MOORLACH UPDATE — Pension Reform Votes — October 26, 2010

Two city councils are facing critical votes today on public safety pension reforms, Los Angeles and Costa Mesa.  The city council of Los Angeles will vote today on putting new pension formulas for new police hires on their March, 2011 ballots.  The city council of Costa Mesa will vote tonight to accept a new tier for new hires, additional withholdings, and a contract extension.  The city of Costa Mesa is months ahead of the city of Los Angeles.

The good news is that the unions have offered concessions of some $3.6 million in annual savings to the city of Costa Mesa.  For that, they are to be commended.  However, the bad news is that this still leaves the city with a $6 million annual deficit.  The solution?  Negotiate a little longer, obtain salary concessions of some 7.5%, and the city will have a balanced budget.  An extended contract with four years of reduced wages makes sense.  But, if a concession of this type is not achieved, then the city’s fiscal options in the near future are very, very limited.

The Board of Supervisors has negotiated three year contracts with no raises.  The most recent employee bargaining unit to conclude their negotiations stated from the podium, “Thanks for leaving our wages the same.”  Public sector employees know that salary reductions may be needed to save jobs.

On the topic of defined contribution plans, which are addressed in the first article below, I’ll have more on a statewide solution in a future Update.

I’m just observing the Los Angeles city council and their mayor, as it has become a new hobby.  The headlines in tomorrow’s papers for both cities should be interesting reads.

The lead story in the Daily Pilot concerns the supposed back room efforts on tonight’s one agenda item meeting and is the first provided below.  The second article below is from MSNBC which posted an electronic article from the OC Register’s website on the overview for Costa Mesa’s special meeting (see

Tough fiscal stewardship decisions have to be made with regards to pensions.  The fiscal stability of every city depends on it.

GOP obliges Leece to vote ‘no’

Councilwoman has not yet decided on employee contracts. Party is holding her to a promise made in exchange for its support.

By Mona Shadia,

COSTA MESA — Promising political consequences, the Republican Party of Orange County has warned Councilwoman Wendy Leece to vote along party lines Tuesday when the city employee contracts go before the council, she has stated.

Costa Mesa council seats are non-partisan. But Leece, a Republican, sought her party’s endorsement, and there are plenty of Republicans in Costa Mesa who require advocacy, GOP officials said.

Leece, who is running for her second council term, issued a news release saying party leaders have sent her e-mails and left her voice mails reminding her to vote against the contracts. In the GOP’s opinion, the contracts would continue to provide unsustainable pension packages for three of the city’s employee unions, as well as the city’s executives.

"This vote could possibly cost me the election," Leece said. "I have two very strong groups to consider. I never envisioned having to say this about my own party, but Republican outsiders are trying to control the city of Costa Mesa and its public safety."

Leece declined to name on the record the Orange County Republican Party officials but assured that they were well-known.

Scott R. Baugh, chairman of the Republican Party of Orange County, told the Pilot that when Leece sought the party’s endorsement, she promised that going forward she would support defined contributions for new hires to make into their retirement programs.

"If this vote is contrary to that, I can see why she’s getting so many calls," Baugh said. "The bottom line is she stood before our party in order to get our endorsement and said for new hires she would only support defined contributions."

By extending their contract, he said, she’s extending a defined benefit plan for new hires.

The Republicans would rather see new hires pay into a program similar to a 401(k) retirement program seen in the public sector rather than be guaranteed pensions.

Leece said one caller told her that if she thinks she got grief for voting for last year’s firefighters’ contract, which allowed them to retire with 3% at 50, "I’d be very cautious about this one."

Instead of collecting their full benefits at age 55, the council last year voted to approve early retirement, which allowed firefighters to collect their benefits and retire at age 50. The amendment was part of a 10-point plan put forward to help close the city’s budget deficit. It allowed some firefighters to retire early, and it saved the city $1.1 million.

"Frankly, I haven’t made up my mind yet, but I find it very disconcerting that I am getting this pressure on how to vote by non-Costa Mesa residents who would not be affected by the contract," Leece said.

Orange County Supervisor John Moorlach, a Costa Mesa resident, said Leece’s support of the 3% at 50 unsettled many Republicans.

"She was calling me for help and I finally said to her, ‘You’re trying to defend this vote, and it’s indefensible,’" Moorlach said. "What you should do is apologize to the Republican Central Committee and let them know you’ve learned your lesson.’ She made that commitment to the central committee. If they’re calling her and saying they are concerned, they have every right."

The Costa Mesa Police Assn. contract going before the council is set to save Costa Mesa about $4.2 million over the next four years, Leece said.

The police association members agreed to contribute 5% of their pension toward the employee portion of CalPERS for the next four years, in addition to suspending their retiree health savings accounts for at least two years.

The Costa Mesa Police Management Assn. also agreed to suspending its retiree health savings accounts for the next two years and will contribute 5% to their pension toward the employee portion of CalPERS for the next four years.

The Costa Mesa Employees Assn. agreed to collecting 2% at 60, in addition to committing 7% of employee contributions for new hires, according to a city staff report.

The city’s executives agreed to freezing their medical and health care premiums to this year’s level for the next two years.

In all, including the savings from the amendments to the firefighters’ contract that were approved by the council two weeks ago, the negotiations are expected to save the city about $7.2 million, according to the report.

Baugh, who said he was not among those who called Leece with a warning, said his party is not asking for much.

"If we don’t reform the pension situation in Costa Mesa and other cities, there’ll be nothing left to do anything else," he said, adding that Costa Mesa and other California could end up filing bankruptcy.

Baugh said some members of the Republican party are Costa Mesa residents.

"We’re imposing fiscal child abuse on the next generation," he said. "That’s why we need to move now."

