Moorlach Reviews Media Coverage of Pension Issue

The Moorlach Update e-mail newsletter came over the transom this morning, and in it Sup. John Moorlach reviews recent media coverage of the retroactive pension issue vis-a-vis the AOCDS:

Tomorrow will be a most important Board of Supervisors’ meeting as we discuss the constitutionality of having granted unfunded, retroactive pension benefits.  Consequently, there will be some media coverage on this matter. 

The LA Times has an article today on the supposed “conflict” component of the debate.  The reporting doesn’t cover the constitutional issues, but conflict is what subscribers want to read (so they tell me).  I had my share of it back in 1994, too.  The LA Times ran a long article on Bob Citron and how I was running against him because of his age (69 at the time), even when I had vehemently denied that to be the case.  Forget about his borrowing $14 billion and cover a manufactured spat.  Oh well. Their piece is provided last.

The opening of the LAT article deals with my first post-election encounter with the General Manager of AOCDS in November, five months after the election.  By August, three months prior, Nick Berardino, General Manager of OCEA, had already made a telephone call and we started restoring our relationship.  But never a peep from AOCDS until being jumped at the restaurant.  So, here I am again, addressing the critical fiscal issue of the day, and all we get to read is the supposed feud between two parties.  Oh well.

The OC Register’s Sunday Commentary section had good coverage on the topic in the Letters to the Editor section.

Chapman’s Million Dollar Econ Recruits; Moorlach’s Operatives
By Rick Reiff

If OC Supe John Moorlach has dropped a “political nuclear bomb” into the public employee pension debate, the “mad scientists” who built it are lawyers Mario Mainero and Eric Norby. It was over a February lunch at Las Brisas in Santa Ana that Mainero, Moorlach’s chief of staff, and Norby, chief of staff for his brother/Supe Chris Norby, began brainstorming on ways to challenge the “retroactive” benefits granted to OC sheriff deputies in 2002; those benefits have contributed to a projected $2 billion pension system deficit. The result of their ensuing research is a multi-pronged constitutional attack that could reverberate throughout California. The Moorlach team doesn’t dispute the supes’ right to sweeten pensions, but they contend it was an illegal gift of public funds to apply a new formula to retirement benefits already accrued. Deputy union officials argue that the entire package was properly negotiated. Moorlach and Chris Norby are expected to ask their fellow supes to pursue the legal challenge this week. If they don’t, Eric Norby says the Lincoln Club and other groups will. OC deputy union Prez Wayne Quint and GM Mike Carre paid archenemy Moorlach a “cordial” visit to lay ground rules for the pension debate. Moorlach has offered the deputies an out—agree to pay for the retroactive benefits as other county employees are doing. Carre says a response would be premature: “Moorlach has had months to craft his legal arguments, we’ve had 72 hours.” More in Comment, page 39 ...

VIEWPOINTS

Promise Made, Promise Kept
By WAYNE QUINT

Our view on Supervisor John Moorlach’s position regarding the 3% at 50 retirement benefit is that he believes he has a firm constitutional position that has not been substantiated by any court of law.

Our belief is that it is premature for Supervisor Moorlach and the county to go forward on this issue until there has been court review.

Supervisor Moorlach wants to rescind up to one third of a retiree’s pension despite the fact that the benefit was agreed to by the county in formal collective bargaining in 2001.

Supervisor Moorlach’s argument would have one believe the incumbent Board of Supervisors at that time, county counsel, the Orange County Employees Retirement System and their legal counsel all failed to recognize what would occur if the benefit was granted.

At that time, Supervisor Moorlach was a member of the Retirement System and the incumbent treasurer-tax collector of the county of Orange.

It is disturbing to our organization and to our members that Supervisor Moorlach and the county seem not to value the sacrifices that the men and women of the Orange County Sheriff’s Department and Orange County District Attorney’s Office have made and continue to make on a daily basis.

In the law enforcement community, a promise made is a promise kept.

Back in 2001 the county agreed to provide this benefit for the service and sacrifice of these officers. When these officers retired, they were provided a document at the time of separation that advised them of their lifetime benefit.

Now Supervisor Moorlach’s actions are intending to violate that agreement based on a legal theory that has not been reviewed by any court of law.

Quint is president of the Association of Orange County Deputy Sheriffs.


Retroactive Pensions   
by JOHN MOORLACH

To appreciate why government employers are reeling from recent retroactive retirement benefit increases—which well could violate California’s Constitution—consider the following actuarial exercise.

Let’s say an employee starts working for you at age 25.

