Blog Archives

Playing Politics With Pensions

chicken_little-sky-is-fallingNot much has been happening lately in our town Tustin. The hallowed halls of the city were originally scheduled to be dark for the next few weeks. That is, until the city council, who cancelled a regular meeting for July and then rescheduled for tonight, July 24, 2013. The only items on the agenda are the awarding of a contract for a storm drainage project and a closed item session (which we would bet is the real pressing issue) to discuss negotiations for real property that looks to be on the MCAS. We’ll have to see if they can manage to get the video up after the meeting. They had a bit of trouble (again) for the last meeting and we are not sure if it ever did get posted.

It doesn’t take a video to determine the level of corruption and inept governing by this bunch however. One simply has to look around at the obvious cronyism and corruption that is considered “good government” by our conservative city council.

One item on the last agenda was the acceptance of the contract for the last of the city employee unions, Tustin Municipal Employees Association. As we have told you before, management of the association is actually contracted to the Orange County Employees Association, a public employee union that handles the contract affairs for about 17,000 city, county and special district employees in the county.

Among the provisions of the TMEA contract is one that should send shivers up the spines of any rank-and-file worker. As part of the deal, the TMEA has agreed to pay the full employee cost of pensions. That in itself is long overdue and we agree that it is about time all employees, including management and executives, pay their fair share of pension costs as determined by their respective pension plans (in this case, CalPers).

What is scary is that city negotiators have managed to eke out another provision that will eventually go into effect. This is a requirement by employees to pay a portion of the employer’s cost of pensions. The initial three percent does not sound like much but it opens the door pension critics have long awaited. If three percent today, then how much next year? Fortunately for the city’s employees, they will get a breather next year as their contract is for two years.

What makes this situation worse is the blatant disregard for employees the city council had when they not only gave Chief Scott Jordan a raise last year, ostensibly to keep him here, but also another five percent raise as a going away present on the eve of his departure from the city employment ranks. Then, they turned around and cried pending insolvency if the employees didn’t rolll over on their pension demands. The contract, by the way, was narrowly approved indicating that nearly half the employees were not happy with the provisions.

Nick Berardino, General Manager of OCEA, recently published a guest article in the Orange County Register:

On July 6 the Orange County Register published a story highlighting excessive pension benefits for public employees, this time focused on executives and managers in the “$100K pension club.”

Ultimately, that story, helps to explain why we continue to be bombarded with stories about this issue, even after Governor Brown has signed into law sweeping pension reforms and after public employees across the state have agreed to significant additional reforms.

What continues to be missed is a consequence of the fact that some politicians understand the public employee pension issue resonates with the public. So, in order to keep the issue in the forefront, those politicians have an interest in creating doomsday scenarios and making the cost of pensions to taxpayers as high as possible.

And I believer that is what is happening at the Orange County Employees Retirement System, or OCERS, which administers pension benefits for the County, the Fire Authority and many cities and special districts [not Tustin, who is administered by CalPers-ed.] in Orange County.

Over the past year the OCERS trustees – some of whom actively bash pensions in public and belong to aggressively anti-public employee organizations – have taken one action after another to artificially drive up the cost of pension benefits.

This isn’t about “facing reality” or “not kicking the can down the road” or “inter-generational equity.” It’s about furthering a radical political agenda. And the sickest part of the scheme?

They are funding it with your taxpayer dollars and it’s you who are paying for it. You should also know some legitimate facts that are repeatedly left out of the news stories and editorials.

First, county employees represented by the Orange County Employees Association pay 100 percent of their pension costs and they pay the entire cost to the county of the 2004 improvement to a 2.7 percent at 55 year old formula.

Second, county employees do not receive Social Security benefits. Third, the average pension for OCEA member retirees is $33,000 per year. That’s a long way from the “$100,000Club” referenced in the Register’s story.

Nick, a good friend of ours, goes on to point out the fact that it is employees, not the politicians, who have been at the forefront of pension reform. Some of those reforms at the county level have included being the first employee organization to require 100 percent contributions for pensions as well as developing (despite what the politicians may say) the first hybrid plan that includes a lesser defined benefit combined with a 401(k) style component to allow for lower cost and better management of employee benefits.

