MOORLACH UPDATE — Car Pool Trip Wire — July 16, 2013

Trip wires that create takeaways from the taxpayers are nefarious. The County has invested significant resources into providing carpool lanes. I’ll disregard the efficacy of carpool lanes for now, as they are in place and we are using them. But, it appears that we are using them too much. So, Congress passed a law last year that may require three or more passengers in the vehicle or impose tolls on the lanes if single drivers are permitted to use them. The state of California allows for low-emission vehicles to use the lanes, jeopardizing their current status. The ability to drive solo in the carpool lanes is sunsetting, but the Legislature is sending a bill to the Governor to extend this privilege. It needs to stop. The first piece is my editorial submission to the OC Register on the subject.

It appears that it was not a quiet week at the Orange County Employees’ Retirement System (OCERS). The Voice of OC covers a debate on amortization periods. This is one component, of many, that the OCERS Board has control over. When incurring gains or losses, or when making plan changes, should the amounts be absorbed in the year they occur or should they be amortized over a period of time to smooth out the volatility? The second article below, from the Voice of OC, does not address the specific issue in detail. It was my understanding that one amortization period would be shortened in the future (prospectively), so there is no way to quantify its impact today. But, shortening amortization periods is something that even CalPERS is currently doing. Addressing debt management and pursuing full funding is the prudent fiduciary approach to take. One small correction: I am still a Certified Public Accountant.

The Voice of OC has an editorial submission, the third piece below, which seems to think that an OC Supervisor’s work load is predicated on how much unincorporated area is left in the county. That is a metric that indicates a lack of understanding of the role of this office. One thing I do agree with, and has been one of my priorities, is to get the unincorporated areas into cities in order to then pursue an idea like a council of cities to run the county. Since there is much more to do than manage unincorporated areas, I can assure you (and so can Mrs. Moorlach) that the position of a County Supervisor is far from a part-time one.

Proposed bill means more traffic snarls

By JOHN MOORLACH

Federal rules say that traffic in the carpool lanes should always be moving at a 45-mph clip, even in the thick of rush hour. Here, during the morning commute, cars stack up in the southbound 57 carpool lane at Yorba Linda Boulevard.

REGISTER PHOTO

Government does a poor job of picking winners and losers in the marketplace. When it comes to carpool lanes and low-emission vehicles, Sacramento’s poorly conceived incentive to entice people to purchase certain vehicles could force slower drive times on all of us.

The Orange County Board of Supervisors recently voted unanimously to oppose Assembly Bill 266, which would continue to allow solo-drivers of certain low-emission, hybrid or alternative fuel vehicles to use the carpool lanes. Let me tell you why.

On Sept. 7, 1999, Gov. Gray Davis signed a bill allowing low-emission vehicles to access carpool lanes. You may have seen the clean air vehicle decals on cars with only one occupant in the carpool lanes. AB266 will extend this opportunity for those who purchase these types of vehicles.

Federal legislation known as "Moving Ahead for Progress in the 21st Century (MAP-21)" dictates that if the operation of a carpool lane allows low emission and energy efficient vehicles and becomes degraded (congested especially in peak hours), then the state must take action. This bill was signed into law on July 6, 2012.

There is one major problem with AB266, in light of MAP-21. As stated, it would extend the opportunity for solo drivers to use carpool lanes statewide. But MAP-21 states that if this is allowed and carpool lanes become degraded, then those lanes must be brought into compliance with speed performance standards. This could have a huge impact on Orange County’s carpool lanes.

How would the state achieve compliance? Caltrans can raise the occupancy requirement from two or more persons per vehicle to three or more. It can convert the free carpool lane into a high-occupancy toll (HOT) lane, charging drivers for use. It can require a second carpool lane, thus taking a regular lane or adding a new one within the existing right of way. Caltrans can also add the second lane and convert them both to HOT lanes, or they can construct two HOT lanes, requiring three or more passengers in each vehicle.

If Caltrans fails to do something within the required 180 days, the federal government could withhold funding and approval on road projects. This may endanger a funding source that accounts for some 25 percent of support for state and local roads and highways. Orange County has several freeway improvement projects planned which will benefit our economy with jobs and the moving of goods to market. Delaying or denying approval and funding would be detrimental.

