MOORLACH UPDATE — Pay Now or Pay Later — April 11, 2013

One of my strongest convictions is to oppose borrowing for non-appreciating assets. I have always recommend paying cash for purchases. I pay off my credit card balance every month. And, when I do use debt, I pay it off as quickly as possible, including mortgages. The first article reveals this strong bias. Severe debt issues usually occur for three reasons: mismanagement, misjudgment or misfortune. Someone in the late 1990s presumed that the stock market was going to deliver 20 percent annual returns for the next few decades and that the dot-com boom would never end. Based on this over-optimistic financial outlook, the California Legislature improved employee retirement benefits by some 50 percent, back to the date of hire, and instantly created an enormous debt obligation. I call that misjudgment. The fact that the stock market corrected itself, as it always does, is hardly misfortune. The County’s retirement system is now two-thirds funded, which makes it a severe debt problem. But, treating the collective pension debt like a credit card balance and remitting only the minimum monthly payment, and even trying to get the minimum payment threshold reduced, now that’s mismanagement. If you only pay the minimum on your credit card balance, the balance will probably never really decline. Likewise, re-amortizing the pension debt only pushes the obligation onto the next generation and reduces their future opportunities. Such short-sighted tactics may lead to some political relief for elected officials, but they move us closer to disastrous situations like those faced by Social Security and CalSTRS. The Voice of OC provides the background in the first piece below, which was also picked up by the Associated Press and printed in the Kitsap Sun (state of Washington). Correction notification: It is not true that I do not “pay anything toward” my pension plan.

The second piece is from Patch regarding the unfortunate circumstances facing one of the County’s CEO candidates.

How Pension Board Discussions Are Scaring City Leaders

By DAVID WASHBURN – writer (AP)

Leaders from some of Orange County’s smaller cities are growing increasingly concerned with recent discussions by the Orange County Employees Retirement System (OCERS) board regarding the merits of a more aggressive approach to paying down the system’s future unfunded liabilities.

At its meeting Monday, the OCERS board will consider a suggestion that it lower the amortization period on future liabilities. The benefit of such a move

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