What politicians are now doing, to fortify their “sky is falling” fiction, is to artificially manipulate pension numbers to make it appear as if their is a crisis when their isn’t. For example, OCERS just recently lowered the Assumption Rate, the expected rate of return on investment for the fund, by a quarter percent from 7.5 to 7.25. This, even though the market is recoverning nicely and the fund has been posting record returns for the past several years with no indication it will falter. This not only raises the employee’s pension costs by another 6.5 percent in the next two years, it also costs the taxpayer in the form of employer paid costs mandated by law. So, who is the real loser?

Tustin, as a member of CalPers, has also benefited from record gains made in their pension system. In a recent press release, CalPers stated a return on investment for the past year of 12.5 percent on an Assumption Rate of 7.5 percent. Tustin City Council and their corrupt city manager, Jeff Parker, knew this as they were negotiating the new contract. Lamenting their supposed fiscal woes at the negotiation table, the employees apparently bought it hook, line and sinker.

Like many public employees, city of Tustin workers have mostly gone without raises over the past few years due, mostly, to the economy. I say most of them, because the Tustin City Council and City Manager Jeff Parker have managed to reward executives and senior managers, all unrepresented, with lucrative raises by manipulating the system to their benefit. In the so-called open government of Tustin, managers have been given new titles and old positions eliminated, supposedly with the eye toward saving the city money. In reality, we suspect many of these so-called new titles are simply ways to reward long term senior employees while hiding the truth from a gullible rank-and-file. The only question at this point is whether the Tustin City Council is complicit or being sold a bill of goods by a conniving city management team.

John Moorlach: Politician, Soothsayer, Storyteller

Courtesy of The Liberal OC

(The story was updated to correct the quote at the end -ed.)
Growing up, my mom always taught me that omission is as bad as commission meaning that, if you fail to say something when you should have, that is just as bad as telling a lie. In Orange County Board of Supervisor John Moorlach’s case, he does not seem to have gotten the same message.

On June 21, 2012, Moorlach took his “message of change” to county employees. In an email sent to all employees entitled, “A new Approach for Labor Negotiations”, he outlined the current financial condition of the county and laid the blame squarely on the backs of the public employees.

This is not an unusual tactic for Moorlach, who still feels that he is the savior of the county after having foretold the coming 1994 bankruptcy. Of course, whenever Republicans like to speak of that, they emphasize the foretold part, as he did absolutely nothing to prevent the bankruptcy. He could have. He could have notified the state of the illegal doings of then county treasurer, Bob Citron. He could have notified the district attorney. Instead, he simply voiced his opinion. And many people agree that, had he not said anything, the crisis would have passed in a week or two and bankruptcy would have been averted. In fact, many say a bankruptcy was not required anyway and that it was engineered by some for personal and political gain. So much for John’s soothsaying. That could be why no one is listening as he screams, “the sky is falling”, again.

But Moorlach, who had already decided to run for office, capitalized for several years on his fortunetelling abilities. When he came to the Board of Supervisors, it seemed as if the other Board members were a bit in awe of him. Like the E.F. Hutton commercials of old, when Moorlach talked, people listened. One of the things Moorlach said from the beginning (and we will hold him to his word) was he would not run for any higher office. We assumed he meant that he was a local politician and not one to go to Sacramento on our dime. We’ll see how that works out now that he is in his final term after his unsuccessful bid to extend Supervisor’s terms to a third limit. Nowadays, we hear the Republican Party locals like what John says more than they like John himself. In any case, his motives on a variety of issues have been called into question on more than one occasion, most notably by one of our newest Supervisors, Shawn Nelson.

Oh, let’s not forget that, when Moorlach left his job as County Treasurer to take the job of Supervisor, he anointed his crony and friend, Chriss Street to take his place. Street, as you know, became mired in  scandal of his own when, as trustee of the bankrupt Freuhauf Corporation, he breached his fiduciary duty “in an effort to serve his own selfish ends.” Almost as quickly as he said hello to his buddy, Moorlach was quoted as saying, “He’s got to go. The taxpayers don’t deserve this nonsense.” Apparently, John made a better politician than a friend.

Now, there is no doubt that John hates public employees. He hates their unions and he hates the fact that he cannot just change their compensation whenever he chooses to balance the budget. He has been know to refuse to shake hands with union officials and refers to them as union thugs. He has his hatchetman and chief bootlicker, County CEO Tom Mauck attempt to deal with them. Tom Mauck is a story unto himself but, suffice it to say, he hates public employees as much as John. It was rumored that, at one time, he even said he deserved the compensation he received, including his lucrative pension, car allowance and other personal benefits, because he worked hard and most public employees were slackers.

