After a long interview with Catherine Saillant of the LA Times, I became the closer for the first article below. It is a great overview of how we find ourselves in this Gordian knot with public employee defined benefit pension plans. It certainly became clear in recent weeks why the city of Costa Mesa has a “pension tax” measure on its ballot tomorrow. What a mess.
Speaking of Costa Mesa, Bill Lobdell is back in the second article below. The OCMETRO Perspective column suggests dinner guests. I made it into the “For a Good Debate” category.
Pension crisis is in the limelight, but solutions won’t come easy
The broken system has invited abuse by some egregious offenders — such as Bell’s Robert Rizzo. But a more pressing problem is the ever-more-generous benefits spread across the government workforce.
By Catherine Saillant, Los Angeles Times
In this campaign year, everyone seems to be talking tough about pension costs.
In the governor’s race, Meg Whitman and Jerry Brown are competing to be seen as the candidate who will be more effective in controlling pension costs. In the state Legislature, lawmakers have been pushing a crackdown on so-called worst-case pension abusers, using former Bell City Administrator Robert Rizzo, who was set to receive an annual pension of about $1 million, as their prime example. And Gov. Arnold Schwarzenegger has negotiated deals with several unions to restrain pension costs for newly hired workers.
Seriously tackling pension costs, however, would mean reversing a two-decade trend of steadily offering more generous benefits, a pattern that has sent the taxpayers’ potential liability soaring.
The Bell scandal has been both a boon and a distraction to the campaign, pension-reform advocates say. Examples like Rizzo’s have helped attract public attention to pension problems, but they have also allowed lawmakers to focus on fixing rare, egregious problems rather than tackling issues that cost the pension system far more money, but also touch far more people. Schwarzenegger said as much last month when he vetoed most of the Bell-inspired pension reforms, arguing that they did not go far enough to fix a broken system.
Until recently, few lawmakers were willing to talk publicly about rolling back pension costs. Instead, legislators and governors of both parties were approving pension changes that inflated long-term costs.
Higher benefits were approved at a time when CalPERS, the state’s pension giant, had overflowing funds because of a healthy economy and thriving markets that boosted the value of its investments. But when the market tanked, the value of the pension funds declined sharply. Because the funds are legally obligated to pay retirees their promised benefits, taxpayers are on the hook for any shortfall.
The trend toward ever-higher pension promises dates to at least 1990 when, under Republican Gov. George Deukmejian, a little-noticed rule change allowed California’s public workers to base retirement benefits on their final year’s pay, making it easier to spike pensions, analysts say. Nearly every other public pension system in the nation requires pensions to be based on a three-year average.
At the end of the decade, Democratic Gov. Gray Davis signed a bill giving California Highway Patrol officers and other public safety workers a retroactive 50% increase in pensions.
Civilian government workers followed with a 33% pension increase, opening the floodgates for a slew of other requests. Among the changes was a series of laws expanding the list of maladies for which police and firefighters can take medical retirement, which provides half their pension tax-free. The changes made it easier for a police chief nearing retirement to claim lower-back pain, a hernia or virtually any kind of heart trouble and retire on a disability pension.
Other legislation passed in recent years eased the way for firefighters to claim they had contracted tuberculosis, meningitis, staph infections, hernias, heart trouble, blood-borne diseases, biochemical exposure and pneumonia on the job. These so-called presumptions make it harder for cities to fight worker’s compensation claims that often lead to disability pensions.
Legislation passed in 2001 widened the category of "safety" employees to include workers who inspect milk, dispatch CHP calls and make sure hair salons are licensed. All now get 25% higher retirement benefits. A 2007 state report estimated the annual cost at $8.9 million.
Abuse of public safety disability pensions is the "forgotten child" of the gubernatorial pension debate, said Jason Sisney, director of finance in the state Legislative Analyst’s Office.
The flurry of pension-related legislative activity continued until the state ran into deep financial trouble with the economic downturn in 2007.
Court decisions that will be difficult to reverse have added to the costs, mandating that such things as uniform allowances, leave time and other extra-salary costs be included in retirement calculations.