You provide a starting annual salary of $54,000 and promise that when he or she retires in 25 years, you will pay 50% of their last year’s salary for the rest of their life, plus an annual 3% cost of living adjustment. This formula is known in the public sector as “2% at 50.”

Your actuary tells you your 25-year-old employee is expected to live to age 80.

Your money manager tells you to expect a net annual rate of return on your investments of 7.75% to help fund the benefit.

Your business plan tells you that your employee should average an annual raise of 4% a year.

Believe it or not, the worker’s salary will be $143,955 at the time of retirement. The annual retirement pension benefit in the first year of retirement will be $71,978, which increases by 3% per year for the next 30 years.

Your actuary will tell you to contribute 17.3% of the annual salary at the beginning of the year. The first year’s contribution: $9,333. By the 25th year, the annual contribution will be $24,881. The funds available at retirement will be $1.1 million, which will last until the former employee reaches age 80. At age 80 the annual benefit will be some $169,620.

The power of compounded interest is one of the marvels of investing. You will have made your annual salary and pension plan contribution commitments and your employee will enjoy lifetime benefits until his or her anticipated death.

If the employee dies before age 80, you have an actuarial gain. If the former employee lives well past age 80, which is probable with advances in medical science, you will have an actuarial loss.

Other issues could occur. What if the investments don’t earn 7.75% per year? If they are higher, then your contributions will decrease. If you earn less, then your contributions will increase to catch up to the financial target where you should be.

In technical terms, the difference between where you should be in your funding level, as a result of contributions and net investment earnings, is the unfunded actuarial accrued liability.

What if the retirement formula is changed during the term of employment? It is unlikely that the formula will decrease the expected benefit, as pension plans tend to be a vested right. If it increases, then you will have an unfunded liability that will require increased funding.

Now if you increase the benefit and make it retroactive, then you will have a significant unfunded liability to deal with.

Let’s say that the benefit is increased, retroactively, to “3% at 50” when the employee is near retirement age. Well, the new benefit at age 51 jumps from $71,978 to $107,966 (a 50% increase). If the funding level is not changed, instead of ending with zero at the 80th year of life, the funds would dry up at age 65.

In year 66 someone would have to come up with $168,208 to pay that year’s benefit. To fund the extra 15 years, someone would have to fund $561,500 in the 26th year! This is approximately half of what you have earned in 25 years of methodical contributions and investments.

That is what government employers are facing by retroactively granting higher benefits to workers.

But how can a governing body give such a rich benefit, creating such a large debt, for services already rendered? If you believe in the state constitution, you can’t.

Article XVI, Section 18 states that if you want the taxpayers to absorb a debt, you had better get a two-thirds approval from them.

Article XVI, Section 6 states that elected officials “have no power to make any gift or authorize the making of any gift of public money to any individual.”

And “Lamb v. Board of County Peace Officers Retirement Commission of Los Angeles County” states that “a pension is a gratuity when it is granted for services previously rendered.”

Article XI, Section 10 states “a local government body may not grant extra compensation or extra allowance to a public employee after service has been rendered.”

Numerous elected officials have been approving potentially illegal benefits ever since Gov. Gray Davis signed “3% at 50” and retroactivity into law.

Even though “3% at 50” is extravagant, I have no quibble with that. But going from “2% at 50” to “3% at 50” overnight and gifting the extra 1% back to the date of hire is unconscionable. It’s also unconstitutional. That’s why my office is supporting legal action to rescind this burden on the taxpayers and returning the county to some semblance of fiscal responsibility.

What burden, you ask. Well, for the county of Orange the $561,500 was not paid in the year the benefit became effective. The unions recommended that it be amortized over the next 30 years. Now an annual contribution of $45,200 is required for the next 30 years for the new liability for this employee of $1.3 million, with the addition of the interest at 7.75%. And you thought you were paid in full. Your annual payment not only continues for another 30 years, but it jumps more than $20,000 over the amount that was supposed to be your last payment.

The retroactive portion of the contracted benefits is unfair, unreasonable and unconstitutional. And if it is not addressed, and soon, then it will be the straw that breaks the financial backs of municipalities around the state of California.

Moorlach is a county supervisor representing the 2nd District covering West County.

Comments

[The truth hurts Quint]

John Moorlach is right on in leading this charge on behalf of the taxpayers against a greedy bunch of cry-baby bullies on the board at AOCDS. Quint's tired old song,

" It is disturbing to our organization and to our members that Supervisor Moorlach and the county seem not to value the sacrifices that the men and women of the Orange County Sheriff’s Department and Orange County District Attorney’s Office have made and continue to make on a daily basis,"

is just that - tired and old!

