MOORLACH UPDATE — New Chair — January 25, 2012

It was an honor to start the year as the Chair for the Orange County Board of Supervisors.  I also had this privilege in 2008.  It is customary for the Chair to provide a State of the County address, so I started yesterday’s meeting with my presentation.  It should be available on my website at http://www.ocgov.com/ocgov/Government/Elected%20Officials/Chairman%20John%20M.W.%20Moorlach%20-%20Supervisor,%20Second%20District.  If this link does not work, then try http://www.ocgov.com/vgnfiles/ocgov/BOS2/doc/State_of_the_County_2012.pdf.

The theme was “Taking Stock/Reality Check,” and as such I covered topics such as where were we, what have we accomplished, where are we, and where are we going?

Using the County’s June 30, 2010, Comprehensive Annual Financial Report (CAFR), I gave a summary of the basic financial statements by providing a quick analysis of the Unrestricted Net Assets (UNA) for governmental activities.  Dropping the last three zeroes (thousand), it looks like this:

          Total Net Assets (in thousands) (Assets less Liabilities)

                ($6,907,534 – $2,113,313)                                              $4,794,221

          Invested in Capital Assets, Net of Related

                Debt                                                                                      (3,097,843)

          Restricted Resources by Outside Parties               (1,384,586)

          Business Related Activities Net Assets                     (321,778)

          Unrestricted Net Assets Available to

                County (Deficit)                                                               $     (9,986)

The County of Orange has a net deficit.  How does it compare to other counties and what metric can we use?  I decided to utilize the approach the OC Register reporters Tony Saavedra and Jon Cassidy did in their review of Orange County city CAFRs back in August (see MOORLACH UPDATE — Voice of OC — October 10, 2011).  They utilized a per capita comparison approach.  In Orange County, with more than 3 million residents, it is a $3 deficit per person.  If the County were a city, it would have ranked 32nd out of 35.

So how did the recently released CAFR for June 30, 2011 look for UNA?  Unfortunately, the per capita deficit grew and is now $25 per person.  Here is the recent five-year trend:

Fiscal Year Ended

        UNA

Per Capita

6/30/07

     $135,826

$      47

6/30/08

         57,812

        20

6/30/09

          (1,271)

          0

6/30/10

          (9,986)

        (3)

6/30/11

       (73,741)

      (25)

This recession has been depleting our reserves.  And, due to current guidance from the Government Accounting Standards Board, the County’s CAFR does not reflect $4.1 billion in unfunded liabilities in its balance sheet!

I don’t want to dump the whole speech on you today, so I’ll provide more in future updates.  The County is, in the words of Moody’s Investors Service, showing “modest signs of improvement within one of the state’s largest economies” but “fiscal position remains very weak for the rating, but stable; operations still slightly unbalanced.”  This point was reiterated during the presentation of the County’s annual Strategic Financial Plan.  Stating that the County is “in pretty good shape” does not square with the sobering analysis presented by our Chief Finance Officer and Chief Budget Director.  Moreover, such a position ignores the very real economic impacts on the County’s retirement system.  I concluded my remarks with proposed solutions to address the pension liabilities in this slide:

The best solution is to rescind the pension plan enhancements of 2001 and 2004

Would dramatically reduce the County’s UAAL

Would nearly eliminate the reverse pickup

May provide a total or near total reimbursement of prior reverse pickup contributions

Would provide for lower employer pension plan contributions

The point is that we should be able to negotiate with the public employee unions to address our growing deficits.  With our flat projected revenue stream, and our growing pension costs (and health care costs), there will be no room for pay increases.  Let’s discuss the choice:  pay raises or an overly attractive pension plan.

The OC Register provides its perspective in their second editorial today.  It is the first piece below.  Converting from a defined benefit pension plan to a defined contribution plan is easier said than done, but I appreciate their position.

A major priority of the Commission to End Homelessness is finding a year-round emergency shelter, versus utilizing armories only during the winter months.  As I’m typing this Update and looking out my Fifth Floor window, there is a large homeless population to the north of the Ross Street parking lot.  To the south of this parking lot is an empty bus station with adequate open space and a roof to shelter people from the rain in the winter and the sun in the summer.  It happens to be for sale.  This should be a fun exercise during the first few months of this year.  The Voice of OC covers it in the second piece below.

The resignation of Public Administrator John Williams was to have been effective on Monday, January 23.  The County is attempting to keep him at his word.  This drama is covered by the Voice of OC in the third and final piece below.