So, now that nearly every public employee union is in negotiations this year, it comes as no surprise that Moorlach would be pushing his agenda hard. Although his influence is waning with a public who has come to see him as a typical politician, he continues to put out missives like the one he penned Thursday and backs it up with graphs. From his letter:

These negotiations come at a time when our financial resources have experienced several years of contraction and are projected to see minimal, if any, growth in the future. Moreover, we continue to defend against efforts by the State of California to reach for our current assets and future revenue streams. Juxtaposed with our flagging revenues, the total compensation for County employees has steadily risen. The primary drivers of the increasing total compensation are salary growth (for a number of reasons), pension contributions, and health care benefits. The chart below demonstrates the growth in average total compensation for county employees over the last five years.

A New Approach for Labor Negotiations

This year ranks as one of the most important in recent history in Orange County for labor negotiations. Discussions are already underway with several of our largest bargaining units, and by the end of this calendar year, we hope to have new agreements in place for all the major labor groups in the County. These negotiations come at a time when our financial resources have experienced several years of contraction and are projected to see minimal, if any, growth in the future. Moreover, we continue to defend against efforts by the State of California to reach for our current assets and future revenue streams. Juxtaposed with our flagging revenues, the total compensation for County employees has steadily risen. The primary drivers of the increasing total compensation are salary growth (for a number of reasons), pension contributions, and health care benefits. The chart below demonstrates the growth in average total compensation for county employees over the last five years.

In total, the Average Total Compensation across all of the County’s positions has grown by nearly $15,000 over the last four years, equivalent to a raise in total compensation of 17.2%. During this same timeframe, property tax revenue, which represents the overwhelming majority of our General Purpose Revenue, has grown scarcely more than 3%. In order to address the unsustainable trend in total compensation growth, the County is now faced with either laying off employees and reducing services in order to achieve a more tenable financial position, or finding ways to restrict the growth in total compensation in order to bring it in line with the growth in available resources. The Board of Supervisors has decided to pursue the latter approach, in an effort to retain as many employees as possible and maintain service levels to the public we all serve.

In simple terms, this means that the Board is committed to negotiating agreements with all of our major bargaining units in which the costs of employee compensation do not exceed our expected growth in property taxes. Going into fiscal year 2012-13, property tax revenues are expected to remain flat. Consequently, total compensation must remain flat. In order to achieve this goal, some forms of compensation will need to be reduced in order to counterbalance growth in other areas of compensation. These reductions could come in a variety of different forms, such as greater contributions toward pension costs, health insurance modifications, changes in premium pay, and/or salary reductions.

Our financial advisors and staff estimate that property taxes (which account for more than 90% of our General Purpose Revenue) will not make significant gains in the near future. This sobering projection means that absent a paradigm shift in the County’s pension liability (the second most important driver of total compensation after regular salaries) modest reductions in employee compensation will need to continue in the near future if the County is to maintain its goal of financial prudence. These reductions will not need to be at the levels seen in some of our peer counties or at the State (which is looking at a 5% reduction in 2012/13), but will need to be sufficient to offset the anticipated growth in other forms of compensation, like pension contribution and health benefits. The Board of Supervisors will continue to pursue solutions to the ever-escalating pension costs that are crowding out salary increases for our employees, but it is clear that true solutions can only be found with the assistance of our employees and their labor representatives.

It is vital that each County employee know that this new approach to labor negotiations is born out of financial necessity and a commitment to provide the highest level of service possible to the taxpayers who entrust us with their resources. A commitment to the public is something that binds us together as civil servants, and it is what will see us through these times of austerity and sacrifice. Thank you for your continued service and perseverance.

It is interesting that Moorlach now attempts to appeal directly to the employees in the county. It is also interesting, but not surprising, that he does not tell the honest truth, even to those same employees. But, as we said before, he hates public employees and hates the fact that he has to pay them more than minimum wage or any benefits. In other words, he is a typical Republican politician.