It would be nearly impossible to execute most, if not all, of these modifications within the 180-day window.

Immediate fixes include increasing enforcement and issuing citations to crack down on those single-drivers who violate the carpool lanes. Caltrans could also increase the fine. Moreover, it could require three or more passengers only during peak periods.

What Caltrans should do is simply eliminate inherently low emission vehicles from the carpool lanes. They make up only about two percent of the users, but require the degradation study and its resulting ramifications. Remember, you have been paying for these carpool lanes as a result of taxes imposed when fueling your non-efficient gas-powered vehicles.

California has tried to encourage the acquisition of certain low emission vehicles, although high emission vehicles are less smog producing when they are moving efficiently. Therefore, a policy to support specific technologies may actually be slowing traffic in the carpool lanes and generating more exhaust rather than reducing it.

We need California to discontinue its decal program in order to protect the county’s carpool lanes. At the least, it should be prohibited in Orange County, which has about a quarter of the state’s total carpool lanes.

AB266 has already passed the State Assembly (59-22). And if the Senate fails to stop this MAP-21 trigger, we need to ask Gov. Jerry Brown to veto AB266. The fine print in MAP-21 is a threat to the investment we have made to improve our daily commute.

John Moorlach is a member of the Orange County Board of Supervisors, representing the second district on the board.

Assembly Bill 266

The legislation, which seeks to extend carpool-lane access for electric cars and zero emission vehicles, was written by Robert Blumenfield, D-Woodland Hills. It passed on a 49-22 vote in the California Assembly and is awaiting decision in the state Senate.

Source: California Legislative Information

Treasurer’s Flip-Flop Creates Havoc on OC Retirement Board

By NORBERTO SANTANA JR.

Orange County Treasurer-Tax Collector Shari Freidenrich’s waffling on a key pension-funding vote as a member of the county’s retirement board has put her in the cross hairs of both Republicans and labor leaders and triggered calls for an official investigation.

Last month, Freidenrich voted along with the majority of the Orange County Employees Retirement System or OCERS board against a plan to shorten the amortization schedule of public pension debt, which would have increased the amount that member agencies such as county government and the fire authority pay annually toward pension system funding.

Her vote has drawn intense criticism from influential Republican leaders such as Orange County’s Lincoln Club, who are increasingly pressing for unfunded liabilities to be paid off as soon as possible, even if it forces cuts in public services.

Then in recent weeks, Freidenrich made it clear that she wanted to reconsider her vote.

That in turn angered labor officials, who argued that she is bending to the will of those who want to artificially increase the annual costs of providing retirement benefits to public employees.

At Monday’s regularly scheduled meeting of the OCERS board, labor officials accused Freidenrich and other board members of breaching their fiduciary responsibility and called for an investigation.

They also raised specific concerns about emails sent by OCERS Chairman Tom Flannigan on the issue to other board members before last month’s public meeting, raising the prospect that the state’s open meetings laws were violated.

“The line between the board majority’s exercise of informed, reasoned judgment on the one hand and breaches of fiduciary duty on the other has become dangerously murky,” said Don Drozd, general counsel for the Orange County Employees Association, during the public comment period at Monday’s meeting.

“To the thousands of public employees who are watching you, it at least appears that some part or many of the board’s actions resulting in increases to pension benefit contribution rates is being driven by somebody who has it out both for them and their benefits.”

Flanagan said he took “serious umbrage at any hint that I’m not being professional,” adding that “I don’t think I attempted to persuade Madam Treasurer to do anything,” although he noted the two had discussed the issue after last month’s meeting.

The retirement board’s lawyer, Harvey Leiderman, shut down Monday’s debate after several hours, arguing that airing such dirty laundry in public and without being formally placed on the agenda had left board members open to a lawsuit both as individuals and as a group.

Leiderman publicly chastised OCERS board members, saying that based on their public comments Monday, “there is significant exposure to litigation of members of this board and this board.”

Leiderman, who conducted a public workshop for board members on the state’s open meetings laws in May, never publicly said what the specific threat was.

“Under the circumstances, it would be prudent for the board to go into closed session to consider that exposure and the ramifications of that exposure,” Leiderman declared without being specific.