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Editorial: O.C. pension battle ahead

Supervisor Moorlach: County ‘financial viability’ at stake.

John Moorlach, incoming chairman of the Orange County Board of Supervisors, in his State of the County address Tuesday, outlined a plan to "preserve the financial viability of the county" by reining in skyrocketing pension costs facing the county.

Mr. Moorlach advocates reasonable and modest savings in the formulas for calculating the pensions of county employees. He and his board colleagues face an intense battle to do so.

Nick Berardino, general manager of the Orange County Employees Association, listened to Mr. Moorlach. "The bleak picture he painted was way overstated. From our research the county is in pretty good shape."

As for reducing pensions for current employees, Mr. Berardino was emphatic: "We can’t forfeit members’ rights legally. That’s not even an option."

As we have noted for years, the county of Orange faces huge unfunded retirement liabilities that can no longer be ignored without major consequences. Mr. Moorlach said in his remarks that the county faces nearly $4 billion in unfunded pension and retiree health care obligations.

Some county supervisors have been outspoken about reforming employee compensation and pension. Mr. Moorlach has built his reputation on the issues, and Supervisor Shawn Nelson has made them a priority since taking office in 2010. Mr. Moorlach, in no uncertain terms, emphasized pension reform this year in particular because of looming contract negotiations with three of the county’s most powerful bargaining units: the OCEA, the Association of Orange County Deputy Sheriffs and the Orange County Managers Association.

To say the stakes are high would be an understatement.

Mr. Moorlach outlined a few solutions which, from our perspective, are sensible and reasonable, though, ideally, could go farther. Most notably, he called for no new pay increases and "negotiated pension reform." For Mr. Moorlach, the way to pension solvency is by "working with employee associations" to "return entire bargaining units to prior formulas" by rescinding the pension benefit enhancements awarded employees in 2001 and 2004. This is easier said than done.

One of the crowning achievements for employee unions has been those pension enhancements. In 2001, sheriff’s deputies received a retroactive pension increase (going from 2 percent of salary for each year of service, beginning as soon as age 50, to 3 percent at 50). In 2004, pensions for other county workers were bumped from 1.62 percent of salary for each year of service, beginning as soon as age 60, to 2.7 percent at 55.

We would have preferred the supervisors start from a stronger negotiating position: salary cuts for all bargaining units and radically changing the pension systems by shifting from defined-benefit plans, which promise a certain payment, to defined-contribution plans, much like private-sector 401(k) accounts. But, as it is said, politics is the art of the possible, and the political will perhaps does not yet exist the make such bold changes.

Still, the reforms proposed by Mr. Moorlach should be the bare minimum.

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Moorlach Challenges Santa Ana on His Plan Against Homelessness

John Moorlach didn’t waste any time Tuesday in making waves as the new chairman of the Orange County Board of Supervisors.

Moorlach told those assembled at the supervisors’ regular meeting that it is "a real honor to serve on this board." He then went on the offensive, challenging officials from Santa Ana over his plans to use a defunct bus station in downtown Santa Ana to feed and potentially house homeless people.

Just before the board adopted their plan, Supervisor Janet Nguyen read into the record Santa Ana’s official "strong opposition" to the bus terminal proposal.

"Great," Moorlach quipped, "so the homeless should be across the street and not there," referring to the large encampment of homeless people that practically live on the lawn of the Orange County Civic Center.

Moorlach has been pushing a plan to use the empty Orange County Transportation Authority building across the street for homeless services.

That’s the kind of action called for in the county’s 10-year plan to end homelessness, which has several phases.

Steve Kight, who oversees the OC Partnership established to deal with homelessness, unveiled a plan — ultimately approved by supervisors — with four phases covering moe than 10 years with more than 50 strategies.

Last year, the group focused on organizational challenges, such as finding an executive director. This year is the year of measurement.

Kight told supervisors it’s important to establish measures that can "tell us how many come into the system, how long they stay and where they exit."

The biggest challenge comes next year, Kight said. The county must then address how to replace its cold-weather shelters with more permanent shelters. "It’s a big issue for the county," Kight told supervisors.

Given the reaction in Santa Ana, it won’t be easy.

The next biggest challenge, Kight said, is strengthening transitional housing, which he called "the backbone" of getting people with problems back on their feet and into stable living conditions.

Kight spoke last week before the Voice of OC Community Editorial Board, delivering a similar message.