What's "disturbing" is that Quint and his bullies think they can have whatever they want whenever they want - no wonder he and Carona get along so well... I'm tired of these special interest groups tugging at our heart strings while picking our pockets!

It's time for some fiscal responsibility around here. Hopefully, Bill Campbell has the integrity to help undue what he contributed to the first time. Hopefully, Pat Bates and Janet Nguyen will show some real courage and do the right thing by voting with John Moorlach on this. We must send a solid message to all government employee unions who have the "entitlement to our tax dollars" mentality - NO MORE, NOT IN ORANGE COUNTY. Go bankrupt L.A. if you must, but no more fiscal irresponsibility in the O.C.

The deputies must remind themselves that they are taxpayers first like the rest of us. They also need to pay attention to their own house, AOCDS, and put that in order with Quint's out-of-control spending of their hard-earned dues. Put that man back in the jail where he belongs and get some ethical leadership. Then come talk to honorable men like John Moorlach, who has a solid track record of looking out for the best interest of the residents of O.C.

Until then, accept the fact that you got caught with your hand in the cookie jar and now you have to answer for your actions.

[A.I.B.]

if the courts disagree with Moorlach, after the county spends millions in litigation, which is very likely, how will the lost of tax payer dollars be recouped?

if the courts agree with Moorlach, after the county spends millions in litigation, which is very unlikely, how will the lost of tax payer dollars be recouped?

if it was about saving tax payer dollars then there are much better ways to negotiate it that do not involve the need to pay litigation fees

how much money will be paid to lawyers fighting for/against this latest supervisor boondoggle, money that could have been put to so many other beneficial uses.

and it all boils down to egos, and Moorlach has one of the biggest around, he has made it clear for a long time he is a sore winner, and vindictive.

Funny, if he had lost there would be no lawsuit, no lost tax payer monies, and more attention to the real needs of the county.

The LA times story is right on:

http://www.latimes.com/news/local/orange/la-me-moorlach30jul30,1,454427.story?coll=la-editions-orange

O.C. supervisor still locked in battle with deputies
Pension is the main issue in a fight that is increasingly personal and growing.

"Moorlach said he expected the union to come after him, but the campaign rhetoric went too far. "They warned me, 'You're going to have to run the gantlet.' It was no surprise for me and no surprise for them. It kind of went over the top.""

So, when does it stop? When the tax payers wake up and realize they can not afford politicians who engage in personal fights over their battered egos, and kick them out on their ears.

The funding of pensions will not cause bankruptcies like the one the BOS did in '94, cause the issue is future funding not curretn borrowing, and has many solutions, but that won't get votes, only misdirection gets votes

[Jubal]

Well, Judge AIB, from where do you gain your psychic insight into the minds of jurists who haven't even heard the arguments on either side?

[A.I.B.]

Sorry not a judge, having watched litigation for 50 years though, the only winners will be the lawyers.

But I can read, and I can understand what I read, and from what I have read that Moorlach et all have said, is that it is a 'probability' that a law was broken, even they are not sure. And reading their justifications it is clear that there is no sure win for them, and in fact it is very doubtful based on their facts and case law presented.

Only a real judge will make the decisions after both sides pound out tons of paper and past precedents, and case histories. How long will it be in court? 5-10-15-20 years? And at what cost? millions for sure -- just how many millions is not.

Just what will the taxpayers get out of this? will taxes be lowered? will refunds be issued? will any money be saved? will they get better service? if it drags past 7 years, which is normal for most litigation, Moorlach will not be a supervisor any more, due to term limits. And they whole fiasco will be lost on the population, because they will not remember why or what caused the whole thing to begin with.

If as it is be contended, that is was un-constitutional, will there be warrants and criminal complaints against those who violated the law? will someone go to jail? and if not, why not? The entire basis's of the complaint is that it was un-constitutional, now the deputies cannot be held accountable for it, for they have no power to approve, they can only request for benefits, but the Supervisors who passed it can be and should be, will they go to jail? will they be tried and convicted since it would have been a crime to do what they did, if it is proved to be un-constitutional.

The deputies might lose some benefits, but if the law was broken, then someone has to go to jail, and that would be those who broke the law.

[Green Machine]

Mr. Moorlach utilizes a formula that assumes a retired deputy will live until age 80. I'd like to know if he has consulted anyone that has done a life expectancy study for a law enforcement officer. I'm willing to bet that the actual number is significantly lower than 80. A simple google search will provide a listing of information that indicates Moorlach's numbers are way off. So why the number 80? Well my guess is that it provides Moorlach with the statistical data he needs to make his argument. The premise is flimsy and typical of his propoganda. I've seen enough anecdotal evidence to back this up. Sadly enough, the OCSD just put out a notice that a sergeant who retired last year (2006) has passed away. You might think it to be the exception. But those of us who have been around for a few years know better.