One only has to look at the accompanying graph which he points to as proof. Note that total compensation does, indeed, rise 17%. What he doesn’t tell you is why compensation rose at all. In spite of the fact that no line employee has received a raise since 2007, base compensation has gone up. How could that happen, you ask? I will tell you what Moorlach failed to say. Since 2007, managers, executive managers and others above the rank of supervisor (and there are a lot of them) have all received multiple raises. Most of the executive managers receive a car allowance of nearly $800 per month and all managers down to manager I, receive an optional personal benefit of about $4,000 per year which, if they swing it right, comes to them tax-free over and above their salaries. So, if you spread that $9,000 per year out to just the management staff, rather than all employees, how much did their compensation increase? Moreover, the question is, when the county should be in austerity mode, how could anyone receive an increase in salary? Much of it was caused by unjustified promotions and raises in the management ranks.

Let’s talk healthcare. In his letter to the masses, Moorlach talks about how cost have increased. The graph, once again, shows how costs per employee have risen a modest $2400 since 2007. Healthcare costs are one of the single-most expensive benefits of employees. Moorlach makes it sound like the employees are being unreasonable about healthcare. However, the unions and the county have always been willing to sit down and discuss the issues over healthcare cost. A few years ago, OCEA agreed to split the retiree pool. This resulted in higher costs (and a lawsuit) for retirees, while helping to contain costs for active duty employees. Over the years, the unions have agreed to pay a portion of their dependent healthcare and substantially increase co-pays to doctors and for medications. In fact, it has been the unions who have been at the forefront of  containing healthcare costs while maintaining an important employee benefit. Still, healthcare costs have increased through no fault of the employee or the county. So, why lay the blame on county employees?

The big elephant, of course, is pensions. And here, Moorlach clearly withholds important details, even from his own employees. For example, he likes to expound upon those unreasonable pensions of public employees. It is true that most non-safety public employees (including managers and executives) negotiated an enhance pension that would allow them to retire with more money at an earlier age. Prior to the enhancement, employees received 1.67%@57. In 2004, unions successfully negotiated a new tier. No one can disagree the resulting pensions would cost both the county and the employee more.  What he did not say is that the union agreed employees would pay for both the employee and employer side of the increased costs.

In a recent editorial, OCEA General Manager Nick Berardino stated:

In other words, since OCEA-represented employees agreed to pay the entire cost of improving their retirement benefit – the improvement did not cost the county or its taxpayers anything. Not only that, the employees’ commitment to pay for the new benefit was enforceable into perpetuity. Employees are used to seeing that pension offset being taken from their paychecks regularly.

Then, in 2009, OCEA once again stepped forward, negotiating a one-time option for current employees to elect a hybrid retirement benefit consisting of a 1.62@65 defined benefit formula coupled with a modest defined contribution plan. San Jose’s approach also involves a current employee option component, but OCEA and the county have been attempting to get IRS approval for their plan long before most jurisdictions, including San Jose, even had pension reform on their radar.

Another important piece of the pension shortfall puzzle is the fact that the county, much of it during Moorlach’s term, frequently took “pension holidays” where they did not make any contribution to employee pensions (employees do not have that option). That’s because they did not have to. But, in looking back, don’t you think they should have? Does anyone think that would have made a difference (a show of hands, please). This was clearly shortsighted thinking on the part of the Board. To be clear, the Orange County Retirement System, although below the recommended 80% level due to the depression, is well funded and not in any danger of collapsing.

Oh, did I forget to mention that, until recently, managers, executives and elected officials did not pay into their pensions at all? I guess I am getting like John in my old age.

So, where is it that county employees have not done their part to rein in pension costs and continue to provide quality service to the residents of Orange County? It would seem, with this new information, that Moorlach is only telling the part of the story he wants us all to hear. And, if you thought he did not want you to hear it, this blog is not the only one to mention his letter to the masses.

So, there you have John, the storyteller.

If you look at anyone in this, look at how badly the Board of Supervisors and CEO Tom Mauck have attempted to cover their embarrassing situations and keep their own pensions intact. Oh, did I tell you, John Moorlach, as an elected official and employee of this county, receives the same pension as other employees (we won’t mention that lucrative 457  plan available only to elected officials and managers)? Including his time as Treasurer-tax Collector, Moorlach will have 20 years of service by the time his term ends on the Board of Supervisors. It is interesting to note that he will not even acknowledge this fact. He is one of three members of the Board that gladly keep their pensions intact even while disparaging the good names of union employees. The two that keep a saner head about them are Pat Bates and Shawn Nelson, neither of whom take a pension.

Now you have, as TV commentator Paul Harvey used to say, the rest of the story.