Today’s OC Register addresses a topic that I have been focused on for more than a dozen years. It is a subject that spurred me to run for Supervisor and now on to Sacramento in order to argue for legislative changes to address the largest wall of debt component: pension liabilities. It is the first piece below. To see the chart for the city you live in, go to http://www.ocregister.com/articles/million-648450-percent-pension.html. I provide the closing quote and am mischaracterized as a candidate for the State Assembly, I am actually a candidate for the State Senate, which is what the rest of this UPDATE is about.
The Daily Pilot provided the announcement in Thursday’s edition in the second piece below. The Bond Buyer covered it in their Friday edition. However, as I am no longer an employee of the County, I could not get past the pay wall. But, the headline and opening paragraph are available and the third piece below. The OC Register, LA Times, KPCC 89.3 FM, and the Sacramento Bee also covered it.
For more fun, on Thursday I was top-of-the-fold for the world famous FlashReport, see http://www.flashreport.org/index.php?doDate=20150115. The headline and the related articles are provided as the fourth thru sixth items below.
I enjoyed my first debate with Assemblyman Don Wagner on Wednesday and I pulled the necessary filing papers at the Orange County Registrar of Voters’ office on Friday.
Thanks to all that have gone to MoorlachforSenate.com and made contributions. I am most appreciative.
Local cities still face significant pension risks
By TERI SFORZA
Things might be looking a bit better, but let’s not let it go to our heads.
Anaheim is still staring down a public pension hole more than half a billion dollars deep.
Santa Ana has a $429.5 million hole to call its own. Huntington Beach’s is $308.2 million. Newport Beach’s, $258 million. And so on.
Even after California’s most massive public pension system reported that it’s regaining ground lost in the recession, many Orange County cities continue to grapple with painful shortfalls, especially the older burgs sporting their own police and fire departments. The newer, contract-heavy cities look lean and mean by contrast.
Here’s the big picture:
• Thirty-three county cities have promised $3.1 billion to current workers that local governments do not, in fact, have. That’s better than a few years ago, when that hole was $3.3 billion deep.
• The overall “funded status” of O.C. cities – how much of what they need is currently stashed away – is up to 72 percent, from 68.2 percent.
• Some communities are hurting more than others. The local cities with the lowest-funded status were Costa Mesa (65.1 percent), Newport Beach (65.8 percent), Garden Grove (69.2 percent) and Huntington Beach (69.7 percent). Note that each has its own police and fire departments. (Public safety pensions are more generous and allow members to retire earlier, meaning they require more cash.)
Why should you care about all this? Because money that goes into higher pension contributions is money that can’t pay to fix roads or keep pools open or provide other services. And because retirement benefits are guaranteed: If there’s not enough money in the pot, you, Jo Citizen, must make up the difference.
A recent Watchdog column explained that the California Public Employees’ Retirement System as a whole reported a 77 percent funding level. That’s this close to what some pension experts say is the magic number for a solidly funded pension plan: 80 percent (though some think even that is too low, and CalPERS actuaries say the “ideal” but unnecessary level is 100 percent).
Part of the reason CalPERS is regaining this lost ground is that it now requires participating cities, special districts and other agencies to kick in millions more each year to shrink their unfunded liabilities.
This is painful in the short run, but wise in the long run, experts say. For many agencies, we’re talking 35 to 50 percent higher annual payments, which puts a squeeze on their budgets; but the more money set aside now, the more time it has to grow. Consider:
• The 33 O.C. cities will pay $40.2 million more for pensions next year than they did in 2012-13. That total will be $299.2 million, an increase of 15.5 percent.
• That average masks some wild variations and big numbers. Anaheim’s bill has grown by $4.8 million. Newport’s, by $4.5 million. Huntington’s, by $4.4 million.
• San Clemente’s bills have gone up 64.1 percent over the three years (reflecting its recent switch into CalPERS from another retirement program manager, officials said). Los Alamitos’ bills are up 56 percent. Seal Beach is up 49.4 percent.
That will not dissipate any time soon.
“Current contribution levels are high relative to historical levels and, for almost all employers, scheduled to increase further as our amortization policies phase in previous asset losses,” CalPERS analystswarned in their annual review of funding levels and risks, which went to the board in November. “For many plans, the contribution rates have never been as high as they are now. … Employers are reporting that these contribution levels are putting significant strain on their budgets and limiting their ability to provide services to the people in their jurisdictions.”
Agencies can expect to see a wee reduction in required contributions in 2020-21, but “the rates in that year are still expected to be above current levels,” CalPERS said.
Meanwhile, in just about every agency, employees are being asked to kick in more to help cover rising costs. Costa Mesa’s general workers, for example, have agreed to pick up 60 percent of future increases.