As for Moorlach's assertion that he was "jumped" at a restaurant. Please...I saw the photo. A deputy sheriff put his hand out, in a gesture of civility. Moorlach's arms are folded in an apparent refusal to shake hands. Not only is that childish, but demonstrative of how personal he has made this endeavor.

[re Green Machine]

"A simple google search will provide a listing of information that indicates Moorlach's numbers are way off. So why the number 80?"

A simple search of what? What exactly are we to type in the box? Actuary tables used by life insurance companies all reflect higher life expectancy values which is what I suppose Moorlach was using as well. The man is a CPA and a CFP so he does know what he's talking about. Just because some cops die sooner than others is no reason for us to support bad fiscal decisions like 3 at 50 - that's a real weak argument. I could say the same for any profession.

I agree with the 1st poster - I'm tired of these special interest groups tugging at our heart strings while picking our pockets! I also agree with A.I.B - those Supervisors who voted for 3 at 50 should go to jail for 10 years or more. This crap has got to stop.

[re Green Machine]

"A simple google search will provide a listing of information that indicates Moorlach's numbers are way off. So why the number 80?"

A simple search of what? What exactly are we to type in the box? Actuary tables used by life insurance companies all reflect higher life expectancy values which is what I suppose Moorlach was using as well. The man is a CPA and a CFP so he does know what he's talking about. Just because some cops die sooner than others is no reason for us to support bad fiscal decisions like 3 at 50 - that's a real weak argument. I could say the same for any profession.

I agree with the 1st poster - I'm tired of these special interest groups tugging at our heart strings while picking our pockets! I also agree with A.I.B - those Supervisors who voted for 3 at 50 should go to jail for 10 years or more. This crap has got to stop.

[A.I.B.]

Having had time to read up a bit and do a little searching I have found several places indicating that the number one reason being submitted to the un-constitutional action (debt limitation) by the previous BOS is not as solid as might appear: (as has been stated it is a un-funded liability - that is not a debt - it is a potential debt of unknow size due to so many factors as to make them quess at the amount of 100 to 300 million - but the amount in the first year was set at 49 million snd then paid for in that year)

One major basis upon which to find the voter requirement inapplicable is where the debt is contingent upon the happening of some event. "A sum payable upon a contingency is not a debt, nor does it become a debt until the contingency happens." (Doland v. Clark (1904) 143 Cal. 176, 181; accord, American Co. v. City of Lakeport (1934) 220 Cal. 548, 557; see Bickerdike v. State (1904) 145 Cal. 682, 695-697; McBean v. City of Fresno (1896) 112 Cal. 159, 168; 58 Ops.Cal.Atty.Gen. 691, 695 (1975).) The rationale for the
contingent debt exception was stated in Municipal Debt, supra, pp. 649-650:
"Until the occurrence of the condition precedent to an obligation, it is not certain that a local entity will in fact have to pay it. There is no sense in treating an obligation as a debt until the occurrence of the condition. Real needs may go unmet in order to preserve sufficient revenues for the repayment of a debt that may never become due. Voter approval of a contingent obligation is misleading and may well prove to be a useless act if the contingency fails to occur. Therefore, the obligation should be treated as a debt only
when the need for payment is certain."
*4 Another significant exception to the voter approval requirement is where the liability is found to be divisible into annual parts with each payment due only for the consideration received during the particular year. (See Starr v. City and County of San Francisco, supra, 72 Cal.App.3d 164, 172-174; County of Sacramento v. Assessment Appeals Bd.
No. 2 (1973) 32 Cal.App.3d 654, 668; Joint Powers Authority, supra, p. 22.)