During the meeting, labor leaders in the audience also resurrected the option of having plan sponsors such as the county government leave OCERS for the state retirement system, known as the California Public Employees’ Retirement System or CalPERS.

“Today’s debate is probably the strongest argument to move to CalPERS,” said Tom Dominguez, president of the Association of Orange County Deputy Sheriffs. He said that many plan participants are losing trust that the OCERS board is making apolitical calls. “The concern is with governance,” Dominguez said.

The controversy started last month when Freidenrich was the swing vote on a series of 5-4 decisions on the amortization issue. She then became the subject of an intense but quiet campaign to switch her vote.

At Monday’s meeting, Freidenrich expressed her desire to change her June 17 vote without explaining other than to say she hadn’t clearly understood the system’s actuary at the last meeting as she participated via phone conference. The debate on amortization, however, has run for months.

“It was the actuary that indicated information that I misheard while I was on the call,” she said. “That affected questions I was going to ask.”

OCERS Board Member Chris Prevatt, who represents general employees, took aim at Freidenrich’s rationale, saying “its not plausible.”

“What was it that [Segal Co. actuary] Andy Young said that you misunderstood so that we can all be sure that’s causing you to make a dramatic change that will affect our members for a long time,” Prevatt said.

Freidenrich’s public rationale on Monday also differed considerably from what county Supervisor John Moorlach said she wrote in an earlier email to him.

Moorlach told Voice of OC last week that Freidenrich stated in an email exchange that she voted against the amortization change because she was trying to help the county manage its budget.

At Monday’s meeting, Freidenrich didn’t initially know what motion she wanted to change — there were five —or how until publicly coached by OCERS CEO Steve Delaney on her options.

“I don’t recall the series of votes,” Freidenrich said before Leiderman pointed out that they were detailed in the official minutes of the June meeting that were in front of her.

The exchange further fueled accusations from labor representatives in the audience that Freidenrich was violating her fiduciary duties to the plan because she was changing votes based on ideology, not the best interests of the pension plan.

One example of the pressure on Freidenrich from Republican circles is a June 18 email sent by Jon Fleischman — who publishes the state’s leading online conservative publication called the Flash Report — to Stanton City Councilman Dave Shawver the day after the OCERS vote.

“Until we actually get to a point where current union employees are losing their jobs in order to pay for the benefits of retired union members, there is no pressure on unions to reduce their current salary and benefits,” Fleischman wrote.

Moorlach acknowledged that Freidenrich has been under pressure from Republican leaders, noting that he had a brief email chat with her after the vote when he told her his opinion.

“I believed she should have voted yes,” Moorlach said.

Moorlach said Freidenrich had explained her initial vote to him by expressing an interest in helping plan sponsors manage their budget, acknowledging that county leaders faced “a really tight budget.”

Yet Moorlach said he told Freidenrich that a tight budget didn’t mean he wanted to avoid paying county debts on time.

“We can’t keep extending this thing out more. That costs more,” Moorlach said.

In what has become normal practice for Freidenrich on contentious issues, she declined to respond to a phone call on the issue from Voice of OC before Monday’s meeting.

Moorlach acknowledged there is a battle on the OCERS board among appointees from labor and from the Board of Supervisors on how to handle pension obligations.

He and other Republican leaders have argued that unfunded liabilities should be erased as quickly as possible. “That’s just who I am,” said Moorlach, the former certified public accountant. “It’s my DNA” to pay off debt as quickly as possible.

“When you start being liberal with amortization schedules and start kicking the can down the road … that is poor stewardship,” he said. “You can’t be fully funded if you re-amortize every few years.”

Moorlach and other Republican leaders, such as Lincoln Club President and OCERS Board Member Wayne Lindholm, have focused on the swelling unfunded liability of the local retirement system — now more that $5 billion — since benefits were expanded in 2004 for general employees.

They point to recent pension benefit enhancements in 2001 and 2004 as being primarily responsible for the spiraling unfunded liability. Labor leaders, however, argue the unfunded liability is more connected to market losses and actuarial changes over the past decade.

