MOORLACH UPDATE — AB 340 Withholdings — September 12, 2012

Governor Jerry Brown signed Assembly Bill 340 (AB 340), the Public Employees’ Pension Reform Act of 2013 (PEPRA), this morning at a press conference in Los Angeles.  One of the changes that will affect current employees is the withholding of up to one half of employer normal costs for retirement benefits.  Withholding for pensions is a multi-level discussion that needs to be elaborated upon.  KPCC 89.3 addresses this topic in the first piece below. 

At the County, there are two layers of withholdings and it depends on the union you are a member of.  Let’s start with general, non-management employees.  These employees pay for their employee cost of the defined benefit pension plan through their paycheck withholdings.  The rates for the employees’ share are provided on the Orange County Employees Retirement System (OCERS) website (see http://www.ocers.org/plan_sponsor/memberscontributionrates.htm).  These withholdings are based on the age of an employee when they started employment with the County (8.85% at age 21 and 12.65% at age 50 for “2.7% at 55” formula).  They also pay a “reverse pickup” withholding.  The “reverse pickup” was agreed to by the general members in 2004 and is their contribution toward the unfunded actuarial accrued liability (UAAL) that was created by the retroactive component of their negotiated pension enhancement.  AB 340 implements a third layer of withholdings for employees:  one-half of employer normal costs.  Currently, they do not pay for one-half of the employer’s normal cost contribution.

Managers and Deputy Sheriffs negotiated the employee contribution be paid by the employer many years ago, in lieu of a pay raise.  That is now being reevaluated during our negotiations with management bargaining units.  It was addressed with the Association of Orange County Deputy Sheriffs in the last round of negotiations three years ago.  This bargaining unit has been phasing-in the withholding of the employee contribution and is now up to five percent.  Now the big question is:  When does the sharing of the normal cost become effective and how?  Stay tuned, as this may be a frequent topic between now and January 1, 2013.

Having exhausted nearly every remedy to reduce pension costs, additional withholding is the only one that is left.  The County’s bargaining units fully understand that they will be responsible for sharing more of the cost.  This topic is now written large and on the table with the Governor’s signature.  The big issue, from a management standpoint, is informing your employees that their work is appreciated while reducing their net take-home pay. 

The second piece below is in the Aliso Viejo Patch and provides the news of upcoming Interjet flights from John Wayne Airport to Mexico.

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Public workers try to cope with having to pay more of their pension costs

By Julie Small  

Governor Jerry Brown will sign a bill Wednesday that cuts benefits for most public workers in California and could save state and local governments up to $80 billion over the next 30 years.

Almost all the changes apply to future hires. But one big change — an increase in how much employees contribute to their pensions — applies to hundreds of thousands of Southern Californians who currently work in the public sector.

Under the new rules, employees must pay at least half the cost of their pensions. Unions have five years to phase-in the increase as contracts are renewed, but it’s the end result that worries most workers.

“It’s going to bring my net down, and it’s going to hurt me because right now I don’t have to pay anything,” says Patsy Gonzales, who works as a secretary for the housing division of the City of Pico Rivera.

Gonzales says she earns $3,500 a month before taxes. Under the new law, she’ll eventually have to contribute about $245 of that to her pension.

“That’s going to be a big chunk out of my check,” she says. “I’m going to have to learn to live differently.”

Gonzales has a couple years until her union contract expires and she begins contributing to her pension, but other unions, like the Orange County Deputy Sheriffs Association, are negotiating right now.

“The timing couldn’t have been any better or any worse” says OC Sheriffs union president Tom Dominguez.

The 1,800-member union was the first in the county to have its members contribute towards pension costs—currently five percent of their paychecks. But to get to the mandated 50-50 split with employers, they’ll have to increase contributions to as much as 13 percent of their pay.

New hires make just over $61,000 a year, and sergeants make between $77,000 and $108,000 annually. At a 13% contribution rate, deputy sheriffs would contribute $7,000 of their pay to cover pension costs and top tier employees would contribute up to $14,000.

Dominguez predicts the county won’t have trouble recruiting young officers, but the smaller take home pay will make it harder to hold onto experienced sheriffs.

