MOORLACH UPDATE — Rates of Return — July 22, 2011

First things first.  Mom, Happy Birthday!  I could not have had a better and more discerning mother than you.  You’re the best!

Second, for those having trouble reading my UPDATES, you can also go to http://jmpostings.posterous.com/ and read them there.  Sometimes the transmission compresses e-mail content on your screen.

Investment performance is a fun thing to quantify.  If you lose 50 percent of your money in year one, then you have to earn 100 percent in year two to break even.  You start with $1,000.  You lose $500.  The next year you need to earn $500 (100 percent) in order to get back to $1,000.

The twelve months ending June 30, 2011, were good for portfolios with equity holdings (stock market).  One good year does not save an ailing pension plan, but please keep those good years coming.  The OC Register covers the recent performance news in the first piece below.  What never ceases to amaze me is the absolute lack of understanding union representatives display when they discuss public employee pension systems.  The quote in this piece is a keeper.  Recently I found another mind-blowing quote in The Providence Journal, out of Rhode Island, made by Local 2882 President Cathy Paquette, “The answer to the pension problem … is, if you hire more state workers …You would get more people paying into the pension system, and you won’t have any unfunded liability.”  Great.  Now a defined benefit public employee pension plan is a Ponzi scheme.  Wow!  If you don’t laugh, you have to cry.

After giving a recent speech in Seal Beach, an elected school board member twisted my ear about how CalSTRS was fine and that I did not need to alarm people.  The conclusion of the first piece should be a sobering read for her.

The second piece is in the Seal Beach Sun and provides an update on annexation concerns in the Rossmoor area.  It begs for a very important clarification.  The County has a number of cities that have small islands directly within their borders, like Anaheim, Costa Mesa, La Habra, Orange, Placentia, Santa Ana, Stanton, and Yorba Linda.  The operative word is “directly” within cities.  Henry Taboada apparently missed this little nuance and thought that LAFCO’s Island Task Force was all about Rossmoor.  It was not.  I know the song says that paranoia strikes deep, but to be troubled about something that does not directly affect you is very telling.  Instead of having your nose bent out of shape over a missed perception, perhaps the report could have said:  “If we were annexed by Los Alamitos, Rossmoor would represent 50 percent of the population and provide our residents with satisfactory representation in which to make the combination an efficient and progressive city within which to live.  This has opportunity written all over it.”

Yesterday’s UPDATE made it to the OC Register’s Watchdog Blog.  Check it out at http://taxdollars.ocregister.com/2011/07/21/true-pension-liabilities-to-be-laid-bare-at-last/89019/.  GASB‘s Chairman was quoted and his weak perspective borders on my using the term “lame.”

Tomorrow is the day hike in portions of Black Star Canyon.  Meet us at 9:00 a.m. at the corner of Santiago Canyon Road and Black Star Canyon just past the Christmas tree farm.

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Public pension systems hit investment gold

Tony Saavedra, Register investigative reporter

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The state’s two largest public pension plans have posted their best investment returns in years, the Associated Press is reporting.

The California Public Employees Retirement System showed a return of 20.7 percent for the fiscal year ended June 30, the agency’s best after-fees return in 14 years.

The California State Teachers Retirement System posted a 23.1 percent return for the last fiscal year, the highest in 25 years.

Dave Low, chairman of Californians for Retirement Security — a coalition of public employees’ groups — said the returns countered the doomsday predictions of pension reformers.

“These healthy returns at a time when the economy is struggling should put an end to the doom-and-gloom scenarios of politicians who want to take a wrecking ball to our state’s pension funds,” Low said in a prepared statement.

However, Orange County Supervisor John Moorlach, a leading advocate for reform, said the optimistic numbers shouldn’t cause anyone to put down their guard.

“It’s good news. But does it get us out of the woods? Not even close,” Moorlach said. “It’s a long, long climb.”

CalPERS oversees benefits for 1.6 million current and retired state and local government employees and their families. It is the largest pension plan in the nation.

It’s the second consecutive year CalPERS has topped the 7.75 percent investment return target assumed in its long-range financial model.

Critics say the assumption is too optimistic and retirement benefits are too high, leaving taxpayers on the hook for costs the system will not be able to cover, the Associated Press reported. In all, the gains helped boost the fund’s value to $237.5 billion, up from $200.5 billion a year ago.

Assets fell as low as $165 billion in 2009, after a 2008 drop in the stock market and global credit freeze cut the fund’s portfolio value by tens of billions of dollars.

On the teachers’ side, CalSTRS is clawing back from a 25 percent loss in 2008-2009. Fund officials say the system eventually will need more money, and it’s unrealistic to expect such booming returns to continue, the Associated Press reported.