Late last year, OCERS board members voted to lower their investment earnings assumptions by a half percentage point to 7.25 percent as opposed to the one-fourth point reduction advocated by labor officials. That set the stage for the amortization debate.

Recasting those votes drew immediate fire from other OCERS board members, such as public safety representative Roger Hilton, who questioned how the retirement board can govern if vote results are going to be in flux.

“We can’t just keep re-agendizing things after we vote on it,” Hilton said, adding that plan sponsors need stability. To revote until a specific result is found “is a terrible way to do business,” he said.

Prevatt said that if the board wants to start recasting votes, then he would like to re-agendize last year’s vote to lower the investment assumptions. Despite the protests of Flanagan, who said that issue was already decided, Prevatt insisted it be brought back at the next meeting.

After the unanimous vote to go into closed session, OCERS board members never discussed the issue again publicly.

It’s unclear whether Freidenrich or Prevatt will receive a revote or whether the entire matter will be investigated, as some board members demanded.

What is clear is that retirement meetings are likely to be well attended in the future.

“Your constituency is beginning to believe these are political actions and not actions based on fact,” said Sara Ruckle Harms, who monitors the meetings on behalf of active retirees with the Retired Employees Association of Orange County.

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

Community Editorial: Full-Time Supervisors Make No Sense

By MICHAEL MOODIAN

Orange County Supervisor Todd Spitzer has often criticized disgraced former Public Administrator John Williams and officials from the district attorney’s office for being corrupt and using their positions for personal gain.

But is Spitzer much different?

According to the Orange County Register, domestic violence victim Lori Galvin hired Spitzer, then a private attorney, to represent her as she sought restitution last year. Spitzer was sworn into office in January and a judge awarded Galvin more than $25,000 in April. Galvin filed a $24,500 claim against the County of Orange in May to recoup Spitzer’s legal fees. Spitzer, now a sitting county supervisor, recently admitted researching and coauthoring the claim against the county.

This is a clear conflict of interest.

The law prevents state officials from profiting by representing outside entities in issues pertaining to the state. There is no similar law that applies to county officials, so Spitzer’s actions are not illegal. But are they ethical? Are they appropriate? Does this meet the highest standards of integrity we should demand of all of our public officials? Is Spitzer a hypocrite for attacking John Williams when he himself engages in questionable conduct?

Spitzer now claims he will donate the money back to the county. If this was his intention all along, he seems to have too much time on his hands given that he is dedicating his energy to an unnecessary legal battle.

This illuminates a much larger issue. I have often asserted that Orange County does not need a full-time board of supervisors. Former Supervisor Marian Bergeson once proposed eliminating the board and replacing it with a council of city leaders. At a minimum, a county such as Orange with very little unincorporated land would benefit from part-time supervisors. The number of citizens who live in unincorporated areas is smaller than the population of Irvine. Why do we need full-time elected county officials?

If supervisors disagree and insist that their work requires a full-time taxpayer-funded salary, how do they find time to maintain other jobs, which is what Spitzer does with his existing law practice? Three of these five full-time supervisors are also full-time political candidates: Pat Bates and Janet Nguyen are running for state Senate, and John Moorlach is running to represent a congressional district in which he does not reside. Spitzer will be the fourth candidate if he runs for district attorney.

This full-time board does nothing positive for Orange County. Moorlach, who claims he is a champion of fiscal conservatism, opts for a lucrative, taxpayer-funded pension plan for himself. We pay Janet Nguyen’s sister, Hong Nguyen, who once logged an average of 22 hours per week, $73,700 per year.

We can place an initiative on next year’s ballot that reclassifies these career politicians as part-time and eliminates their costly and unnecessary medical and pension benefits.

What are we waiting for?

Michael A. Moodian is an author, public policy analyst and Voice of OC Community Editorial Board member based in Rancho Santa Margarita. Contact him through his website — www.moodian.com — and follow him on Twitter (@mikemoodian).