“You can hire somebody who is 21 years old and they’re just happy to have a police officer, or law enforcement or deputy sheriff job—because it’s a calling,” Dominguez says. “But once they get hired, they start to see the landscape, they become a little bit more mature. They get married, they have kids, they have families and more responsibilities and then it becomes an issue of, ‘Hey I need to do what’s best for myself and for my family.’”

Most Orange County employees already contribute more than half the cost of their pensions. Jennifer Muir with the Orange County Employees Association says her members contribute as much as 19 percent of their pay.

But county managers, executives and elected officials don’t pay a cent. That includes the board of supervisors.

Orange County Supervisor John Moorlach says managers’ contribution to pay for pensions is “being negotiated.” He adds “Maybe down the line we’re looking at them having to pick up a part of the normal cost.”

Moorlach’s been a vocal critic of what he calls exorbitant public employee pensions. He unsuccessfully sued the Deputy Sheriffs in 2008 to overturn a retroactive pension increase. But he says larger deductions from employees’ paychecks could demoralize county workers.

“When you say to an employee, ‘Congratulations you did a great job this year, we’re not going to give you a raise this year. In fact, we’re going to take more out of your pay because you have to contribute to the pension plan,’ that becomes the root cause for dis-motivation.”

Moorlach points out the new law won’t reduce the multi-billion dollar pension debt that governments racked up in the past couple of decades competing for quality employees.

Los Angeles County opted out of that pension race decades ago. Assistant CEO Ryan Alsop says some pension reforms were needed around California, but not in L.A. County.

“At the end of the day we would have really liked to have been exempt and left alone,” Alsop says.

L.A. County’s 100,000-plus employees already pay more than half of their pension costs—with few exceptions. The county has repeatedly lowered pension payouts and raised retirement ages. Alsop says officials are still analyzing the new rules to make sure they don’t preempt the county’s decisions.

“What we’ve already done is cost efficient, it saved us money and we didn’t want any of that undone.”

But the big surprise, Alsop says, is the new cap on how much of workers’ salaries can count towards their pension. Under the new law, pension payments will be based on a maximum of $110,000 for workers who collect social security, $130,000 for those who don’t. That change applies only to future hires.

That wasn’t part of the Governor’s original 12-point reform plan. Alsop worries it could hurt L.A. County’s ability to hire top-level physicians for the nation’s second-largest medical system. They have to compete with the private sector, he says, and with a small but mighty group of bodies that are exempt from the statewide pension rules: the University of California and the charter cities of Los Angeles, San Diego, San Francisco and San Jose.

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Julie Small, Sacramento Correspondent

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Bienvenidos! Low-Cost Airline to Fly from John Wayne to Mexico

County officials approve plans for Interjet, a low-cost Mexico-based airline, to add service between Orange County and Mexico City and Guadalajara.

Orange County supervisors approved Mexico-based airline Interjet’s plan to add service between John Wayne Airport and Mexico City and Guadalajara, marking the company’s first flights in California.

The low-cost Mexican carrier plans to begin service at the Orange County airport before the end of the year, said airport spokeswoman Jenny Wedge.

Interjet’s aircraft passed noise tests last week, she said. The company, which started in December 2005, needs to clear a few more bureaucratic hurdles before it can begin one daily flight each to Mexico City and Guadalajara from John Wayne Airport, Wedge said.

The flights out of JWA will be the company’s first in California, Wedge said.

Orange County Board Chairman John Moorlach hailed the move, which was approved Tuesday.

“When you look at the demographics of this region, providing flights from John Wayne to Mexico is a good public service,” Moorlach said.

The supervisors also approved Skywest Airlines’ plan to take over commercial service to Salt Lake City on behalf of Delta Airlines, Wedge said.

Compass Airlines had been operating the flight to Utah for Delta that Skywest is taking over, Wedge said.

Skywest will operate three daily flights to Salt Lake City, using a Bombardier CRJ 900, she said.

Skywest had been previously providing commuter flights out of John Wayne Airport for United Airlines, Wedge said.