Voters, too, have been complicit.
In 2005, Schwarzenegger pitched a ballot initiative that would have lessened pension costs by creating 401(k)-style retirements for new state workers, similar to pensions in private industry. He scrapped the ballot measure after polling showed that voters — influenced by TV ads sponsored by police and firefighter unions — would not support it.
The result is a state pension system that is among the most generous in the nation. Since 1999, police and firefighters in state and local governments have been able to retire as early as 50 with 90% of their final paychecks for life. Non-safety employees who work until 55 are eligible for 80% to 85% of their highest pay if they’ve put in enough years. Public pensions typically include annual cost-of-living increases.
The contracts for state workers recently negotiated by the Schwarzenegger administration return benefits to pre-1999 levels for some workers. But the changes apply only to new hires.
Some Sacramento veterans pin the out-of-balance system on labor’s outsized influence on legislators. Although unions are tied more closely with Democratic legislators, both parties are involved. Schwarzenegger said the reforms he recently pushed through were almost scuttled at the last moment by Republican legislators who refused to change pensions for prison guards.
"For a long time now, public employee unions have run Sacramento. Period," said Joe Nation, a former Democratic assemblyman who supports pension reforms. "And they’ve punished anyone who stepped out of line."
Not true, said Terry Brennand, a spokesman for the Service Employees International Union, one of the state’s largest. If labor was in charge of the capitol, lawmakers would not have contemplated the proposed rollbacks in pensions. Public employees understand that the state is in tough economic times and work together with the governor and legislators when changes are needed, Brennand said.
"Nothing is ever easy to give up," he said. "But we get it. When you are in tough times, you give things up. This time it involved pensions."
Whatever approach a new governor takes must factor in the unions’ power, said John Moorlach, an Orange County supervisor who has pushed for pension reforms. He believes Schwarzenegger was on the right track in forcing reforms during contracts talks.
"You have to do it at the negotiating table," Moorlach said. "The employees aren’t bad people. They are taking advantage of a system that has been given to them."
You know the old conversation starter: If you could throw the ultimate dinner party, which six famous people – living or dead – would you invite? (Mine: Jesus, Muhammad, Michelangelo, Harriett Tubman, Mark Twain and Babe Ruth.) But for Orange County? I
• Erwin Chemerinsky, dean of UCI Law School
• John Eastman, dean of Chapman Law School
County Supervisor John Moorlach
• Professor Mark Petracca, chairman of UCI’s political science department
• Richard Henry Dana, 19th-century sailor
• Walt Disney, creator of Disneyland
• Glenn Martin, aviation pioneer
• McFadden brothers, founders of Newport Beach
• Helena Modjeska, turn-of-the-20th-century actress
• Gaspar de Portolá, Spanish explorer
• Father Junipero Serra, mission founder
• John Wayne, movie star FOR A TRAIN-WRECK EVENING
• Larry Agran, chairman of the Great Park board
• Gustavo Arellano, managing editor of OC Weekly
• Convicted Orange County Sheriff Mike Carona
• Reporters Christine Hanley and R. Scott Moxley
• Santa Ana Mayor Miguel Pulido
• Christina Shea, Great Park board member FOR A SPIRITUAL EVENING
• Paul Crouch Jr., VP and chief of staff of TBN
• Marvin Meyers, biblical scholar at Chapman University
• Rabbi Mark Miller, Temple Bat Yahm in Newport Beach
• Muzammil H. Siddiqi, Muslim scholar and imam at the Islamic Society of Orange County
• Leila Smith, Catholic Worker from Santa Ana
• Rick Warren, senior pastor at Saddleback Church in Lake Forest FOR FUN
• Rev. Wiley Drake, Buena Park firebrand pastor
• Bob Hurley, Newport Beach resident, surf industry titan
• Tommy Lasorda, Fullerton resident and former manager of the Dodgers
• Bill Sharp, Newport Beach resident and creator of the Billabong XXL big wave contest
• Orly Taitz, Laguna Niguel resident and leader of the Birther movement
• Bob Teller, founder of the Orange County Market Place FOR GREAT GOSSIP
