MOORLACH UPDATE — Jolly Roger — August 19, 2013

The Bridge Bash over the weekend appears to have been very successful. For footage of the event, see http://abclocal.go.com/kabc/story?section=news/local/orange_county&id=9208497. As I had hoped, the bridge demolition went faster than scheduled and was nowhere near the top of the Sunday evening network news stories after its completion. You couldn’t ask for a better result.

The first piece below concerns recent votes made by trustees of the Orange County Employees Retirement System (OCERS). It is a commentary from the Voice of OC, or it appears to be from the opening sentence. I should clarify that Treasurer-Tax Collector Shari Freidenrich and I exchanged calm and professional e-mails subsequent to the votes, but I do not recall having any direct one-on-one conversations with her on the matter. Anyone who has known me over the years is fully aware of my aversion to debt. I can still remember counseling a client about his personal budgeting when I mentioned that I paid cash for my cars. “Are you kidding? I would have never purchased my Corvette if I had to pay cash for it,” he said. Exactly. If the 2000 and 2004 County Supervisors had to pay for the granting of retroactive enhanced benefits at the time they became effective, they would not have been able to do it. As a result, the County has a pension plan that was fully funded in 2000 and is now only 63 percent funded. Paying for enhanced benefits, plus the 37 percent unfunded portion is a heavy debt load, especially at a 7.25 percent interest rate. Consequently, most public employee pension systems are modifying their assumptions and amortization periods to address their massive debts, including the California Public Employees Retirement System (CalPERS). Making the minimum payment on your monthly credit card balances will not get you out of debt. In fact, ever higher payment amounts are needed to resolve the obligation. You’ve got to love a family fight over how to pay the bills. No wonder the number one cause of divorce is arguments over finances. The tone of the piece would lead one to believe that the writer prefers the use of minimal payments.

The second piece is an update on one of the OC’s three beautiful harbors. The Jolly Roger in Dana Point Harbor closed after forty years of business. It’s sister location in the Oceanside Harbor is still open and I recently enjoyed a Sunday brunch there, continuing a long history of visiting this particular restaurant. The Dana Point location has a new tenant and the Dana Point Times provides the details.

County Treasurer Trying to Back Track on Key Pension Vote

By NORBERTO SANTANA JR.

Orange County Treasurer Tax Collector Shari Freidenrich continues to draw attention as she waffles over a pension vote she cast as a member of the Orange County Employees Retirement System.

In June, she consistently voted with plan sponsor staffers (such as county of Orange, OCFA) and labor groups on nearly a half dozen votes during several hotly debated motions to shorten amortization rates (down to 25 years or 15) for pension-related obligations.

Again, and again, Freidenrich voted during the OCERS monthly public meeting in June to stick with a 25-year amortization for unfunded liabilities vocally defying the representatives placed on OCERS by the county Board of Supervisors – including the president of the Orange County’s most conservative group, the Lincoln Club.

Now, with another vote scheduled for November, Freidenrich is scrambling to backtrack on her previous votes.

In a July 23 letter sent to all retirement board members, Freidenrich said she wants to vote again because when the initial votes were cast she was out of town and participating in the board meeting via phone and lost track of the discussion regarding the pension vote.

“After moving outside the building to continue the call on my cell phone, I did my best to try to follow the board discussion. Unfortunately, when the actuary and board members discussed various slides, I was not able to see them to follow along. The discussion was difficult to hear due to traffic and street noise. These led to my mistakes when voting on the two motions,” Freidenrich wrote.

Freidenrich has avoided any public comments on the issue.

Her June votes apparently unleashed a torrent from a series of Republican leaders – such as Flash Report publisher Jon Fleischman (who also serves on the Voice of OC Community Editorial Board) and Supervisor John Moorlach – who said he implored Friedenrich to support shortening repayment periods for pension-related liabilities.

With OCERS unfunded pension liabilities now soaring past the $5 billion mark (which was at just over $1 billion in 2004 before the latest benefit enhancements for public safety and general workers kicked in), Moorlach and other Republican leaders insist that unfunded liabilities should be paid off faster to avoid kicking debt to the next generation.

Labor leaders and other Republicans – such as Stanton Mayor David Shawver – acknowledge the challenges faced by the pension system and support tackling unfunded liabilities faster – but not at the rate supported by Moorlach and others.

Labor leaders criticize Moorlach for supporting an overly aggressive repayment plan, arguing the supervisor (who doesn’t pay for his own pension benefit like most county supervisors) and others are utilizing the issue for political benefit.

“You pump up the liability and then you say we can’t afford it, we’re broke,” said OCERS Board Member Chris Prevatt (who represents general employees) at the June 16 meeting.

Some local Republican elected officials like Shawver also argue that speeding up repayment rates so aggressively could push cities like his straight into bankruptcy or at minimum drastically cut public services.

