MOORLACH UPDATE — Happy July 4th! — July 1, 2011

It’s not often the media attends one of my speeches.  I’m sorry that I did not get the chance to greet Charles Kelly of the Seal Beach Sun last week.  He provides the first piece below.  Of the many topics that I covered, for more details on how to become an actuary and compute defined benefit pension costs, see MOORLACH UPDATE — Straight Talk Magazine — March 30, 2011 or go to http://straighttalktv.com/edit/resources/1301352540straighttalk-magazine-marchapril-2011-32011.pdf.  One minor correction:  It was the retiree medical unfunded liability that was reduced by 71 percent.  Regretfully, our pension liability has been rising like a rocket ship since granting 50 percent and higher pension formula increases in 2001 and 2004.  They say a picture is worth a thousand words, so I’m providing the PowerPoint slide that presents the Orange County Employees Retirement System’s annual performance (rate of return), which is in the highest percentiles for public pension plans in this country (represented by bars).  Even with satisfactory average rates of returns, the unfunded liability (the rising line) has gone from below zero to $3.7 billion in only a decade.  It’s the benefits, stupid (to steal a phrase).

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The second piece is from the Voice of OC.  It starts off with what I believe is a faulty premise.  Continuity of representation does not necessarily mean protect the incumbents.  If you look at the five supervisorial districts over the past forty years, you will see minimal movement of boundaries with each decade’s census adjustments.  It was a rather big deal for Costa Mesa to be moved out of the Fifth District (Riley) in 1992 and moved into the Second District (Wieder).  But, if you don’t have a hook, then where is the story?  The piece was released prior to yesterday’s final Redistricting Committee meeting.

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Moorlach advocates pension reform, city consolidation Charles Kelly   

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Supervisor John Moorlach

Thursday, June 21, around 60 members and guests of the GOP Club in Leisure World gathered to hear John Moorlach, Orange County supervisor, Second District, discuss OC’s finances and financial future.  Moorlach titled his talk “Orange County a Model During a Period of Municipal Meltdowns.”  He used a power point presentation punctuated by humorous cartoons. 

Moorlach touched on a number of local projects that were underway.

Moorlach said consolidation of smaller cities would reduce the duplication of services by the cities and thus save money.   He praised Seal Beach as most desired by other communities seeking consolidation.   

Moorlach presented the underlying assumptions of the pension plan:  a 7.5 percent return on investments, a 25 year service with retirement at 50 with 4 percent per year pay increases, 3 percent cost of living increases after retirement and death at 80. 

Using these figures, a retiree making $50,000 at retirement would make $157,055 at age 80 when the retiree conveniently died. 

Further complicating the retirement benefits was the increase from 2 percent to 3 percent of highest income retroactive to the hire date of the employee. 

Moorlach said that Orange County’s unfunded medical, retirement and pension plan obligations were $1.4 billion when he took office.  This was reduced by 71 percent, or approximately $1 billion. 

Moorlach closed with suggestions for fixing the financial quagmire:  lower taxes so that more money goes into the economy; stop the out-migration of businesses and people; consolidate and combine wherever possible to reduce costs and return the retirement system to the old formula.

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New County Redistricting Rules Still Offer Incumbent Protection

Nobody’s mentioned it publicly, but one criteria for redrawing Orange County Board of Supervisors district boundaries allows the board to protect incumbents Janet Nguyen and Shawn Nelson.

The relevant phrase, partway down the list of goals for redistricting the county, is "continuity of representation."

Nelson and Nguyen are the only supervisors eligible to seek re-election in the coming years. Between 2012 and 2014, Supervisors Bill Campbell, John Moorlach and Pat Bates will be forced out by termed limits.

"Marvelous!" said Bob Stern, who heads the Santa Monica-based Center For Governmental Studies. "I’ve got to write that down: ‘continuity of representation.’ "

There’s nothing illegal about it. Politicians have drawn district maps to protect themselves since 1812 when Massachusetts Gov. Elbridge Gerry drew distorted boundaries to protect his party, named the Democratic-Republican Party. Gerry’s design of one district was so distorted it reminded opponents of a salamander, giving American politics the term gerrymander.

Some supervisors and aides who are drafting Orange County’s new districts said they were unaware that protecting incumbents was an option.

"I don’t think we’ve discussed protecting incumbents," said Matt Harper, Nguyen’s chief of staff.

Supervisor John Moorlach said it was important to retain continuity in district boundaries to maintain consistent representation of cities. But he said he wasn’t aware that "continuity of representation" applied to the office holder, not the district’s cities.

Doing It the Old-Fashioned Way

The new lines for supervisorial districts, which are being redrawn as the result of the 2010 U.S. census, must generally follow the same rules as the new legislative and congressional boundaries being drafted by the California Citizens Redistricting Commission.

That means they must be as equal as possible in population and must comply with federal voting rights laws that prohibit disenfranchising minority groups.

The state citizens’ committee, created by voters in November, isn’t allowed to consider political party registration or the well-being of incumbents.

