MOORLACH UPDATE — PA/PG — March 2, 2011

There is a philosophy floating around certain political circles that once you’re voted into a countywide position, you don’t have to do much.  You can enjoy traveling to conferences.  You can spend time on the golf course.  You can pontificate on the issues of the day.  You can go to functions and be introduced.  Just let staff run the department and enjoy the spoils of being elected. 

This is such a joke.  In fact, it’s a form of taxpayer abuse. 

Being a department head in the County of Orange is a full-time-plus job, appointed or elected.  You need to be engaged.  You should plan on long hours.  Yes, you can have competent management staff to run the operation.  But, if you’re not necessary, then you shouldn’t be there.  You’re not adding value.

I think I’ve said enough.  You can read between the lines.  If you have ambitions to serve the public, get ready for a major time suck, be prepared to work hard, and count on making more sacrifices than your family ever thought possible. 

At yesterday’s Board meeting we voted to repeal Ordinance No. 07-008, which I brought to the Board four years ago.  I had hoped for a better result in 2007.  I didn’t receive it and I apologize.

The story is covered by KPCC 89.3 FM and the OC Register.

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Orange County Supervisors move forward with stripping county administrator of public guardian duties

Susan Valot

The Orange County Board of Supervisors has given its initial approval of an ordinance to strip the county administrator of his public guardian duties. Supervisors made the unanimous decision in Santa Ana Tuesday afternoon.

Several years ago, county supervisors decided to combine the elected county administrator position with the appointed public guardian position.

The public guardian’s job is to keep an eye on elderly and ill people who don’t have anyone else to look out for them and to oversee the estates of those who don’t have any heirs.

Voters last year re-elected John Williams to a second term in that office, despite criticism that he’s mismanaged what the grand jury called the “top heavy” department.

Supervisor John Moorlach, who introduced the original measure to combine the positions, apologized and said at the board meeting that he’s been let down by someone in a key management role.

"John Williams was not what I would call a fully engaged and proficient department head," Moorlach said.

Supervisors tentatively agreed to strip Williams of his public guardian role.  Williams was not at the meeting. 

The measure will come back to the board for a final vote March 15.

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Public guardian stripped of role

Supervisors vote to remove duties from public administrator.  New department in the works.

The Board of Supervisors agreed Tuesday to strip beleaguered Public Administrator John S. Williams of his public guardian duties and appoint a successor.  The supervisors are struggling to clean up the agency, which has come under intense criticism, including a lawsuit accusing the county of negligence for allegedly mismanaging the multi-million estate of Tapout co-founder Charles “Mask” Lewis.

Supervisors gave unanimous preliminary approval to voiding a 2007 county ordinance which made the elected public administrator the ex-officio public guardian. A final vote will be March 15.  If the change is adopted, a new public guardian would be in place April 14 to head the newly created Orange County Public Guardian Department.

Williams, who is elected public administrator and appointed public guardian, did not appear at the meeting and has not spoken out publicly about the proposal. Neither he nor his private attorney, GOP insider Phil Greer, responded to requests for comments.

The Board of Supervisors last month agreed to hire an executive manager to overhaul the culture of the troubled department and make immediate personnel and policy changes. County Chief Executive Officer Tom Mauk has proposed having that manager take over the county’s public guardian role:  Overseeing the affairs of the elderly or ill who have no one to watch out for them.

Vice Chairman John Moorlach, who proposed the 2007 ordinance to combine the two positions, apologized for the ordinance Tuesday and expressed frustration that repeated requests for reform fell on deaf ears.

“John Williams was not what I would call a fully engaged and proficient department head,” Moorlach said. “I guess I’ve been let down by someone in a key management role…I had better hopes.”

The leadership of the public guardian, not the line staff, is the target of the reforms, Mauk said.  “We think this will improve efficiency of the office,” Mauk said.

Williams has been repeatedly criticized in the past few years for unnecessarily taking control of people’s estates. He was also denounced by the Orange County grand jury for “egregious” mismanagement, including questionable internal promotions that cost taxpayers hundreds of thousands.

Critics of the public administrator/public guardian system have suggested that such public officials have a vested conflict of interest – they need fees from large estates to help fund their office.

Mauk tried to split the offices in December 2009 in the wake of those reports, but Williams narrowly escaped having the public guardian role stripped from him with a 3-2 vote by the Board of Supervisors.

Williams is paid $153,206.40 a year to head the combined department.