FIVE-YEAR LOOK BACKS

July 16

1998

The LA Times had their story on reusing Merrill Lynch. For some reason, the topic seemed to come up every four years – and usually during World Cup Soccer – so others would have something to kick around. Jean O. Pasco and Shelby Grad provided the topic with “Treasurer Asks O.C. to Bond Again With Merrill – Investments: Moorlach was first to warn of risks before bankruptcy but now says it’s in county’s interest to forgive Wall Street giant. Supervisors aren’t so sure.” I was a little early on this idea, but it made for a lively discussion. Here are a couple of selected paragraphs:

"We’re talking about a company that made some egregious judgments, but we’re all human," said Moorlach, who succeeded Robert L. Citron, the county’s former treasurer-tax collector who served eight months of a one-year jail sentence for illegally diverting interest earnings from fund investors to the county.

Moorlach said Wednesday that county investors are being deprived of the highest possible returns by being unable to deal with Merrill. As long as Merrill has settled the suit and the settlement is approved by the court, he said, the company should be able to do business again in Orange County.

2003

Michael B. Marois of Bloomberg News had an interview with the state Senate Minority Leader James Brulte, in “California’s Brulte Holds the Line on Tax Increase.” Here are a few selected opening and middle paragraphs:

The California Senate’s top Republican, Minority Leader James Brulte, says he can reduce the state’s $38 billion budget deficit without raising taxes.

What he can’t do is get two-thirds of the other legislators to go along with him.

Last night, the state Senate defeated all 131 of his proposals, including ceasing payments for detoxification centers for heroin addicts and hearing aids for poor people, to cut $3.4 billion in spending beyond those requested by Democrats. Brulte, for his part, has stymied a Democratic plan to raise taxes in the largest state by as much as $8 billion.

“Republicans are not going to vote for a tax increase,” said Brulte, who describes himself as the Bush administration’s point man in California and a personal friend of Bush political organizer Karl Rove.

The minority leader’s opposition to any new taxes — and the Democrats’ resistance to more spending cuts — is one of the reasons California now has the lowest bond credit rating and the highest borrowing costs of any U.S. state.

A Republican who votes with the Democrats “can forget about a future in the Republican party,” said Orange County Treasurer John Moorlach, A Republican. Brulte can’t compromise because “every time we talk about compromise, it’s raising taxes. And that’s baloney,” Moorlach said.

The 47-year old Brulte, who worked on the staff of the Republican National Committee during Reagan’s administration, places the blame for the state’s financial troubles squarely on the shoulders of Davis and his fellow Democrats. Spending soared by almost 45 percent During Davis’ first term while the state’s population grew by 8.6 percent to about 35.3 million.

“It’s horrible that we’re where we are today, and the people who want to continue to overspend have to be brought under control,” Brulte said. “When we stop overspending, we will get a better credit rating.”

Brulte’s arm-twisting has irked Democrats such as Westly and Treasurer Phil Angelides, who accuse Republicans of delaying the budget to help foster a Republican-led petition drive to force a recall election on Davis. Supporters of the recall say they’ve collected 1.6 million signatures, more than enough to qualify a special election possibly as early as November.

2008

Stuart Pfeifer of the LA Times provided a ballot measure update with “Voters may get say on pensions – Any more increases in O.C. employees’ packages should be OKd at the polls, Moorlach says.”

Concerned about the skyrocketing cost of Orange County employee retirement benefits, Supervisor John M.W. Moorlach on Tuesday proposed requiring voter approval for any future increases to employee pensions.

Moorlach will ask the Board of Supervisors to place an initiative on the Nov. 4 ballot that would require the approval of voters before the county could increase pension benefits for any of its 19,000 workers.

Supervisors are scheduled to consider his request July 29.

Moorlach said he was concerned that earlier pension increases had threatened the county’s financial future.

A recent estimate found that the county’s pension system is $2.7 billion underfunded, Moorlach said.

In January, the board filed a lawsuit seeking to reverse a 2001 decision to award retroactive pension increases to thousands of sheriff’s deputies. That lawsuit is pending and is being watched closely by county officials and deputies unions throughout California.

The 2001 decision allows some deputies to retire as early as age 50 with pensions that pay them 90% of their final salaries for the rest of their lives. Moorlach said that decision cost the county between $100 million and $200 million.

In 2004, supervisors approved pension increases for most other county employees, but those employees pay for the increase through salary deductions.

Moorlach’s proposal is expected to meet resistance from county employees unions already concerned about the pending lawsuit to reverse the 2001 benefit.