– City News Service

FIVE-YEAR LOOK BACKS

September 12

1992

Joel Beers of the Daily Pilot provided the results of the candidates forum (see MOORLACH UPDATE — Felonious Pensions — September 9, 2012) with “CRA endorses Genis, Theriot in Costa Mesa race – Conservative Costa Mesa Republican Assembly picks incumbent Sandra Genis and former planning commissioner Brian Theriot from field of 11 candidates.”  Here’s a Reader’s Digest version:

                About 100 people attend the forum at the Neighborhood Community Center, the first formal gathering of the 11 candidates vying for three open seats.  All but Hornbuckle and Stephen McGuire attended.

                John Moorlach, president of the conservative GOP group and forum moderator, said Genis, an incumbent, and Theriot, a former planning commissioner, were easy choices for the 20-member nominating assembly.

                “They’ve been members for a long time, are active in the unit and are very familiar to our membership,” he said.

The Republican Assembly can only endorse registered Republicans.  Six of the 11 candidates are Republicans:  Genis, Hornbuckle, Theriot, Gary Monahan, Denis Retoske and Christopher Steel.  Incumbent Joe Erickson, Karen McKenna-Juergens and Donald Williams are registered Democrats; Kevin Austin and McGuire are undeclared.

                Moorlach said the assembly endorsed only two this year in order to give other Republican challengers an opportunity.

                The decision to not endorse Hornbuckle is the first time to assembly has formally voted to not endorse a candidate, Moorlach said.

2007

The Board of Supervisors heard my request and denied it.  Peggy Lowe of the OC Register covers it in Treasurer wins month’s reprieve – County supervisors postpone stripping Chriss Street of investment powers but promise frequent reviews.”  Regretfully, the other shoe would drop, with the SIV issue (structured investment vehicles), resulting in an investment loss to the County of some $13 million (the largest loss of any county treasurer, other than Robert L. “Bob” Citron).

The Orange County Board of Supervisors backed away from the emergency peeling of Treasurer-Tax Collector Chriss Street’s investment powers Tuesday but promised to tighten the purse strings around the county’s $6.2 billion portfolio with daily or weekly reviews.

A stone-faced Street bolted from the board’s hearing room after the reprieve that keeps his authority intact until Oct. 16, when the board will decide whether it will renew his powers. In postponing Supervisor John Moorlach’s original plan, supervisors said they didn’t see the need for urgency and that the county’s investments are safe.

The vote was a loss for Moorlach, who was once Street’s sole supporter and has since called for his hand-picked successor to resign. He said he’s been distressed by federal and local investigations into Street’s work and fears future calls from reporters about Street’s latest troubles.

But it’s not a victory for Street, either. He must still face the later vote and a call for a daily or weekly review of his investment duties. Street released a statement saying he was pleased with the vote and still considered Moorlach a friend and mentor.

Even as he defended his work, Street confirmed a new issue being investigated by the district attorney. Under review is Street’s waiving of tax penalties and interest for Samsung Korean Church in La Habra. The tax bill, which goes back to 2003, ultimately resulted in a $90,000 payment to the county, Street said.

The former bond trader from Newport Beach told the board in a ten-minute address that his problems have been solely about his style because he’s acted like a private businessman and not a public, elected official.

“I understand that I must work to modify and moderate my style so that it better reflects the substance of our work,” Street said.

But he also denied that he’s done anything wrong, especially in the awarding of an $18,000 contract to an Irvine architectural firm. While many are questioning whether a memo tied to the contract is valid because it may have backdated the bid process, a Street aide told the board the problem is merely a typo.

“What I did was not wrong or inappropriate,” Street said. “It was just sloppy and frankly, politically naïve.”

Postponing the vote was suggested by Supervisor Pat Bates, who said there is no immediate threat to the county’s portfolio because of the ongoing controversies. Supervisor Janet Nguyen agreed and sided with Auditor-Controller David Sundstrom, who said safeguards put in place after the 1994 bankruptcy are designed so no single person can wreck the portfolio.

Supervisor Bill Campbell said he, like Moorlach, worries about “another shoe dropping”. He also questioned Street about the two legal claims filed against him for his role as trustee of the bankrupt Fruehauf Trailer Corp. from 1998 to 2005.

“It does go to your reputation,” Campbell told Street.

