are not required to provide retiree health care. They can eliminate or reduce benefits, unless they have made specific assurances, according to the U.S. Department of Labor. Private sector retiree health benefits are generally not as generous as in the public sector; the average private worker does not receive any retiree health care, said Paul Fronstin, director of health research at the Employee Benefits Research Institute.

"The public sector is more heavily unionized," Fronstin said.

While health costs are but a fraction of the post-employment benefits, they are another strain on the budgets. For instance, the County of Orange has an unfunded liability of $408.3 million for retiree health care and nearly $3.7 billion for pensions.

"It is (still) significant. It’s an obligation the cities have incurred and who pays for it? The taxpayers," said Steven Frates, director of research at the Davenport Institute at Pepperdine University.

When it comes to unfunded health care liability, Westminster outpaces every other city in Orange County. Every man, woman and child in Westminster would have to pay $697 to cover the city’s long-term health care debt of $65.6 million. By comparison, the city’s operating or general fund is $47 million.

"Our benefits are good," said Eddie Manfro, Westminster human resources director. Indeed, Westminster’s maximum benefit of $10,704 a year is among the highest in the county. "That’s one of the benefits that make us an attractive employer," Manfro said.

In Fountain Valley, each resident would have to pay $571 to cover the city’s unfunded liability of $33.5 million for retiree health care.

"We pretty much have a large group of retirees and a small group of active employees. People who work here tend to stay a long time," said Sherri Holman, Fountain Valley finance director. Holman added that Fountain Valley has its own police and fire departments, adding to the costs.

Holman said the city hopes to start a $500,000 trust beginning next year to start paying off its unfunded liability.

In Placentia, the debt is $466 per capita. Steve Pischel, director of administration, said the city is "trying to get cost containment measures in place."

One such measure is the health care program offered by the California Public Employees Retirement System, which provides benefits of about $100 a month. At least six cities in Orange County are enrolled in the program, which critics say is inexpensive but takes away the municipality’s ability to guide its own future. The CalPERS program dictates what benefits the cities will offer and limits their ability to reduce or drop benefits.

While many municipalities pay the bare minimum on their benefits, some are aggressively trying to lower future debt.

They are doing so by ending or reducing benefits for retirees turning 65, when they become eligible for Medicare.

In Anaheim, a defined contribution plan similar to a 401(K) is offered to general employees hired after 1996 and public safety workers hired after 2001, according to city officials. The city’s contribution ends when the employee retires. The city also is paying toward its unfunded liability on a yearly basis.

"We’re very fiscally conservative," said Ridge.

In Mission Viejo, employees hired after 2007 get no retiree health benefits, but can pay toward a defined contribution plan.

Also aggressively conservative is the county of Orange, whose unfunded liability for retiree health benefits hit $1.4 billion in 2005.

Management and employee unions both "took hits," said John Moorlach, to reduce the costs by 70 percent. One of the ways was to reduce the monthly benefit by 50 percent for some retirees reaching Medicare age. Another way was to reduce the yearly cost-of-living raise for some retirees.

"Boy," said Moorlach, "I am I glad we did it when we did."

Contact the writer: tsaavedra@ocregister.com or 714-796-6930

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FIVE-YEAR LOOK BACKS

September 10

2000

The OC Register’s second editorial was titled “Less than golden.”  It addressed the Sesquicentennial.  Governor Wilson participated in many of the events, but did not seem to catch the vision.  When Governor Davis arrived, he was too busy raising money for his re-election campaign to be interested in other fund raising activities.  Here’s the piece in full.

California’s 150th birthday — its Sesquicentennial — came and went with infuriatingly little fanfare.


Just a few local celebrations, a fairly mundane street fair in Sacramento. No big-deal parades and few fireworks displays, nothing approaching the excitement that similar events sparked in boring old Midwestern states.

It’s as if the nation’s largest state, which continues to influence and inspire people the world over with its sometimes overblown promises of fame and fortune, is embarrassed about its past, and fearful about the future.

Say it ain’t so.

Just look around. At the beaches, mountains, deserts and croplands, at the bustling cities, and at the immigrants who flock here for unparalleled opportunities. There’s so much to celebrate — and learn — about this freewheeling state, yet California’s leaders have chosen not to do so.

First, let’s dispense with the excuses. You know, the notion that Californians are a little too good for anything so mundane as a proud, statewide celebration.

The idea that, unlike in the Midwest, where the weather’s bad and there’s little to do, Californians are too busy to pay much mind to the state’s biggest historical event. We don’t show up for the home team, we don’t get into civic pride.

"The Rams left and we were glad. That’s California," John Moorlach told us; he is the county treasurer, a California history buff and vice president of the California Sesquicentennial Foundation. He’s heard the argument about the state’s laid-back attitude, but he says the big events didn’t materialize because of a lack of leadership.

In Wisconsin, he said, Gov. Tommy Thompson laced his speeches with anecdotes about the state’s history. The Legislature approved a special license plate that raised voluntary funds for the statewide historical celebration. Private businesses made significant contributions.

By contrast, neither former Gov. Pete Wilson nor current Gov. Gray Davis took interest in the Sesquicentennial, Mr. Moorlach said. An attempt to have a license plate got bottled up in the Legislature, and private companies backed away from planned donations after the state refused to take a leading role.

"Wilson and Davis are charismatically challenged," he said.

"They can’t sense the spirit or the fun."

And Mr. Moorlach believes that Gov. Davis reacted against the event — "I have it from my Democratic friends in the Capitol, that you don’t mention the Sesquicentennial when he’s in the room" — out of fear that a big celebration will upset minority activists who view the state’s history mainly in terms of oppression and discrimination.

Every state and country has unfortunate and controversial events that took place in its history. That’s part of what it means to be human. The key is to honor what’s good and learn from the past, not ignore it.

"I haven’t seen a perfect Anywhere," Mr. Moorlach says.

Neither have we — although California comes a lot closer than any other place we can think of. Too bad that a combination of timidity and political correctness relegated this great historical event to a mere afterthought.

2005

It’s campaign season and candidates are requesting my involvement and support in their campaigns.  With 34 cities, some 30-plus school districts and a number of special districts, it can be a busy time.  These endorsements usually do not garner media attention.  But, five years ago Orange County had a race to fill Congressman Chris Cox’s empty seat.  The Daily Pilot headline read “Campbell endorsed by John Moorlach.”  Here are the opening and closing lines of the brief article:

                State Sen. John Campbell announced Friday he’s bagged an endorsement from Orange County Treasurer-Tax Collector John Moorlach in the 48th District congressional race.

                Moorlach, also a Republican, said he singled out Campbell because they have similar backgrounds in accounting and because both are fiscal conservatives.

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