and

Under the "special fund" doctrine, the voter requirement will be found inapplicable where
the debt is not a legally enforceable obligation against the local government's general
funds or taxing power. (See California Housing Agency v. Elliott (1976) 17 Cal.3d 575,
587-588; California Educational Facilities Authority v. Priest (1974) 12 Cal.3d 593, 607;
City of Palm Springs v. Ringwald, supra, 52 Cal.2d 620, 624-626; City of Oxnard v. Dale
(1955) 45 Cal.2d 729, 737; The Housing Authority v. Dockweiler (1939) 14 Cal.2d 437,
460; Department of Water, etc. v. Vroman (1933) 218 Cal. 206, 216; San Francisco
Sulphur Co. v. County of Contra Costa (1929) 207 Cal. 1, 5; Shelton v. City of Los
Angeles (1929) 206 Cal. 544, 551; Board of Supervisors v. Dolan, supra, 45 Cal.App.3d
237, 248-249; City of Glendale v. Chapman (1951) 108 Cal.App.2d 74, 76.) The rationale
for the doctrine is that where the local government's "credit [is] not involved in the
incurring of the indebtedness" (Mesmer v. Board etc. (1913) 23 Cal.App. 578, 583) and
the debt will not effect an increase in property taxes or threaten foreclosure upon
government property, the debt is outside the scope of the constitutional provision (see
City of Redondo Beach v. Taxpayers, Property Owners, etc., City of Redondo Beach,
supra, 54 Cal.2d 126, 131; County of Shasta v. County of Trinity, supra, 106 Cal.App.3d
30, 36; Starr v. City and County of San Francisco, supra, 72 Cal.App.3d 164, 176; Board
of Supervisors v. Dolan, supra, 45 Cal.App.3d 237, 249; Municipal Debt, supra, p. 655;
Joint Powers Authority, supra, pp. 25-26, 33).

[Cops Die Young]

The Law Enforcement Wellness Association has assembled an internationally prominent faculty of professionals dedicated to the overall physical and psychological health of the nation's law enforcement personnel.

The law enforcement profession is becoming more complex and stressful as we enter the 21st century. Solid research has shown the life expectancy, after retirement, of a police officer is much shorter than that of the the general population. The suicide rate, divorce rate, and a host of other health related issues, including alcohol abuse, is much higher for police officers than the current national averages. The reasons for these problems are many, complex and varied. Unique occupational stresses: shift work, sleep deprivation, critical incident exposure, cumulative and organizational stress, and leadership issues all play a part. Lack of proper diet and exercise coupled with the many stresses of the job is a disasterous recipe often ending in premature death, or a life which, at best, may be categorized as "non-wellness". Family issues also play a major role in the overall health and wellbeing of a law enforcement officer. The attitude, health and emotional stability of the law enforcement officer affects the harmony, or lack of harmony, in an officer's home. Children, spouses and significant others are all victims of crippling job stress.

[Cops Die Young]

Why all the fuss about heart disease? It's the number one killer of all adult Americans. Why should we, as police officers and law enforcement professionals, be concerned? Well, heart disease is the single greatest cause of early retirement and the second greatest cause of limited duty assignments in your agency.1 Heart disease attacks our men and women in blue at significantly higher rates than the general public. In North Carolina, the rate of heart disease for officers is 35% greater than for the general population.2 As a matter of fact, the life expectancy for a police officer is 15 years less than the average American3, and nationally, 50% of all police officers will die from heart disease within five years of retirement.

[Cops Die Young]

Most officers experience at least one divorce in their career. Suicide rate among police officers rate about second in the nation annually on a consistent basis, and the average life expectancy for a police officer in the United States is 55 years.

[re Cops Die Young]

Cops Die Young,

And your point?...

Statistics show that if your parents didn't have children, you won't either. But that's still no reason to approve 3 at 50. It's simply an irresponsible and unjustifiable mis-appropriation of taxpayer dollars to overpay individuals of a VOLUNTARY profession simply because they're spoon fed by full-time lobbyists in thier unions and associations. Grow up and act like a real cop, or get another job if more money is all you care about.

[Jim]

All you cops are whiny babies.
I'm positive you all know what Moorlach is doing the right thing, you're just too ignorant to except it.
Grow up and just do your job.

[ocwatcher]

I never understood why the agreement would be retroactive. If deputies were hired at a certain rate and benefit package and worked those hours at that rate and benefit package, the agreement on both sides is met.

If a new package needs to be negotiated to keep good workers and attract new ones, it has nothing to do with previous service.

So a package designed because cops/firefighters have such dangerous, competitive, whatever jobs, soon becomes the standard for parks employees and school district secretaries, while public safety folks push on to even more lucrative packages.

Additionally, the problem with contracts like this is that safety pushes the envelope, and other unions soon follow.

And so the cycle continues.

[Here's why]

For several years. I don't recall how many. We accepted low and no pay increase and contributed additional dollars into the retirement system as a part of our contract for 3 @ 50. It just wasn't given to us. Had the county not provided this benefit we would have taken larger wage increases. I did voluntarily accept this job but I expect to be paid for it. As 21 year old it was a fun and exciting life. Now at 40+ I have had friends murdered, crippled, maimed.Not to mention my injuries over the years. I have missed out on a great part of my kids. My relationship with my wife is strained. It is a part of the job. Now that I know what this job really does to a person you'd better believe I deserve my benefits. The office boys like Norby and Moorloch have no clue.