The Board of Supervisors can remove Williams from the appointed position of public guardian at any time. His elected position of public administrator is a position which the Board of Supervisors cannot take from him.

It remains unclear whether Williams will continue to be paid his full salary if he loses control of the public guardian’s duties.

Williams was re-elected in June and began a new four-year term in January. The Board of Supervisors began appointing the elected public administrator as the county’s public guardian in 2003. But it wasn’t until 2007 that supervisors approved a county ordinance which made the elected public administrator the ex officio public guardian and established one salary for the two positions.

The filing fee Williams paid to run for public administrator was based on the combined salary for the elected public administrator and the public guardian, county Registrar of Voters staffers confirmed. An elected official’s salary cannot be reduced during his or her term.

The county has been researching whether Williams’ pay can be reduced if his appointed duties are removed, said Deputy CEO Stephen Dunivent.

Longtime county watchdog and reformer Shirley Grindle sent a letter to the county Board of Supervisors Feb. 9 which argued that paying a county employee for a job he’s not doing – and not allowed to do – would constitute an illegal gift of public funds.

Williams, while trying to negotiate his own future, is negotiating with the county to save the jobs of his political appointees if he leaves office before his term is up, county officials confirmed.

Among Williams’ political appointees is Peggi Buff, Orange County District Attorney Tony Rackauckas’ fiancee, who was promoted by Williams from executive assistant to his second-in-command five years after she began working for the office. Williams has political ties to Rackauckas and longtime Orange County Republican Chairman Tom Fuentes.

Wresting control of the agency from Williams comes in the wake of back-to-back county grand jury reports in 2009 and the county’s own investigation which exposed “serious concerns” about the department’s operations, according to the county’s chief executive office.

The county public administrator settles estates of those who die without a will or someone to take care of their affairs; the public guardian takes care of the elderly or ill who have no one to care for their affairs. Each year, the agency handles estates valued at more than $38 million.

“Our main concern now is that the clients of the public administrator and public guardian are being taken care of appropriately,” said Dunivent.

FIVE-YEAR LOOK BACKS

March 1

2006

The Bay Window, the magazine of the Balboa Bay Club, hailed as the oldest magazine in Orange County, had a Bay Window Guest Editorial starting on page 14.  It was “The County’s Looming Pension Crisis” by James L. Doti and John M. W. Moorlach.  You’ve seen it before (see MOORLACH UPDATE — Enron-By-The-Sea — November 6, 2010), but it’s worth a reprint.  Especially now that the Little Hoover Commission has just released its “Public Pensions for Retirement Security” report; another must read at http://www.lhc.ca.gov/studies/204/report204.html.

Orange County is in serious fiscal trouble – strong words to be sure, but hopefully, wake-up words.

Up to now, most of the talk regarding under-funded pension liabilities at the state and local levels seems far removed from Orange County.  In a recent Business Week cover story, it was estimated that under-funded pension liabilities at the state and local levels stood at $278 billion – roughly 20 percent of total annual state and local revenues.  Other recent studies indicate that this is a conservative estimate.  Calculations based on more traditionally accepted accounting standards in the private sector push the $278 billion to an even more frightening $700 billion.

The problem is not confined to the public sector.  In the private sector, many automobile and airline corporations are sinking under the weight of their defined benefit pension liabilities.  Several once venerable companies, like United and Delta airlines, have already sunk, having declared bankruptcy to get these liabilities off their books.

As serious as this problem is in the private sector, it pales in comparison to the enormity of the public sector dilemma.  Having recognized the inherent funding challenges posed by defined benefit pension plans, most private companies moved away from these plans and replaced them with self-funding defined contribution plans like 401(k)s.  As a result, only a quarter of all private companies have defined pension plans versus 90 percent for all state and local governments.

California is in particularly dire straits.  California’s Legislative Analyst Office, for example, reports that a public sector worker in the state receives $17,000 more in annual pension benefits at the age of 65 than similar workers in Florida and Illinois.

In an example from a recent report by economist Phillip Romero, a 55-year-old state worker earning $60,000 and retiring after 21 years of service receives 43.3 percent of that salary in annual pension benefits in California as compared to 29.2 percent in New York and 20.8 percent in Florida.

Closer to home, the City of San Diego’s recent pension fund travails earned national notoriety.  Earning the moniker of “Enron-By-The-Sea.” Yet, inspite of San Diego’s national notoriety, Orange County’s unfunded pension liabilities are roughly equal.