Freidenrich – who as Treasurer Tax Collector has a seat on the retirement board – has become a key swing vote with supervisors representatives and labor representatives deadlocked over key issues involving amortization of debt.

She’s also getting a lesson in politics.

Moorlach said that Freidenrich contacted him after her vote and told him she had balanced out the needs of the retirement system along with other goals – such as the level of unfunded liability and intergenerational equity – and decided she needed to make plan payments manageable for plan sponsors.

Moorlach said he strongly disagreed with her arguments.

Friedenrich has now told her board colleagues that those impressions are under review.

“I am deeply sorry for the difficulties that my mistakes have caused. I assure you that I am committed to requesting input from appropriate parties on this item, reviewing the June 16 meeting tape and coming to a conclusion that reflects my responsibilities as a trustee. I take my responsibilities to manage the fund ‘solely in the interest of, and for the exclusive purpose of providing benefits to particpants and their beneficiaries, and minimizing employer contributions thereto’ very seriously,” Freidenrich wrote.

Yet it’s not clear what Freidenrich (who can redo her vote because she was on the prevailing side according to parliamentary rules) is going to review because her arguments against speeding up amortization schedules were clear, and well-articulated through numerous motions where she bucked Republican appointees at every turn.

For example, at one point when OCERS Board Chairman Thomas Flanagan kept questioning her votes at the June 16 meeting, Freidenrich fired back at him that she knew what she was doing.

“Did you understand the motion?,” Flanagan asked as he witnessed her votes go the opposite way. “Did you mean to vote no?”

Freidenrich restated the motion with amazing accuracy, saying, “This was to take both the current and the $900 million of the change from 7.75 (interest rate assumption) to 7.25, right? To take that portion also, from the lower amortization?"

“Correct,” said OCERS CEO Steve Delaney, who was shepherding the series of votes.

At one point, Flanagan even started lobbying Freidenrich in public reminding her the impact of her votes in terms of more interest payments over the long term. That drew a terse reaction from labor representatives, who told Flanagan to stop arguing the motion and let Freidenrich vote.

Then she strongly disputed Flanagan and the others attempting to shorten amortization.

“There’s balance and I do agree that we certainly need to take steps as we go down,” Freidenrich said. “But I do think that is too dramatic of a step. I heard from the plan sponsors. I am certainly am very fiscally conservative, I know I don’t like negative amortization but we have to have that balance between what is too much volatility and too much intergenerational transfer. So that was my vote on that.”

She then voted against the board of supervisors’ appointees consistently over a half dozen votes.

Moving forward, Freidenrich may not be in same position for long as some supervisors’ appointees are moving off the retirement board.

This month, longtime member Reed Royalty, president emeritus of the OC Taxpayers Association, informed his colleagues that he would be stepping down. That will likely set up another battle to seek his replacement.

Local Restaurateurs to Expand Portfolio with Harbor Eatery

By Andrea Papagianis

After 40 years, a waterfront restaurant at the Dana Point Harbor is getting new tenants and a facelift, as local restaurateurs are set to add to their flavor portfolio with a new concept at the wharf location.

John and Damian Collins, the owners of the 1920s-style speakeasy StillWater Spirits & Sounds in Dana Point and the tropical-themed Sunsets restaurants in Capistrano Beach and San Clemente, will take over the vacant harbor location, called home by the Jolly Roger for four decades.

“Our plan is to create a place to enjoy delicious food, harbor views and unique libations in a friendly, customer-centric environment,” Damian Collins said in a statement.

The Aloha Restaurant Inc. eatery shut its doors to the Dana Point location in September, after opting to not renew a lease with the county. A second location in the Oceanside Harbor is still operating.

Last month, the Orange County Board of Supervisors approved a 10-year lease with the Collinses of Pacific Harbor Hospitality Group with the option to renew the lease for two additional decade-long periods. The group agreed to spend at least $800,000 on renovations and upgrades to the site.

Supervisor John Moorlach raised concern that the county was requiring the tenants to make improvements shortly before the county’s planned $140 million harbor revitalization begins.

Landside construction is expected to start in 2014, with the new construction of buildings and the rehabbing of existing structures near the fleet docks. Dana Point Harbor director Brad Gross assured the board that the county’s revitalization plans would “dovetail” with the tenant’s planned improvements.

As approved, the restaurant group will refurbish the 6,000-square-foot, two-story building, which was constructed in the early-1970s. Upgrades include remodeling the restaurant’s interior and restrooms, adding an upper deck and installing an elevator to meet code-compliances set forth in the Americans with Disabilities Act.

The county will provide an allowance for tenant improvements, including $95,000 to offset costs for installing the elevator, and about $30,000 to remove furniture, fixtures and equipment left behind by the previous tenants.

According to a staff report, the operating manager of the property, Vintage Marina Partners, sent information to “successful” area restaurants deemed compatible with existing tenants prior to the Jolly Roger lease expiration. They received one response, from the Collins Family.

