MOORLACH UPDATE — Pension Withholding — October 19, 2013

Supervisors Nguyen and Spitzer issued a press release yesterday announcing two items that will be on the November 5th Board of Supervisors agenda addressing pension plan contributions by elected county officials. This unique discussion has an interesting genesis. Having been in negotiations with the Orange County Managers Association (OCMA) since 2011, I had been preparing for quite some time to make the same compensation changes that they would agree to. I would not ask someone to do something that I was not willing to do myself. So, effective July 1st I’ve tried to have my employee contribution taken from my paycheck. I am now withholding more than $31,000 per year for my pension contributions. The only open issue was making sure that the income tax treatment was fair and I was willing to deal with that on my own income tax returns. Outside legal counsel was contacted and they concurred that there were two available methodologies, have the employer reduce taxable wages (which is being done for the managers) or deduct the voluntary withholding as a charitable contribution. As a Certified Public Accountant that once had a very successful tax practice, I was comfortable with either approach, so I proceeded to begin the voluntary contributions at the same time that my fellow managers did.

It did generate some odd media coverage at the time. In MOORLACH UPDATE — Pensions and Beds — June 27, 2013, this was reported: In an interview, Moorlach said he plans to start making voluntary donations under the new policy next month. Nguyen and Spitzer did not return several messages this week seeking comment.

In MOORLACH UPDATE — Preserving — July 8, 2013, this was the coverage: With Nguyen and Spitzer, we wanted to know their reaction to the new pension policy. Would they donate like Supervisor John Moorlach has pledged or decline this gesture? Neither supervisor responded by our deadline, but this week, both raised legal concerns about the new policy and said they needed further advice on federal tax rules before making a decision. In retrospect, Nguyen and Spitzer said, they didn’t fully understand the policy when they voted June 24 in its favor. The policy had been included in a budget package and quickly approved after no discussion. "I didn’t catch it," Nguyen said. "It was added without us being alerted. We didn’t know. I just looked at it as being part of the budget." Spitzer said he first became aware of the policy when we contacted him. He had mistakenly assumed the proposal would authorize county workers to participate in charitable events. "I didn’t even know what you were talking about," Spitzer said. "I didn’t know this was some new scheme." Since the meeting, only Moorlach has pledged to make the voluntary donations. Moorlach raised no legal concerns while discussing the policy last week. He compared it to a June 2009 policy that authorized the supervisors to cut their own salaries by voluntarily donating 5 percent back to the county. Those cuts were considered a symbolic gesture as the county weathered an economic slump and slashed department budgets.

Supervisor Spitzer provided the following comment with today’s OC Register article below: When I ran for the Board of Supervisors, I pledged to reform the retirement system for government employees. We can start by having all elected officials pay the full share of their employee retirement contribution. The distinguish between what Moorlach ran with in June and what Janet Nguyen are proposing is that we are mandating this contribution (versus John’s which is voluntary.) That distinction allows for a pre-tax deduction the same as all other county employees. I believe that taking a voluntary deduction, writing it off your taxes as a charitable donation, and then claiming it with OCERS for a personal financial benefit is legally questionable and subject to audit.

Accordingly, when the reporter contacted me in between a full day of scheduled meetings, I told him “I’m fine either way.” I just wanted to move with the managers with whom I have been honored to work side-by-side with these past eighteen years – no better, no worse. With that, I do have one clarification: I do not receive a “better plan than rank-and-file employees.” I am in the same plan and have the same formula as they do. Many years ago, managers bargained for the County to pick up the employee portion of the pension in lieu of a raise. The majority of non-management bargaining units negotiated for raises instead (which, ironically, may actually provide them with a better pension benefit).

Supervisors may ask voters to change their pension deal

By MIKE REICHER

Orange County Supervisor Todd Spitzer has proposed a ballot measure to require that all county elected officials pay their share of their pensions.

He and co-author Supervisor Janet Nguyen also want to force supervisors to begin making their pension contributions earlier than other officials.

Their moves come months after the supervisors took similar votes. This time, a ballot measure amending the charter could only be undone by voters. The supervisors submitted the proposal for the Nov. 5 board agenda.

Many politicians are looking to back pension reform as municipalities struggle with heavy retirement debt and a few cities have declared bankruptcy. Spitzer is considered a likely candidate for District Attorney and Nguyen is running for state Senate.

“If the voters could order us to work for free,” Spitzer said, “they would.”

The Orange County Employees Retirement System had a $5.7 billion unfunded liability as of Dec. 31. That’s the difference between what the retirement system has promised current and future retirees, and what it has set aside to pay them.

Today, some elected officials pay more into the system than others. Non-elected employees who aren’t in public safety contribute their full pension share.

If the board approves the measure, voters would likely see a charter amendment on the June 2014 ballot, and officials could begin the full pension contributions in January 2015.

“I fully support the concept of elected officials paying their full pension contribution,” Sheriff Sandra Hutchens wrote in an email, “particularly since we are asking our county employees to do the same.”

State law prohibits changing pension formulas for current elected officials, as their election serves as a contract for benefits. But all county elected seats – from District Attorney to Auditor-Controller – are up for grabs in 2014.

In May, supervisors made a resolution to require county executives and elected officials (including supervisors) to pay their full share, with the executives beginning payments in June and elected officials in 2015.

Supervisor John Moorlach, who has been criticized for advocating pension reform while having a better plan than rank-and-file employees, devised a method to begin paying his full share sooner. He is termed-out and expected to run for another office in 2014.

“I said I would go where my managers go,” Moorlach said Friday. He expects a $16,000 annual cut from his paycheck.

Working with County Counsel Nick Chrisos and the Auditor-Controller’s office, Moorlach arranged to make tax-deductable contributions to the county, with the funds applying to his retirement. The board approved the arrangement unanimously in June, although Spitzer later questioned its legality.