Will all that be enough? “There is a significant amount of risk being taken in the funding of the system,” the CalPERS report says. “The probability that the system will face a period of severe stress is still at a level that may be unacceptable.”
For a tutorial we turn to Dave Kiff, Newport Beach’s city manager, who summarizes things nicely.
Back in 2007, the seaside city’s pension plans were a luxurious 99.7 percent funded, with a wee hole of just $1.7 million. Then came the 2008 market crash and the great recession. Then came CalPERS lowering its expected return rate on investments to be more realistic. Then came CalPERS’ decision to make all its members pay off those liabilities within a set time frame. And then came the mortality studies showing that – on top of everything, egad! – people are living longer in retirement. “What a good thing that is!” Kiff said. “But how costly!”
In 2012, Newport hit what Kiff hopes was the zenith of its unfunded liability: $275 million (about $273 million more than just five years before). Mature plans like Newport’s were hit harder because they tend to have more retired folks than active employees, but the hole has shrunk to $258 million,because of good returns and heftier contributions, and the city working to ensure the trend continues.
Like many agencies, Newport Beach has lower benefit formulas for new hires and asks employees to pay more of their pension costs (they’re kicking in about $7.4 million this year). Full-time staff has shrunk by nearly 100 positions. And Newport no longer pays the worker’s portion of pension costs as well as the employer’s portion, once a common perk.
“All municipalities continue to grapple with public pension liabilities and seemingly constant changes in CalPERS methodologies that continue to force these rates upward,” said Westminster Mayor Pro Tem Sergio Contreras. “This is a problem that didn’t materialize overnight and won’t be solved overnight. ”
A bright spot: Some fledgling plans for new workers, ushered in after Gov. Jerry Brown’s pension reform proposals passed, showed small surpluses – a rare sight in recent years.
Laguna Beach and Laguna Hills logged $14 surpluses for their (tiny) new plans, all the way up to a $7,350 surplus for a plan in Tustin. These new plans offer more sober benefits than the plans most workers enjoy, but won’t do much to relieve agencies’ burden until there’s a large turnover of workers – that is not for many years in most places.
In small cities, however, the turnover of just a few positions can trigger big savings. Rancho Santa Margarita is a good example.
The city has only 20 employees, and five positions have changed hands – a turnover of 25 percent of the work force in the last 18 months, said City Manager Jennifer M. Cervantes. They were among the higher earners as well, she said.
All new hires are required to kick in more for their pensions, so Rancho’s payments to CalPERS dropped by more than 20 percent over the three years examined – down $67,751.
It’s an early indicator that the reforms can do what the governor hoped they would do – sooner for smaller agencies, and eventually for the rest of them.
Meanwhile, Irvine refuses to wait. In 2013, city leaders decided to “aggressively” pay down their unfunded liability over the course of a single decade, so retirement plans are 98 percent funded. That means an extra $5 million a year, for 10 years, on top of its required annual payment ($20 million next year).
A stitch in time may certainly save nine: Only 18 months into that plan, Irvine has made $13 million in accelerated payments to CalPERS, and is on track to finish up two years early. The push is expected to save about $143 million over 29 years, with a “present value” savings of $33.1 million.
Newport is doing something very similar. In November, the City Council decided to pay down its unfunded liability over a 19-year period, boosting payments by some $23 million over the next five years. That should save more than $129 million over three decades, with a present value of about $47 million, Kiff said.
A lot of this is a crapshoot. One might argue that projections 30 years into the future about how much money will be needed to fulfill pension promises is far more art than science. It depends on a boatload of variables – from what the long-term return on investments will be to how long retirees will actually live.
Just 15 or so years ago, actuaries crowed that the system was so super-funded officials could afford to give workers big benefit increases, and it wouldn’t cost them a dime. They were wrong.
“Those projections change as often as I change my shirt,” said Villa Park Councilman Rick Barnett, who’s making an issue of all this at the Orange County Fire Authority. “You really can’t project these kinds of factors over that long a time period. Defined benefit plans are speculative, and government isn’t supposed to make speculative investments. The government can’t guarantee you that, no matter what, you’re going to get all this money.”
Steven Maviglio, spokesman for Californians for Retirement Security, a coalition of public employee unions, stressed that the numbers are getting better. “We are at the beginning of the recovery from the worst Wall Street fiasco since the Great Depression,” he said. “Pension plans are far better off than 401(k)s. They lost less during the downturn and gain more in an upturn. Pension plans are built for the long term and the trend is positive.”