Historically, that’s not been the case. Current legislative and congressional lines, drawn after the 2000 census, were made after Republican and Democratic officeholders agreed to protect themselves.

"That traditionally is the most important criteria [to elected officials]," said Stern, president of the Center for Governmental Studies and coauthor of other California political reform measures.

"The sole purpose of 2001 [redistricting] was to protect incumbents," he added, "and they succeeded beyond their wildest imaginations."

Stern said that in all elections during the following decade, only one incumbent lost a re-election bid.

Although the county committee must follow population and voting rights laws, it doesn’t have the strict restrictions on incumbent protection that the state committee has.

The county committee comprises aides to the five supervisors. The Board of Supervisors itself will approve the final maps.

The county committee is working to keep together communities of interest, which include minority groups with common racial, ethnic or language interests.

It also will try to hold together communities of similar economic backgrounds, coastal communities and avoid splitting cities into different districts.

Other criteria include keeping together communities that use common public infrastructure, such as water districts and transportation systems.

The provision that permits supervisors to protect incumbents says the overall criteria includes "maintaining the core integrity of current districts for continuity of representation."

Redistricting principles distributed by the National Conference of State Legislatures states it bluntly. "Protection of incumbents," it advises, has been a court-approved part of redistricting since 1993.

What’s Next

The supervisorial committee has held several public hearings around the county. The last of those hearings is at 2 p.m. today in the Hall of Administration in Santa Ana, unless members decide another session is needed. Only 10 to 12 members of the public have attended most of the prior hearings.

At today’s hearing, each committee member will list the two or three plans they consider best. In the next few weeks, they will draw a preliminary set of maps and present them to the Board of Supervisors, which will make the final decisions.

Nelson doesn’t have to seek re-election until 2014 and is running for Congress next year. If he loses that race, he remains a supervisor. Nguyen’s term is up next year and she must run for re-election to stay in office.

Even though Campbell, Moorlach and Bates themselves won’t be affected by the new lines, they may still work to create district boundaries that would help favored aides or others they support should these people run for open seats.

Another issue facing the supervisor committee is what to do if proposed new lines push two supervisors into the same district. One of the draft plans submitted by the public would create such a situation.

Harper said it’s unfair to voters to approve such a plan because supervisors run for four-year terms and two supervisors would be in the same district for two years, while another district wouldn’t have a supervisor.

But the same thing happens to state Senate districts after each 10-year redistricting. New district lines frequently leave a Senate district without an incumbent until the next election. In those cases, the Senate Rules Committee assigns other Senators temporary responsibility for residents of the empty district.

Stern said the Board of Supervisors could make similar assignments if redrawing boundaries served the residents better than keeping them the way they are. Other counties have handled the problem, he said.

Please contact Tracy Wood directly at twood@voiceofoc.org and follow her on Twitter: twitter.com/tracy111. And add your voice with a letter to the editor.

FIVE-YEAR LOOK BACKS

July 8

2001

Dr. Michael Glueck, a friend and a prolific letter to the editor writer who is published in many newspapers, decided that the Daily Pilot’s support of safe and sane fireworks was wrong.  He questioned that the writers of the Declaration of Independence ever approved of fireworks.  He even went as far as to question the columnist’s capability as a good parent.  I thought he went “over the hill” and decided to have a little fun by submitting a response.  My submission appeared in the SOUNDING BOARD section and was titled “Let there be fireworks on Fourth of July.”  It may reflect my frustrations with a “Nanny State” approach to life.  Wishing you a happy and safe Fourth of July holiday weekend!

"It ought to be solemnized with pop and parade, games, sports, guns, bells, bonfires and illuminations from one end of this continent to the other, from this time forward forevermore."  — John Adams

The esteemed good doctor, Michael Glueck, is showing a flaw in his normally astute dispensations of knowledge and wisdom ("Fireworks not a sign of good parenting" Community Forum July 3). 

First, his history lesson on the signers of the Declaration of Independence may be wanting, as noted in the aforementioned quote by John Adams, speaking about Independence Day.

Also, Glueck postulates that because a few have been injured using "safe" fireworks, this is grounds for preventing all of us from using them. Call this "the safety for all," "big brother knows best" approach to life.

This well-meaning logic is flawed. Unfortunately, it permeates society. Let me explain.

Just because one person was murdered on one of our local beaches, they are now closed at 10 p.m. Ridiculous! It’s finally dark, the fire is toasting along, the family is relaxing in lawn chairs, you’re deep in conversation and a jeep comes by with a loud speaker telling you it is time to go home! "Safety for all." Bah, humbug!

One would think that because so many have drowned or nearly drowned in the nearby ocean, swimming would be prohibited as well. In the meantime, remember: no diving in the shallow end.

Car accidents? Better outlaw driving. Now we won’t even be able to get to the beach.

Life is full of risks. We know it when we enter the ocean, our cars or the fireworks display stand. You want to go rock climbing, go rock climbing. Just remember you could get hurt.

Football, skateboarding, jogging, fireworks — all the same. Dearest Michael, be our doctor, not our mother.