Moorlach has been making the payments for months, while Spitzer and Nguyen held off. Supervisors Pat Bates and Shawn Nelson have declined to take a pension.

Spitzer says an opinion from an outside law firm supports his approach.

“I’m fine either way,” Moorlach said. “I think they’re both defendable.”

Pension contributions are generally split into two categories: the employee’s share and the employer’s share. When the economy was better, the county agreed to cover the full cost for some officials, including the employee’s share.

But general workers have agreed to pick up their share since at least 1978, Orange County General Employees Association General Manager Nick Berardino said.

“It’s about time the elected officials and department heads start paying their employee’s share,” he said. “It has been like 40 years in the desert and screaming at the top of our lungs, to get them to do it.”

FIVE-YEAR LOOK BACKS

October 19

1998

The Bond Buyer provided the conclusion of a story that was in a recent LOOK BACKS (see MOORLACH UPDATE — Mulling and Inching — March 25, 2013). Andrea Figler’s piece was titled “Goldman, Orange County Agency Settle Their Lawsuit.” The premise was simple, the Orange County Transportation Authority invested a boat load of money in Citron’s investment pool and even publicly endorsed it during my campaign. After the implosion, it was frustrated that one of its investment bankers had rightfully elected to not do business with Citron. The investment banker should have informed the Authority to get out of the pool. Really? A judge thought it was a stretch, too. Here are segments of the article:

The Orange County Transportation Authority Board of Supervisors agreed in a closed-door session last week to settle for $4.8 million its litigation against Goldman, Sachs & Co. over investment losses.

In settling, the authority decided not to pursue an appeal of a court decision in Goldman Sachs’ favor.

The authority sued Goldman in 1996, alleging that the firm failed to warn it of risks associated with former Orange County Treasurer Robert L. Citron’s investment pool. That pool’s collapse caused the county to lose more than $1.5 billion and forced it to declare bankruptcy in December 1994.

OCTA lost more than $225 million in the pool. Its lawsuit sought $440 million and accused Goldman Sachs of negligence and breach of fiduciary duty, alleging the firm knew Citron’s pool was a disaster waiting to happen.

In May, Los Angeles Superior Court Judge Enrique Romero sided with Goldman Sachs and threw out the authority’s case.

OCTA officials had wanted to appeal based on an argument that the judge misinterpreted some information given in testimony by authority director of finance James Kenan, he previously told The Bond Buyer.

But according to Orange County Treasurer John M. W. Moorlach, the authority would have had a hard row to hoe.

“It was an incredible countersuit. When I read this, I said, “Goldman’s going to win.’” Moorlach said this summer.

The authority decided to settle the case so that it could focus on its real work in transportation issues, a spokesman said.

2008

Susannah Rosenblatt of the LA Times jumped in to the self-rule debate with “Rossmoor’s cityhood hangs on finances – If Orange County voters approve incorporating, they must also pass a 7% or 9% utility tax.”

Rossmoor, the tidy 1950s-era community bordered by a red brick wall, could become the second-smallest city in Orange County — Villa Park is the tiniest — if residents vote to incorporate on Election Day.

At issue is whether the sliver of suburb with 10,500 residents can support itself financially with one small retail center.

If voters approve cityhood, a majority must also support either a 7% or 9% utility tax to help keep the city afloat.

Supporters contend that cityhood means greater local control and improvements in services such as law enforcement.

Opponents argue that the community works well the way it is and cityhood imposes a bigger burden on taxpayers.

"Our retail tax is so low that it puts us in jeopardy just to even try" to become a city, said Jim Alexander, of the , which is working against cityhood.

The neighborhood’s lone commercial area generated about $317,000 in sales tax revenue for the 2006-07 fiscal year, according to a fiscal analysis by the Orange County Local Agency Formation Commission, which oversees the creation of cities.

Cityhood backers say larger revenue sources such as property taxes are more stable. They mostly want to see Orange County Sheriff’s Department response times — now twice that of neighboring cities — decrease under a local contract with the department.

The Assn. of Orange County Deputy Sheriffs has paid for lawn signs and mailers against cityhood. "We can’t support a utility tax we don’t think significantly improves public safety," said association President Wayne Quint Jr.

But for cityhood advocates, "the biggest issue, really, is us taking control of our future," said Eric Christensen, co-chairman of the

Squeezed by Seal Beach and Los Alamitos, Rossmoor’s 1.6 square miles is one of the last remaining unincorporated patches in the county, land the county has attempted to divest itself of since its 1994 bankruptcy. In past years, Los Alamitos has tried to annex the area, and in 1965 Seal Beach annexed one of Rossmoor’s main shopping centers, a move that some residents still resent.

Rossmoor, founded by Leisure World developer Ross Cortese, is governed by five elected community service district board members. They manage a $1-million budget that covers park maintenance, street sweeping and lighting.

Only Rossmoor’s 7,400 registered voters may vote on Measure U. If a majority votes in favor, the community board would be dissolved and replaced with a new City Council made up of the top five vote-getters on the same ballot.

All five Rossmoor board members plus three other residents are running for the first-ever council.

Cityhood for Rossmoor is "a much better management model," said Orange County Board of Supervisors Chairman John Moorlach, whose district includes the community. (Aliso Viejo and Laguna Woods, both incorporated in 2001, are the county’s newest cities.)

The new city, which would be incorporated Jan. 1, would have $4.1 million in projected expenditures its first fiscal year — including nearly 10 new full-time city employees — and an annual general fund surplus averaging about $150,000, according to a report by the Orange County formation commission. According to the commission, the county subsidized $600,000 in services to Rossmoor in the last fiscal year.

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