• Bruce Cook, society editor for the Daily Pilot
• Jon Fleischman, GOP activist and founder of the Flash Report
• Frank Mickadeit, columnist for the Orange County Register
• Jean Pasco, former Times and Register reporter and now a county employee
• Barbara Venezia, Newport Beach personality
• Gloria Zigner, Orange Coast columnist FOR BIG IDEAS
• Professor Francisco Ayala, renowned UCI scholar on ecology and evolutionary biology
• Debbie Cook, former Huntington Beach mayor
• Lucy Dunn, executive director of the Orange County Business Council
• Hugh Hewitt, Chapman Law professor and radio talk show host
• Henry Samueli, founder of Broadcom
• Ray Watson, former president of the Irvine Co. FOR SPORTS
• Kobe Bryant, Los Angeles Laker from Newport Coast
• Corky Carroll, surf legend from Huntington Beach
• Lindsay Davenport, pro tennis player from Laguna Beach
• Julie Foudy, retired soccer star from Mission Viejo
• Artie Moreno, owner of the Los Angeles Angels of Anaheim
• Tito Ortiz, mixed martial arts fighter from Huntington Beach FOR INSPIRATION
• Cindy Abbott, Irvine resident who (blind in one eye) climbed Everest
• Jim Abbott, former Angels pitcher born with one arm
• Mary and Dick Allen, major donors to the Mary & Dick Allen Diabetes Center at Hoag Hospital
• Lynne Cox, pioneer open-water swimmer from Orange County
• Dean Koontz, novelist from Newport Coast
• Karen McGlinn, co-founder of Share Our Selves
FIVE-YEAR LOOK BACKS
Casey Newton of the OC Register covered a speech that I did on litigation between municipalities, “Interagency suits costly, Moorlach says – LITIGATION: Only the lawyers benefit in court battles between government entities, county treasurer says.” I have a full speaking calendar and I usually discuss items of the day impacting the OC, but this speaking engagement was specific on the topic that I was to address. This was interesting to research, with staff providing a huge assist, from our own experiences at the county. Contacting agencies for the data was an interesting experience—“what does he want?” and other reactions were common. Here’s the article in total:
Frivolous litigation between county agencies creates unnecessary, high costs for taxpayers, Orange County Treasurer John Moorlach told an audience of activists Tuesday.
Moorlach told members of the Orange County Citizens Against Lawsuit Abuse that interagency squabbling costs millions of dollars a year — dollars that county agencies often can’t fully account for, he said.
“When local agencies sue each other, we all pay for that,” he said. “It seems to me that every time you hire an attorney … the only person that wins is the attorney.”
Moorlach criticized the county’s own lawyers for not keeping the kinds of detailed billing records kept by private practices.
“It’s about time that we require government attorneys to do the same,” he said.
County Counsel Lon Watson said such billing practices are largely unnecessary.
“Our clients frankly do not require that level of detail,” he said.
One lawsuit Moorlach cited as frivolous was filed in October 1999 by the city of Santa Ana in a property dispute with the Orange County Transportation Authority. When OCTA abruptly purchased 31 acres that city officials wanted to use as an industrial site, Santa Ana took OCTA to court.
Santa Ana won a settlement, at a cost to taxpayers of more than $8 million, Moorlach said.
George T. Urch, an OCTA spokesman, denied that the litigation was frivolous and said the settlement did not involve cash. He said OCTA’s legal costs totaled $174,000.
“We prefer the city of Santa Ana didn’t sue us,” he said. “But it was something they felt passionately about and did.”
The land lies within the city’s Empowerment Zone, an area targeted for revitalization. A portion of the settlement allows OCTA to build a bus yard and puts about a third of the site up for sale to private developers.
The Santa Ana city attorney did not return calls for comment Tuesday.
Moorlach said county agencies should become more accountable to taxpayers for the lawsuits they file. He also suggested the establishment of an arbitration board to resolve interagency disputes.
Brett R. Barbre, a Moorlach aide who is investigating county lawsuits, said the treasurer’s office would continue to investigate interagency litigation.