John Moorlach, former county supervisor, current candidate for state Assembly and pension reform warrior, urged caution. “I would warn that one good year does not a strong pension plan make,” he said. “Good years are followed by down years. So taking a deep breath may be fine, but putting your legs up on the Ottoman may be premature.”
Staff writers Keegan Kyle and Tony Saavedra contributed to this report.
Contact the writer: sforza or on Twitter: @ocwatchdog
Moorlach announces run for state Senate
By Bradley Zint
Former Orange County Supervisor John Moorlach announced Wednesday that he intends to run for the state Senate.
Moorlach, who had been mulling the decision for the past several weeks, is seeking the 37th Senate District seat vacated by Mimi Walters (R-Laguna Niguel), who was elected last year to the 45th Congressional District. The special election is scheduled for March 17.
The 59-year-old Costa Mesa resident was termed-out Jan. 5 after serving two four-year terms on the Board of Supervisors representing the 2nd District.
Assemblyman Don Wagner (R-Irvine) of the 68th District is also running for the state Senate seat. He has Walters’ endorsement.
Moorlach did not publicize any endorsements Wednesday.
Moorlach, a Republican and certified public accountant, alluded in a news release to his warning 20 years ago that the county was facing bankruptcy because of risky investments gone sour. Indeed, in December 1994, the county said it was unable to meet all of its payroll obligations.
"Just like Orange County was 20 years ago, our state is on shaky financial ground, and it’s time we got our fiscal house in order," Moorlach said in the release. "Our economy will thrive when California gets serious about eliminating its wall of debt and huge unfunded liabilities. That must be the Legislature’s No. 1 focus."
He began his political career in 1995 as the Orange County treasurer-tax collector, a position he held for 12 years. During that time he helped the county emerge from Chapter 9 bankruptcy. He was elected supervisor in 2006.
Michelle Steel, formerly of the state Board of Equalization, was elected last year to replace Moorlach. She soundly defeated Assemblyman Allan Mansoor (R-Costa Mesa) by a roughly 60-40 margin.
The 37th District includes Costa Mesa, Newport Beach, Irvine, Laguna Beach and portions of Huntington Beach.
Moorlach Officially Declares California State Senate Run
by Keeley Webster
Former Orange County Supervisor John Moorlach officially announced his decision to run in a special election for the 37th State Senate District.
THURSDAY, JANUARY 15, 2015
Senior Editor: John Hrabe
Former OC Supervisor John Moorlach*
Why I’m Running
Posted by Supervisor John Moorlach at 12:13 am on Jan 15, 2015
[Publisher's Note: As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, we are pleased to present this column from former OC Supervisor John Moorlach.]
If you are new to the FlashReport, please check out the main site and the acclaimed FlashReport Weblog on California politics.
Competition for jobs and economic growth among the fifty states is tougher than it has ever been. While other states prepared for this new competitive environment, California remains mired in debt, unfunded liabilities, and infrastructure deficits.
We’re like a football player who isn’t in condition to play. And as a result, California is getting beat on the jobs playing field. A recent survey of America’s top 500 CEOs ranked California the “worst state in the country for business.”
Last year, Newsmax reported that Texas Governor Rick Perry had successfully lured away over 60 companies from California to Texas, equating to 30,000 jobs. That’s in addition to Boeing, Charles Schwab, Toyota, Chevron, Campbell’s Soup and a number of other well-known Fortune 500 companies that left the state.
Unfortunately, California’s legislature has met this challenge by creating the highest taxes and most difficult regulatory environment in the nation. Add to that a $36 billion “wall of debt” and an unfunded pension and medical retiree liability, and infrastructure deficit totaling in the hundreds of billions of dollars, and you can see why California continues to lose some of its best and brightest job creating companies to other states.
In Orange County, we’ve put in place those items needed to facilitate growth, including improved transportation systems, a fiscally healthy county, and a leaner regulatory environment that promotes business and job growth. That’s what we need at the state level, and that’s why I’m running for State Senate.
I will fight for a clear set of goals that help restore our state’s finances and foster robust economic growth. These include:
1. Using new revenues to first pay down the wall of debt, rather than embark on a spending spree.
2. A top-to-bottom review of our state’s business and regulatory codes; measure each regulation in terms of jobs lost and benefits gained, and suspend or eliminate those regulations that hinder economic competitiveness and provide little or no benefit to California families.
3. Address the growing pension and medical retiree debt and institute reforms that will make these systems sustainable.
4. Create short term and long-term plans to begin rebuilding California’s aging transportation, energy, and water infrastructures.
I’ll shine a light on those policies and proposals that hurt California’s economic competitiveness, and I’ll fight for greater transparency in the legislative and budget processes so all Californians can understand how their representatives are spending their money.