Councilwoman Katrina Foley, who supports the contracts, said the Republican party isn’t just bullying Leece, but also misleading the public.

The city is a member of CalPERS and cannot easily switch to defined contributions. Defined benefits would take a lengthy process, and the city can’t afford not making the cuts now, Foley said.

Allen Rieckhof, president of the police association, said he’s worried that the council members are not going to put Costa Mesa first.

"They are going to jeopardize the collective bargaining process by voting along party lines," he said.

Costa Mesa sets special meeting on union contracts


COSTA MESA — – The City Council has called a special meeting Tuesday night — a week before elections — to vote on three- and four-year contract extensions with police and city employee unions.

The agreement follows a campaign season dominated by arguments between the police union and council candidate Jim Righeimer over the salaries and benefits city employees receive.

The city is facing a $9.5 million deficit even after it eliminated 113 positions over the last year. According to the city’s analysis, the union concessions would save the city $3.6 million per year.

If the City Council approves the deal, the Costa Mesa Police Association and the Costa Mesa Police Management Association would have their contracts extended until June 30, 2014, and the city employees’ association would get a contract extension until 2013.

The groups offered some concessions: the police would begin paying 5 percent of their salary toward the state pension program, and the city employees would pay 4 percent.

The firefighters recently received a one-year extension of their contract for a similar concession.

All groups would also lose a 1 percent matching contribution to a retirement health care savings plan.

The police unions would be eligible for cost-of-living raises in the third and fourth years of the contract. The police employees would have to wait two years before cashing out their vacation, holiday, and comp time.

The city employees’ association agreed to a less generous pension plan for new hires, who will be eligible for retirement at age 60 with 2 percent of pay for each year of service. They will contribute 7 percent of their pay to the program.

In return for the concessions, the unions get a four-year extension at a time when public sector pensions and salaries have become a political issue across the state.

If an anti-union council majority is seated after the elections, they wouldn’t be able to renegotiate the contracts until they expire.

In a recent opinion piece in the Daily Pilot, Councilman Eric Bever and county supervisor John Moorlach wrote, "In fiscal 2007-08, the city, experiencing its highest revenue to date of $103 million, spent $82.7 million to compensate 611 staff members. Staffing consumed 80% of the operating budget and translated into an average cost of $135,352 per employee."

Among Orange County cities that year, Costa Mesa spent by far the highest percentage of its budget on salaries and benefits.

Newport Beach was in second place, with 71 percent of the operating budget going to salaries, according to figures from the California Local Government Finance Almanac.

Other figures from the almanac depict a city that spends much more on salaries and benefits than the average city.

In 2007-08, the statewide average for cities was 47 percent of the operating budget spent on salaries and benefits; the median figure was 49 percent. Costa Mesa’s figure was 80 percent that year, and 78 percent for the fiscal year just ended.

Over the last 17 years for which data was available, Costa Mesa spent between 61 percent and 93 percent of its operating budget on salaries. Most years, the number was in the high 60s or low 70s.

In recent years among Orange County cities, only Newport Beach and Brea have spent a comparable percentage on salaries. Other full-service Orange County cities spend percentages in the 50s and low 60s on salaries and benefits.

Costa Mesa spends around 56 percent of its budget on the police and fire departments.

In 2008, the highest paid city employee was Police Chief Christopher Shawkey, who earned $298,970 in total compensation. Fire Chief Michael F. Morgan made $290,939, and City Manager Allan Roeder made $285,227.

The lowest paid full-time city employee, aside from council members, was a recreation specialist who made $49,900, followed by five maintenance workers and a messenger, who made between $56,989 and $60,960.

Contact the writer: or 714-796-7922


October 23


The Orange County Business Journal printed my brief commentary, titled “Measure G Is Good Business,” in its Letters section.  It provided me an opportunity to remind the public that I did try to encourage a compromise to avoid a ballot measure campaign, that Measure G would provide more funds by reducing debt and its related interest costs, and to show that it had business community support.

“Although he prefers the county’s debt-reduction plan to the medical group’s idea, Mr. Moorlach believes that a compromise can be worked out that achieves everyone’s objectives.  The board majority and the medical community should take Mr. Moorlach’s advice and keep negotiating until a reasonable plan is hashed out.”

                That’s what the Orange County Register recommended on May 14.

                Unfortunately, no plan was hashed out.  The five supervisors and the medical association had their chance.  They did not lead.  You will.

                A “reasonable plan” is available.  It is Measure G.

This measure initially applies 40% to debt reduction, 42% to healthcare and 18% to public safety.  Using Wharton School of Business’ forecasts for the next 40 years, Measure G will have allocated 58% to healthcare, 25% to public safety and only 17% to debt retirement.  This “achieves everyone’s objectives!”

The interest savings also provides a 50% return on the dollars used to retire debt ($130 million in tax relief!).

Measure G makes great business sense.

The Orange County bankruptcy filing was disruptive for business.  Thankfully, that stigma has subsided.  But the hangover lingers.  We still have a $950 million debt strangling the county’s budget.  We are slaves to Wall Street and annually give them $50 million in interest on a “credit card” obligation.

This debt chokes off funds for dealing with urban runoff and restoring our beaches.  It slows down our ability to provide low-income housing and many other concerns that impact businesses.

Current and former business owners like myself are supporting Measure G.  Community leaders like Rep. Chris Cox, Congressional candidate Darrell Issa, Assemblywoman Marilyn Brewer, Assembly candidate (and CPA) John Campbell and the Lincoln Club have endorsed Measure G.

They understand the financial business prudence of paying down debts earlier.  And only using 17%, or one of every $6, is not too much to ask.

Measure G is the balanced “tobacco compromise” that will assist Orange County’s entire business community.

John M. W. Moorlach, CPA, CFP

Orange County Treasurer-Tax Collector

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