The Legislature will have to address the long-term funding problem because, unlike CalPERS, the teachers retirement system can’t unilaterally increase the amount of money the state pays to cover retirement benefits.

“Without legislative approval for increased contributions, even given this past year’s impressive performance, CalSTRS would need a more than 20 percent investment return each year for the next four years to achieve full funding in 30 years, an impractical expectation,” chief executive Jack Ehnes told the Associated Press.

Long-term projections at CalSTRS suggest the system will fall $56 billion short of the money it needs to meet all its benefit obligations over the next 30 years, and the longer the state waits to make changes, the higher that number is likely to go.

“Solid performance in the past two fiscal years puts some wind in our sails, but it doesn’t make up for a lost decade of returns” stemming from the recessions that hit at each end of the past decade, CalSTRS chief investment officer Christopher Ailman, told the Associated Press.

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Rossmoor agency ponders future government By Charles M. Kelly | Fri, Jul 22 2011 01:00 AM

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The Rossmoor Community Services District board formed a two-member committee to look at the possible annexation of the unincorporated community’s commercial district by the neighboring city of Los Alamitos on Tuesday, July 12.

That night, the RCSD Board of Directors received a report from General Manager Henry Taboada concerning the future government of Rossmoor. The report discussed the unincorporated community’s future since the board decided on June 14 to request additional powers from the Orange County Local Agency Formation Commission.

LAFCO, as the commission is known, has place Rossmoor under the “sphere of influence” of Los Alamitos. Orange County Supervisor John Moorlach, who chairs LAFCO, has said in his e-mailed “Updates” to his constituents that Rossmoor has three choices: become an independent city, merge with Los Alamitos and Seal Beach into a “mega city” or be annexed by Los Alamitos.

A recent poll paid for by the Rossmoor board and the union representing Orange County Sheriff’s Department deputies indicated most Rossmoor residents would prefer for things to remain as they are, with Rossmoor remaining an unincorporated community. The Sheriff’s Department provides law enforcement services to unincorporated communities such as Rossmoor.

According to the July 12 Taboada report, the city of Los Alamitos recently formed an ad hoc committee to look at annexing Rossmoor Shopping Village. The shopping center is the only commercial area in the unincorporated community of Rossmoor.

“The implications of such an annexation are that the county would receive less revenue, estimated in the range of $300,000 to $450,000, which currently helps pay for Rossmoor services,” Taboada wrote. “It would also leave the remainder of Rossmoor as an isolated bedroom community with no governance options other than a future annexation.”

The Taboada report also said Los Alamitos has approved plans to hire a consultant to assist with the amendment of the city’s General Plan. “A revised General Plan which includes Rossmoor as being in the Los Alamitos sphere of influence is a preliminary step when and if the annexation of Rossmoor is formally proposed,” Taboada wrote.

However, critics of the Rossmoor board, including Sun columnist Joyce Bloom, have accused the Rossmoor Community Services District of using annexation to frighten the public into supporting increased governmental powers for the agency.

The board has decided to ask LAFCO for authority to hire law enforcement, animal control and trash collection services. At this time, the board has no such legal authority.

Supervisor Moorlach has vocally suggested that if Rossmoor wants to take on additional latent powers, that the community should impose an 11 percent utility tax on itself in order to pay for those services,” Taboada wrote. “This is viewed as double taxation since Rossmoor already pays taxes to the county to provide those services.”

The Taboada report said an alternative to annexation would be to have the county hire neighboring cities to provide services to unincorporated areas that are currently served by the county. LAFCO has formed an Island Task Force to study having the county contract out services to cities. “The study was conceived as an alternative to annexation on county islands (unincorporated areas) where these islands were unattractive candidates for annexation for neighboring cities,” Taboada wrote.

If Los Alamitos annexed Rossmoor, the population of the expanded city would nearly double.

“What is particularly troubling about this process is that only county, LAFCO and city representatives were invited to participate,” Taboada wrote.

FIVE-YEAR LOOK BACKS

July 23

2001

The OC Register had a column in the Business Section, titled “What you’re reading.”

            We asked some of Orange County’s business leaders what they’re reading this summer, and what they recommend for people looking for an edge.  Here’s what they suggest:

John Moorlach, Orange County treasurer, tax collector“The Richest Man in Babylon,” by George S. Clason, (New American Library, $13).  “Your job is your business.  All of us . . . are earning a living for specific purposes.  Therefore, we need to focus on those purposes.  This is the one book that I have recommended most for financial planning and business-planning purposes.”

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