For those who enjoy the tradition of lighting your own fireworks – go for it. You and your kids deserve the joys they bring on this one special day. Just be extremely careful, some injuries are permanent.

But don’t be bogged down by any sense of guilt about not being a good parent. Bah, humbug. Enjoy your Independence Day illuminations.

* JOHN M. W. MOORLACH is a Costa Mesa resident and the Orange County Treasurer.

I was on a roll.  The OC Register also printed an editorial submission in their Sunday Commentary section under the GUEST COLUMN section, titled Ghost of Bob Citron roaming halls of capitol – Gray Davis is following footsteps of former O.C. treasurer into fiscal chaos.”  The state of California cannot file for Chapter 9 bankruptcy protection, but you get the point.  Watching Governor Gray Davis was tortuous.  He spent most of his day dialing for contribution dollars.  If only he had concentrated on leading.  Instead he took an energy problem and turned it into a mess.

A recent L.A. Times poll found that Californians still remain unconvinced that our state suffers from a shortage of energy. Perhaps the state’s subsidizing of the actual costs for electricity these past five months has caused us to believe that everything is fine. It is not. The state has been spending an average of $57 million, a medium-sized city’s annual budget, per day for electricity.

Now California is headed toward the same financial catastrophe that was imposed on its shareholder-owned utilities, finding one of them in Chapter 11 bankruptcy and another on the precipice. At this pace, it will not be long before the state will be staring a Chapter 9 bankruptcy filing in the face.  That’s why I’m gnawed by this "déjà vu" sensation.

The similarities and parallels between California of 2001 and Orange County of 1994 are frightening.

Here’s a refresher. In 1994 the county, through former Treasurer Robert Citron, was borrowing at variable rates and investing at fixed rates. The "experts" and the "politicos" were comfortable with the investment scheme. No wonder the electorate was convinced that there were no investing improprieties.  Even while their former treasurer was very secretive about how he was investing and what his "exit strategy" would be.

Guess what?  The unexpected happened.  Short-term borrowing rates doubled.  The cost of borrowing suddenly exceeded the revenues being generated.  It caused the investment pool to implode and Orange County taxpayers realized a $1.64 billion loss.  In spite of pleas to avoid or minimize this train wreck the county’s leadership ignored it. The rest is history.

In a half-pregnant deregulation scheme, the state capped the retail price that the utilities can charge. It also eliminated the availability to acquire electricity through the use of long-term contracts.

Guess what? The unexpected happened. The wholesale price for electricity spiked dramatically above the inflexible retail price cap. It depleted the available funds for the utilities, and then some, and they are imploding. In spite of pleas from the utilities imploring Gov. Gray Davis to avoid or minimize this train wreck, he ignored them. The rest is also history.

It gets worse. Davis doesn’t allow for the immediate raising of retail rates and decides to have the state secretly purchase electricity. Guess what? The expected happened. He depleted our budget surplus! Our reserves! Nearly $9 billion – and counting! He’s a Citron, only quintupled! And in the light of day, the secret purchases were not attractively priced and only compound this financial nightmare.

Gov. Davis has done what no Libertarian or Republican could ever dream of doing in such a short time. He has returned the budget surplus created by taxpayers to the residents of California by subsidizing their electricity bills. Bravo! It may not be the most equitable way of refunding taxes, but has
anyone ever thought up a more efficient method?  But, that’s not all.  He wants it back!

Davis now wants to borrow some $13 billion to replace the spent reserves and purchase even more electricity at rates in excess of the retail prices!  When does this train wreck in slow motion stop?  And how do we pay off these bonds?  Davis did not want to raise rates last summer or this past winter. But now he will to pay off this historically largest municipal bond offering with a significant utility rate increase.

The ratepayers will be reminded for 10 years after Davis is gone about his expensive brilliance.  And this elected official wants to purchase the power grids and bureaucratically manage the utilities?  I say "no."  If we don’t show some leadership in Sacramento soon, potential bond buyers will also say "no," unless they receive an attractive interest rate.  Just ask Edison International about attractive interest rates.  It just subscribed $800 million in bonds paying 14 percent.

Tragically, Gov. Davis walked into his position with an existing budget surplus and now has no tangible legacy to show for it.  No reserves.  No improved highways.  No new schools.  No infrastructure improvements.  Only interest payments.

Wasn’t that Citron’s legacy?  If amortized over 10 years at 6 percent, the citizens of California will pay an additional $4.4 billion in interest costs.  Over 15 years it’s $6.7 billion.

And therein lies the true legacy of Davis, squandering the entire budget surplus that he inherited on interest resulting from his indecisiveness and lack of leadership!

It is so tragic that the perpetrator of this colossal mess is still in denial and continues to play the "blame game."

Orange County played the "blame game," too.  But it had obvious perpetrators and succeeded in a court of law in securing a significant amount in retribution payments.  I’m not so sure California will have a similar result.

                JOHN M.W. MOORLACH is the Orange County treasurer-tax collector.

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