Nick Berardino, general manager of the Orange County Employees Assn., which represents more than 13,000 employees, said Moorlach’s proposal was irrelevant because there were no plans in the works to increase pensions.

"I think Orange County residents are smart enough to see this for what it is, old-style political grandstanding," Berardino said. "Instead of wasting valuable time and scarce resources on meaningless what-if measures like this, our elected officials should be focused on the issues confronting county residents, like the impact of soaring food and fuel prices."

Under Moorlach’s plan, increases to county employee retirement benefits would require the approval of supervisors and then of the voters. San Francisco and San Diego counties have similar policies.

Because of growing concern that the county won’t be able to afford to pay retirement benefits owed to its employees, it’s unlikely that the current board would agree to increase employee pensions, Moorlach said.

Still, he said, requiring voter approval would help ensure that supervisors in the future don’t burden the county with benefits it can’t afford to pay.

"We had a board that created a rather substantial debt, and not one taxpayer voted to approve that debt," Moorlach said. "So let’s make sure that doesn’t happen in the future and let’s let the voters take a little control of the budget."

Peggy Lowe of the OC Register provided the same topic in “Voters could decide public pension increases – Moorlach’s proposal bars the supervisors from supplementing any current deals.” Here is a selected paragraph:

Moorlach said he sees this effort as part of a three-pronged approach at curbing public pensions. The lawsuit, this plan, and his hope that the county could create a different pension plan for new hires could help solve the problem of billion-dollar unfunded liabilities, he said.

The OC Register lead editorial was titled “Give taxpayers a say on pension boosts – Moorlach to propose a ballot measure requiring voter approval of benefit increases.”

Municipalities throughout the country, including Orange County, are facing large "unfunded liabilities" that threaten the economic future. Those liabilities are a type of debt – the amount of money that taxpayers must come up with to make good on the overly generous pension promises made by politicians to public-sector unions.

In Orange County, for instance, "public safety" officials can retire at age 50 with more than 90 percent of their final year’s pay (after 30 years of work) guaranteed for life by taxpayers. The taxpayers make the full contribution for these employees over the course of their working lives.

Nonsafety employees receive less-generous plans, but they still are far more generous than what most private-sector workers receive. In Orange County, the average county worker can receive 81 percent of the final year’s pay at age 55, after 30 years of work (although the increases are funded by employees themselves). In 2001, before the county supervisors retroactively spiked pensions for law enforcement, the county’s retirement system was fully funded. It had 103.74 percent of the funds needed to live up to its promises. Now, the system is only about 71 percent funded.

Politicians have shown no willingness to take on the politically powerful unions. Consider that the county’s two retroactive pension spikes (in 2001 and 2004) passed on boards that were unanimously Republican. Two of the pro-union ringleaders, Todd Spitzer and Jim Silva, are now Republican Assemblymen. Taxpayers remain at the mercy of those who put union support above the taxpayers’ interest, and even a Republican board offers no protection.

Fortunately, Supervisor John Moorlach is proposing at the board’s July 29 meeting a November ballot measure to deal with this looming problem. It would be a charter amendment that would require voter approval for any negotiated retirement benefit increases for employees who work for the county of Orange. The measure is modeled after Proposition B, which was passed by San Diego voters with 70 percent of the vote after that city struggled with political and economic problems caused by overly generous pay and benefits for city workers. San Francisco also requires such a vote, which has made that liberal city far more fiscally conservative than Orange County.

The time has come for such a measure. It calls for two things. First, the board "shall not take any action, by ordinance, resolution or otherwise, which increases the retirement benefits of any employee, legislative officer or elected officials of the county of Orange in the Orange County Employees Retirement System or any successor retirement system … with the exception of statutorily established cost-of-living adjustments, without first obtaining the approval of a majority of those qualified electors voting on this matter." Second, the measure would require an actuarial study of the accrued liability caused by the pension increases.

The measure would not limit the county from negotiating with unions for such benefits, but none of them would be binding until the election.

This amendment would at least enable county taxpayers to have the final say on the use of taxpayer dollars. Orange County should not wait until we face San Diego-style fiscal problems to do the fiscally responsible thing.

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