“It’s pretty alarming, what we’ve found so far,” he said.
LA Times reporter Jean O. Pasco also attended the speech and provided “Moorlach Urges Halt to Inter-Agency Suits—O.C. treasurer wants arbitration panel for costly disputes between public entities.” This article provides another observation and a comparison/contrast on what I communicated. Ten years later, we still need major reforms in this area.
Pointing to the millions spent by public agencies suing each other, Orange County Treasurer-Tax Collector John M.W. Moorlach called Tuesday for a special arbitration board to resolve such government disputes before they mushroom into costly courtroom showdowns.
Moorlach said he launched his own investigation by filing more than a dozen public-records requests, seeking to find out how much various government agencies were spending on legal disputes. Most of the agencies told him it would be impossible to determine such legal tabs, he said.
Only the city of Anaheim was able to provide a detailed analysis, he said. The city accounted for staff attorney time down to six-minute increments.
"When local agencies sue each other, we all pay for that," Moorlach told a lunchtime gathering of the Orange County chapter of Citizens Against Lawsuit Abuse. "I was pleased that at least one agency keeps detailed time records."
Moorlach said local government needs to figure out a way to become more accountable for such costs. He suggested that many of the county’s retired judges who work on arbitration cases could be used to resolve disputes without the added expense of going to court.
Anaheim’s sensitivity to litigation costs was heightened by decades of legal wrangling, Mayor Tom Daly said in response to Moorlach’s findings. In the 1970s and ’80s, the city found itself embroiled in long-running, expensive lawsuits with the Angels baseball and the Rams football teams over Anaheim Stadium, now called Edison Field. The city’s public electric utility also was locked in a lawsuit with Southern California Edison.
Earlier this year, the city paid $400,000 in legal fees after a minority of warring City Council members hired a special prosecutor–an unprecedented action in California–to pursue campaign charges against Daly and others. A judge ultimately ruled that special prosecutor Ravi Mehta was hired illegally and voided his authority, but only after the city paid for both the prosecution and the defense.
"I think that fiasco forced our city attorney, who is a very efficient manager already, to pay extra-close attention to the cost of legal actions, because I, for one, was asking for an accounting," Daly said.
The legal lesson lingers still: A measure on next week’s city ballot would forbid the City Council from hiring outside counsel for criminal cases.
Moorlach said he was able to get some figures from county government for the legal fallout from the 1994 bankruptcy. That tab came to about $62 million, money that was spent on fees, litigation and other bankruptcy expenses. But other bankruptcy costs–including that for prosecuting former Assistant Treasurer Matthew Raabe for his role in the county’s risky investments–could not be broken down, county attorneys told Moorlach.
"How do you justify your legal staff if you’re not keeping accurate records?" Moorlach asked.
In another case, Moorlach said, the Orange County Transportation Authority spent $174,000 in legal fees while paying $8 million to settle a lawsuit filed by Santa Ana after the authority tried to acquire property for a bus yard. Cost of legal fees from Santa Ana, meanwhile, were unavailable.
Moorlach said he also discovered that six agencies involved in a dispute with the Orange County Water District ended up paying nearly $900,000 in legal costs after the water board voted against charging a fee to three other agencies that wanted to become full members in the district.
In another case, Orange County spent $82,000 suing its own retirement board–of which Moorlach is a member–over a decision on retirement benefits that ultimately was upheld by a judge. The retirement board spent $184,000 defending itself.
Disclaimer: You have been added to my MOORLACH UPDATE communication e-mail tree. In lieu of a weekly newsletter, you will receive occasional media updates, some with commentary to explain the situation, whenever I appear in the media (unless it is a duplication of a previous story).
I have two thoughts for you to consider: (1) my office does not usually issue press releases to get into the newspapers (only in rare cases); and (2) I do not write the articles, opinions or letters to the editor.
This message should appear at the bottom of every e-mail you receive. If these e-mails should stop arriving in your mail box, it will be because your address has changed and you did not provide a new one. If you do not wish to receive these e-mails, then please e-mail back and request to unsubscribe.