Supervisor Pat Bates wants Kight to bring more information to the board about how other communities have successfully implemented strategies for tackling homelessness.

Meanwhile, Supervisor Shawn Nelson noted that given situations like the serial killings of homeless people in Anaheim and the Fullerton police beating death of a homeless man, his office is working to help organize a homelessness summit in North Orange County.

— NORBERTO SANTANA JR.

 

Orange County’s Public Administrator Won’t Leave

Last March, Orange County’s besieged public administrator, John Williams, avoided political execution by agreeing with the Board of Supervisors to retire on Monday.

But despite that agreement — and an order to change the locks on his office door — Williams showed up for work anyway.

On Tuesday, he was officially told not to come back.

"The Board of Supervisors accepted your resignation as Public Administrator of Orange County effective January 23, 2012, upon receipt of your letter of March 9, 2011," wrote County Counsel Nicholas Chrisos in a letter to Williams.

Williams’ attorney and spokesman, Phil Greer, couldn’t be reached for comment.

Williams has been a controversial figure in county government since 2009 when two scathing grand jury reports criticized his management of the offices of public administrator and public guardian, which oversee the complex estates of deceased people without heirs and those of indigent people.

The spotlight on Williams became intense in late 2010 when high-ranking Assistant District Attorney Todd Spitzer was fired by Orange County District Attorney Tony Rackauckas after investigating allegations that Williams was mishandling a case involving a domestic violence victim.

The controversy was fueled by the fact that Rackauckas’ fiancee, Peggy Buff, was Williams’ second in command.

The Spitzer affair also drew a heightened focus on how Williams ran his office. An investigation determined that the county faced potential legal liability over mismanaged estates.

In the wake of the investigation, Buff was quietly moved into a six-figure job at the county despite a hiring freeze because of her relationship with Rackauckas.

Meanwhile, county supervisors like John Moorlach, who were one-time political mentors to Williams as a fellow Republican, quickly turned on him. They stripped him of his public guardian role and appointed an executive manager to manage operations of public administrator.

It was the third crisis between county supervisors and a countywide elected official in recent years.

In 2008, supervisors had to devise a way to force then-Sheriff Mike Carona to step down. By 2009, they decided to oust then-Treasurer Tax Collector Chriss Street. And by 2010, Williams was under pressure to leave.

County supervisors have no authority to remove an independently elected office holder like Williams. Despite a federal indictment of Carona or bankruptcy-related lawsuits against Street or Williams, these countywide elected officials can’t be forced to resign. They can only be recalled.

That was the road that Williams was on back in March until his attorney, Phil Greer, was able to broker his resignation.

Under the terms of that deal, as described by Chrisos in his Jan. 24 letter to Williams, he was able to stay in office with his full salary of $153, 206 even though all his official duties were handled by others appointed by county officials.

For example, Lucille Lyon was appointed Public Guardian in July.

Supervisors also placed an initiative on the June ballot that would transform the Public Administrator back into an appointed position.

On Tuesday, Moorlach said Williams – whom he once supported – had become a poster child for the campaign to turn the post back into an appointed slot.

Yet Chrisos’ letter also noted that county supervisors had previously agreed to keep a lid on Williams’ mismanagement of his agency by not releasing the results of their independent investigation to the public.

They even gave authority to CEO Tom Mauk to retain Williams as a private consultant during the transition, according to Chrisos letter.

Yesterday, supervisors apparently ran out of patience.

"The Board has fulfilled its portion of the obligation," Chrisos wrote. "Therefore, the purported oral notice to the CEO and to me via your counsel that you desire to rescind your nine-month old resignation, is not effective."

"Your final salary check and any leave payout will be mailed to you at your address on file. The CEO will separately determine the need to retain your services as a consultant."

Please contact Norberto Santana, Jr. directly at nsantana@voiceofoc.org and follow him on Twitter: twitter.com/norbertosanana.

FIVE-YEAR LOOK BACKS

January 22

1997

The joys of filing for Chapter 9 bankruptcy include the professional fees that must be paid.  The LA Times covered the joy in a piece by Shelby Grad, titled “Bankruptcy-Related Fees Still Mounting – Recovery:  More than $42 million has been paid to lawyers and consultants.  County will take over some of the work.”  The amounts paid by the county should give any municipality pause when it considers this route of action.  As the new Treasurer, once my investment staff started to manage a portion of the money, we found that we were more competitive in acquiring investment products and were achieving a yield 5 basis points or more higher than the paid

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