A law put in place after the bankruptcy requires the board to renew the treasurer’s powers each December – a requirement that was non-controversial during Moorlach’s 12 years in that office.

Several Street supporters – including members of his staff – told supervisors Street has done a fine job of managing the office’s finances and that he has improved morale with the clean up of the 1950s-era Hall of Finance and Records.

Christian Berthelsen of the LA Times provided his perspective in O.C. treasurer keeps authority over investments for now – Supervisors decide not to strip the authority from Chriss Street, who is the subject of several investigations, but will consider greater scrutiny and controls.”  Here are selected paragraphs that provide a different light on the subject: 


The decision was a victory for the beleaguered Street, who has been buffeted by questions and investigations about personal business dealings and official conduct during his nine months in office.

The vote also marked a rare setback for Supervisor John Moorlach, who unsuccessfully asked for Street’s resignation before seeking the board’s decision to strip him of his authority over the county’s $6-billion investment portfolio.

Before Street was elected, accusations emerged that he had engaged in self-dealing through his oversight of a bankruptcy case involving a trailer company. Those issues have since become the subject of an inquiry by federal prosecutors, and federal labor authorities are conducting other investigations.

Orange County prosecutors have also launched an investigation into Street’s handling of a contract to redesign the outside of the treasurer’s office building, as well as into a tax case involving a Korean church.

Street has also drawn scorn for a remodeling of the treasurer’s office that has cost more than $750,000 so far, for items including flat-panel television screens, sleek glass office walls and designer chairs.

Moorlach, the previous treasurer and political mentor to Street who helped get him elected, said he grew weary of repeated questions about Street and lost faith after Street repeatedly assured him there was no trouble, only to have allegations emerge again. Moorlach, usually regarded as a leader on the board on financial matters, said he thought Street’s troubles would distract him from the business of managing the county’s investments.

Alicia Robinson of the Daily Pilot covered it with Street not stripped of power – Officials stress county investments are not in trouble; board to reconsider treasurer’s control in October.”

Orange County Treasurer-Tax Collector Chriss Street didn’t lose his control over the county’s $6 billion investment pool Tuesday, but he may still have to answer to county supervisors for his conduct on a number of issues.

Instead of immediately stripping Street of his investment power, as Moorlach proposed, the board unanimously voted to reconsider the issue Oct. 16.

In the meantime, the county will seek more information about how the construction contract came about and will look into more oversight of county investments.

Moorlach and county Auditor David Sundstrom stressed county investments are not in trouble and are in fact doing well. Instead, Moorlach said, he worried Street would be distracted from his job by investigations into his conduct.

“I have been loyal to Mr. Street for 18 months and have certainly defended him” as issues have come up, Moorlach said. “I believe we need some form of assurance to the taxpayers that we are addressing some of the concerns.”

A variety of Street’s employees told the board he has been an effective and inspiring boss, and several defended Street’s role in specific claims against him.

Under Street’s leadership, department budget manager Dan Puglia said, “I feel more empowered to do my job and have seen the same effect in my staff.”

For supervisors, the issue came down to a sense of urgency, and most of the board didn’t feel it. While they’re still concerned about the treasurer’s legal problems, some agreed with Orange County Taxpayers Assn. President Reed Royalty’s assessment that taking away Street’s investment control would be premature.

“We do not believe from what we’ve heard so far that you really have the compelling cause” to undo the will of the voters who elected Street, Royalty said.

Street was contrite but maintained that his biggest failure was one of communication.

“I am responsible for the public’s perception of my office and any mistake whether real or perceived is my mistake,” Street said.

But, he added, “These claims are based upon nothing more than speculation and innuendo and should be dismissed as such.”

But this won’t be the end of it. Moorlach asked about the procedure for calling a special meeting on the issue if needed, and he said he’s still waiting for some answers either from Street or the Resources and Development Management Department.

Michael B. Marois of Bloomberg News covered it in “Orange County Supervisors Shun Bid to Strip Treasurer of Power.”  Here is a quote:

“I’ve stated that someone is innocent until proven guilty and I know this investigation has not been completed and that everyone should have their day,” Moorlach told supervisors.  “But I’m beginning to be a little distressed about the impacts of these investigations and other personal battles and the impact they might have on our constituents.”

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