In 2004, San Diego had pension fund assets of $2.6 billion and liabilities of $4.0 billion, leaving a deficit of $1.4 billion.  That put San Diego’s asset-to-liability ratio at 66 percent.  Orange County’s pension fund assets are $5.2 billion and it’s liabilities $7.5 billion, putting its asset-to-liability ratio at 69 percent.

Put another way, Orange County’s pension fund liabilities exceed assets by 31 percent, roughly comparable to San Diego’s 34 percent shortfall.

In dollar terms, Orange County’s pension fund deficit is $2.3 billion ($5.2 billion less $7.5 billion).  This staggering amount is roughly equivalent to the county’s annual General Fund and Four times greater than its General Purpose revenue.

Several caveats are in order here.  Pension fund deficits also depend on the expected rate of return in the various funds’ investment pools.  So a fund with an actuarial assumption of 7.5 percent, like Orange County’s, is slightly more conservative than one at a higher rate, like San Diego’s, at 8.0 percent.  But the risk-return profiles of each of the pools also may differ.  In the end, comparing funding deficits, as we have done here, is the best barometer available.

It should also be noted that the Orange County pension-fund deficit doesn’t include the deficits that are likely to exist in the cities within the county.  Nor does it include underfunded retirement health benefits in the county and cities—a problem that is potentially larger than the underfunded pension problem, especially given the rapidly increasing costs of health care.

It could have been even worse for Orange County.  Like many other state and local governments, Orange County has used pension obligation bonds (POBs) to fund its future obligations.  In an Enron-like off-balance sheet shell game, governments are allowed to add the proceeds of the POBs to their pension fund assets but not to its liabilities.  Orange County recently paid off $320 million in POBs through funds received from bankruptcy-related lawsuits against the county’s former financial advisors.

So if you’re wondering where those funds were spent, they didn’t go to streets and schools but to the pension fund.  Excluding this $320 million lawsuit payoff, the county’s pension-fund liabilities would have exceeded its assets by 34 percent, the same as San Diego.

How did we get into this fix?  Basically, elected officials across the nation, but particularly in California, succumbed to political pressure by public-employee unions to increase pension benefits substantially.  Many of these increased benefits were even made retroactive with no fiscal mechanism in place to fund them.

In addition, governments had contribution holidays, where they reduced their contributions to pension funds when investment earnings were high, as they were during the dot-com craze.  Now that investment earnings have plummeted, governmental contributions have had to increase sharply to make up the difference.  These increased pension contributions constitute a sharply higher relative share of public spending, squeezing out other types of social spending. 

What to do?  Here are some possible solutions that relate not only to Orange County but to all state and local governments:

·         Require full funding of any new retroactive benefits the day they become effective.  The state of Georgia does this.  Not surprisingly, Georgia’s pension plan is fully funded.

·         Put an end to contribution holidays by escrowing state contributions during good years to offset lean investment years.

·         General obligation bonds require voter approval.  Retroactive pension-benefit increases should, too.  San Francisco, which is both a city and a county, requires it, and its plans are fully funded.  Evidently, “conservative” Orange County can learn from    “liberal” San Francisco.

·         If benefits creep up due to generous cost of living adjustments, then a cap can be placed on these COLAs.

·        The retirement age when benefits kick in can be increased.  This is an approach being considered in Britain by Prime Minister Tony Blair.

·           Perhaps the best and most logical solution is to do what private firms increasingly are doing, namely replacing defined benefit plans with defined contribution plans, like 401-k’s, for new hires.  This wouldn’t solve the mismatch between liabilities and assets for current public workers, but it would slowly make costs more predictable over the long term.  That’s why Governor Schwarzenegger advocated such reform.  He derailed it because his initial plan unintentionally cut survivor benefits for police and firefighters.  A revised version of it may be back as soon as next June’s primary election.

But we don’t have to wait until then.  Something can also be done Tuesday by voting yes on Proposition 75.  Public-employee unions have become too politically powerful because they have union dues at their disposal to throw at lawmakers who vote their way.  Not all union members support pension plans that ultimately are fiscally unsound. 

Let’s give union members some relief by requiring their approval before union dues are spent on political causes.

The pension problems facing almost all state and local governments can no longer safely be ignored. 

Short-and long-run strategies must be pursued immediately to resolve a funding crisis that, left unchecked, will inevitably lead to higher taxes, fewer government services and even worse – municipal bankruptcies.

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