I know these agenda items won’t make the special interests happy, but I’ve never backed down from doing what is right. And, over the past 20 years, I’ve joined with others to successfully battle those entrenched interests wanting to preserve the status quo.
The fact is, if we don’t change, we’ll continue to lose our top businesses and job creators to those states that are serious about economic growth. And more business losses means more tax revenue losses.
Twenty years ago, I warned Orange County’s elected officials that their policies were leading the county toward bankruptcy. When the county filed for Chapter 9 in December 1994, I was appointed to serve out the term of Treasurer-Tax Collector, where my team took swift action to cut losses, streamline spending, protect taxpayers and create a path back to fiscal solvency.
Today, Orange County’s budget is balanced and its economy is strong. But, there is again a looming threat of fiscal and economic insolvency—this time from Sacramento. I’m running for State Senate to fight for a fiscal and economic policy that restores California’s finances and puts our state on a strong path to economic prosperity.
State Senate 37: Former OC Supervisor John Moorlach Launches Campaign for Mimi Walters’ Seat
By John Hrabe on January 15, 2015
Former Orange County Supervisor John Moorlach formally launched his campaign for State Senate on Wednesday, vowing to tackle the state’s “wall of debt and huge unfunded liabilities.”
“Just like Orange County was twenty years ago, our state is on shaky financial ground, and it’s time we got our fiscal house in order,” Moorlach said in a statement released by his campaign. “Our economy will thrive when California gets serious about eliminating its wall of debt and huge unfunded liabilities. That must be the Legislature’s number-one focus.”
Moorlach will face off against Asm. Don Wagner in the race to succeed Mimi Walters, who resigned her 37th Senate seat prior to being sworn in as a member of Congress.
Moorlach’s career in county government
A Certified Public Accountant and Certified Financial Planner, Moorlach recently completed two terms on the Orange County Board of Supervisors. But, it was his soothsaying two decades ago about the county’s risky investments that earned Moorlach his first elected post.
Risky investments by then-Orange County Treasurer-Tax Collector Robert Citron helped lead to the county’s bankruptcy, at the time the largest municipal bankruptcy in history. Moorlach, who had criticized Citron’s investments, was appointed by the Board of Supervisors to take Citron’s job. He went on to serve 12 years as county treasurer.
“John Moorlach is a bit of a legend in America’s public policy circles,” said Anaheim Mayor Tom Tait. “Nobody had witnessed a mess of the caliber that Moorlach inherited when he replaced Citron.”
Not wanting to part from county government, according to the Voice of OC, “Moorlach unsuccessfully floated the idea last year of extending term limits for county supervisors, which would have granted him another term in office.” He then flirted with a run for governor and challenging Walters for the 45th Congressional District.
Asm. Don Wagner: Frequent guest of union-sponsored Maui junket
The March 17th primary could quickly become a nasty intra-party feud as Moorlach and his chief rival, Wagner, court the district’s high-propensity GOP voters. An early theme in the race is likely to be Wagner’s ties to labor unions that “pulled out all the stops” to defeat Moorlach in past elections.
In 2012 and 2013, Wagner attended the infamous union-sponsored Maui junket, hosted by the Independent Voter Project. The brainchild of former lawmakers turned lobbyists Steve Peace and Jeff Marston, the Independent Voter Project’s annual Maui bash provides the Capitol’s biggest special interest groups with a legal method of circumventing the state’s gift limits. The event’s organizers say that part of the bill for the luxurious Fairmont Kea Lani, “Hawaii’s only all-suite and villa luxury oceanfront resort,” is paid for by the state’s largest and most powerful labor union, “the correctional officers labor union CCPOA.”
Wagner accepted $2,179.79 in accommodation, meals, and beverages from the Independent Voter Project in 2012, according to his annual financial disclosure form. That made Wagner the odd man out of the Orange County legislative delegation –as the only Orange County legislator, Republican or Democrat, at the union-sponsored conference, according to the Sacramento Bee. Wagner’s office initially refused to confirm his attendance at the 2013 Maui conference.
Orange County’s leading Republican organizations, including the influential Lincoln Club, have urged local candidates to decline financial support from labor unions.
“The Lincoln Club of Orange County believes that the problem of public employee unions and their corrupting influence at all levels of government must be taken so seriously, that the Club will not endorse a candidate who does not sign the following pledge: The undersigned on the date subscribed below will not accept campaign contributions from public employee unions,” the organization stated in its 2012 candidate questionnaire.
State Senate 37: Succeeding Mimi Walters
State Senate District 37 voter registration numbers:
- Democrat: 28.7 percent;
- Republcian: 42.6 percent;
- Decline to State: 23.9 percent.
This e-mail was sent out by the Moorlach for Senate campaign #1374140.