“We are honored to be the first location to be renovated as part of the county’s redevelopment of the Dana Point Harbor,” Collins said. “As we move forward, we want to ensure our metamorphosis of the former Jolly Roger building will be in line with, as well as set the tone for, future renovations at the Harbor.”

For now, the group is in the early planning phases, said Natasha Haubold, a company representative. The name and concept have yet to be finalized, but the Collinses are planning for a summer 2014 opening. Haubold said the opening date will be dependent on the renovations and the planning process.

FIVE-YEAR LOOK BACKS

August 18

2003

Jeffrey Anderson of the Los Angeles Daily Journal, an industry publication for attorneys, did a major profile on one of the County’s key bankruptcy lawyers in “Vessel of Absolution – When alleged victims accused Los Angeles priests of molestation and plaintiffs’ lawyers pointed the blame at Cardinal Roger Mahony, the cardinal put his faith in God and Los Angeles attorney J. Michael Hennigan.” Michael Hennigan sat by my side during countless hours of bankruptcy litigation depositions and did a wonderful job. After the lawsuit settlements had concluded, he got a little greedy and exercised a clause in a newer contract made with Tom Hayes, the County’s bankruptcy czar. Consequently, the relationship did not end well between his legal team and the County. This odd chapter was addressed in the piece.

The strongest criticism of Hennigan concerned attempts by him and his law partners to seek additional payment from Orange County after resolving the municipality’s legal and financial troubles.

In 1994, the county faced a $1.6 billion debt and was at the brink of financial collapse. Hennigan’s current partner, Bruce Bennett, now of Hennigan, Bennett & Dorman, but then a rising star at Stutman, Treister & Glatt, advised the Board of Supervisors to file Chapter 9 bankruptcy, which the did.

The day after Bennett was retained, Hennigan and James W. Mercer Jr. came on board as litigation counsel – eventually forming the firm of Hennigan, Mercer & Bennett – and Orange County plunged headlong into five years worth of contentious lawsuits against its financial advisers.

Hennigan’s firm quickly became the target of public and media criticism for its top-tier legal fees.

In 1999, after recovering $865 million from Merrill Lynch and other investors, Hennigan and his partners sought a judicial determination of an added-value clause in their contract. John Davies, a retired Los Angeles federal judge, awarded the firm $48.7 million in legal fees – over and above the $26 million they had collected.

Judge Gary Taylor of the U.S. District Court for the Central District in Orange County evaluated the same clause and cut the award to $3 million.

Orange County officials are still smarting.

“Hennigan, Mercer & Bennett snookered Orange County,” Treasurer John Moorlach says.

Moorlach claims the firm slid a revised fee agreement past county officials and tried to cash in on it.

“Their request for additional fees caught us by surprise and tore the relationship apart,” he says.

2008

The Long Beach Press-Telegram had an editorial, “Pensions and ethics,” that would be reprinted in the following days by the LA Daily News, the Pasadena-Star News, and the San Gabriel Valley Tribune. It addressed an issue that current Board of Supervisors Chair, Shawn Nelson, was embroiled in five years ago.

Have taxpayers resigned themselves to pension-spiking at their expense? They shouldn’t. It’s still going on.

The latest example is the Orange County city of Fullerton, where, behind closed doors, politicians are negotiating a 25 percent retroactive increase in pensions for city employees. Twenty-five percent! Retroactively!

"Negotiating" is a ridiculous term for what’s going on, which is raw self-dealing. Everybody involved benefits, from the elected politicians who expect help at election time to city "negotiators" who of course will get the 25 percent increase, too.

The only reason anybody knows about it is that one city councilman, Republican Shawn Nelson, told the Orange County Register. Shawn is the only council member opposing this scheme at Fullerton City Hall.

Doing the "negotiations" in secret is perfectly legal, since state law provides for confidentiality in discussions of contracts and other legal matters. In Fullerton, as elsewhere, this turns out to be a great convenience. The council agenda notes only that city officials are involved in conferences with labor negotiators. Not a word about huge pension increases to members of city employee unions at taxpayer expense.

Councilman Nelson says it is unethical not to tell the public what those conferences are about, and he is obviously right. To its credit, the Register is doing its best to make sure the word gets out, and taxpayers have their say. Now, not later.

Most counties and cities, including Long Beach, already have put oversize and often underfunded pensions in place. One city, Vallejo, is in bankruptcy because of it.

There is one positive glimmer. Also in Orange County, which has a $2.7 billion deficit in its pension program, the Board of Supervisors has approved a ballot measure that would require voter approval of any further pension increases. It’s late, as one supervisor groused, but better than nothing.

Also, thanks to Supervisor John Moorlach, the board has filed a lawsuit aimed at cutting sheriff’s deputies’ retroactive pension raises because they are a gift of public funds.

That they are. Just ask any taxpayer who doesn’t have a government pension.

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