MOORLACH UPDATE — Calpensions — October 15, 2012

Ed Mendel provides one of the most technical news forums on the topic of pensions in the state of California, Calpensions.  The most recent edition addresses a topic that is starting to garner some attention around the country, as it should.  Having observed this topic firsthand, it is worthy of a public discussion.  The reference to Orange County can be found at MOORLACH UPDATE — POBs — February 5, 2011, or at http://www.ocregister.com/articles/debt-287045-pension-california.html.  The Calpensions website uses a photo of the California Public Employees Retirement System (CalPERS) office building for its banner, so I’m providing one, too.

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Judges and pensions: classic conflict of interest

The public employees most lightly touched by a pension reform signed by Gov. Brown last month are the judges, whose court rulings on public pensions can affect their own pensions and retirement income.

Judges have the biggest pension formula and make one of the smallest pension contributions. But unlike others covered by the reform, current judges are not expected to pay half the normal pension cost, and new judges do not get a lower pension.

The one way judges are affected by the reform bill: New judges will be expected to contribute half the normal cost of their pensions. That could be about 15 percent of pay, well above the 8 percent that current judges will continue to pay.

Did the framers of the reform bill, AB 340, which was negotiated in private by the Brown administration and legislative leaders, go easy on the judges to reduce the risk of lawsuits in which judges have a personal stake?

“There is no linkage either implicit or explicit of the kind you are describing,” said H.D. Palmer of the governor’s finance department.

Instead, judges are said to receive special pension treatment because they tend to begin work as judges later in life and retire at an older age than most government employees.

The judicial conflict of interest on pensions drew national attention in July when the New Jersey state Supreme Court ruled that judges were exempt from a broad pension reform, a victory for the judges who filed the suit.

In a 3-to-2 decision, the court said paying more for pensions and retiree health care violated a New Jersey constitution ban on “diminishing the salaries” of judges, a protection against retaliation by legislators and executives when laws are struck down.

A Judgepedia website report in April on judicial pensions becoming an issue in several states said “it is clear judges hearing the cases have an undeniable conflict of interest, since any decision they make will also affect their own pensions.”

The website said the New Jersey chief justice, Stuart Rabner, recused himself from the pension lawsuit. But he left the panel because he had lobbied for the reform bill, not because the ruling might affect his own pension.

In a class-action lawsuit to overturn an Illinois law requiring retirees to begin paying for their health care, a retired appellate judge, Gordon Maag, was made the lead plaintiff last July, a move critics said is an attempt to influence his former colleagues.

As Orange County unsuccessfully tried to overturn a retroactive pension increase for deputy sheriffs, arguing violations of the debt limit and a ban on extra pay for work already performed, an attorney for the deputies made a brief argument last year.

“Miriam A. Vogel, a retired Court of Appeal justice, clearly told her former colleagues that the court’s decision would affect every pension in the state of California: “[I]t would affect yours, it would affect mine,” Orange County Supervisor John Moorlach wrote in the Orange County Register last year.

Judges not only can have a conflict of interest when ruling on pensions, but another potential reason to leave them out of reforms is that they also are lawyers, knowledgeable about the inner workings of the law and possibly litigious.

Continuing an old battle, a suit filed last March in San Diego County Superior Court on behalf of about 125 active and retired judges and their spouses, heirs and trusts seeks, among other things, payment for annual inflation adjustments from1970 to 1976.

The suit contends that the Judges Retirement System administered by the California Public Employees Retirement System apparently is prolonging the legal battle in the mistaken belief that its financial obligation ends with the death of the petitioner.

“This constitutes unclean hands on the part of the respondent,” said the suit. CalPERS had no comment because the suit is pending. For inflation adjustments cut four decades ago, the suit seeks repayment with compounded interest, 10 percent a year.

The judges’ suit relies on the widely held view that a series of court rulings mean the pension promised a government employee on the date of hire is a “vested” right, protected by contract law, that can only be cut if offset by a benefit of equal value.

The new pension reform bill gives new hires, who are not vested in current pensions, a lower pension and requires them to pay an equal share with the employer of the normal pension cost, which does not include debt or any “unfunded liability.”

But the bill may touch on the vested rights issue by calling for current employees to pay an equal share of pension normal costs. Most state workers are already paying half the normal cost or more.

The bill raises the pension contributions for roughly a third of state workers from 1 to 3 percent of pay over the next two years, up from current contribution rates of 8 to 10 percent of pay.

For local governments in CalPERS and 20 independent county systems, the bill does not call for an equal split of the normal cost until 2018, allowing time for current contracts to expire and bargaining before an increase can be imposed.

Unions have mentioned a possible lawsuit. But legal action, if any, is not expected until after the Nov. 6 election. Pension reform was pushed to aid passage of Brown’s tax increase, Proposition 30, by showing voters costs are being controlled.

For judges, the reform bill avoids the vested rights issue. Current judges will continue to contribute 8 percent of their pay to pensions, less than a third of the normal cost of about 30 percent of pay. Only new judges are expected to contribute 15 percent.

Judges are covered by two retirement systems. The original, closed to new members since 1994, is a rare pay-as-you-go system lacking an investment fund, which for many pension plans is expected to pay about two-thirds of the cost.

The system has 413 active members, 1,873 retirees, costs the state about $212 million this year and has an unfunded liability of $3.3 billion. Prefunding the system and making the actuarially required contribution would cost $1.5 billion this year.

The second system for judges hired since Nov. 9, 1994, (Judges II Retirement System) has a conventional investment fund, 1,280 active members, 30 retirees, costs the state $56 million this year and has an unfunded liability of $48 million.

The pension formula for both systems is 3.75 percent of final pay for each year served. For a Judges II pension, members must be at least 65 with 20 years of service or 70 with five years. An optional “monetary credit account” is available after five years.

In comparison, the police and firefighter pension formula widely adopted after the trendsetting SB 400 in 1999, now said by critics to be unsustainable, is 3 percent of final pay at age 50. The new reform bill gives non-safety new hires 2 percent at age 62.

The average annual salary in the original judges retirement system was $183,825 during the fiscal year that ended in June of last year. The average salary in Judges II was $179,414.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune.

FIVE-YEAR LOOK BACKS

October 13

2007

The OC Register’s Sunday Commentary section had a rebuttal to Sheriff Carona’s recent editorial (see MOORLACH UPDATE — Hall of Administration  — October 8, 2012), which was titled “Measure E results from government’s failure to protect U.S. borders.”  Here is the pertinent paragraph:

Carona further says taxpayers are protected with Measure E and cites County Treasurer John Moorlach’s “A” rating as proof.  A part of this “protection” is the Measure E’s provision for an oversight committee.  These toothless committees are nothing but a placebo.  One would be hard-pressed to give one example where an oversight committee ever saved the taxpayers a dime.

                Bruce Crawford

                Fountain Valley

The North County Times did a lengthy educational piece, titled “Tunnel plan through mountains pushed,” by Rob O’Dell.  Ten years later, the idea is still facing the same resistance.  And that is the joy of a political world.  Here are the first four paragraphs, followed by selected portions:

                With traffic on the only freeway linking Riverside and Orange counties already nearing gridlock, Bill Vardoulis doesn’t understand why officials seeking a solution to the traffic problem aren’t beating down his door.

Fearing that gridlock on Highway 91 could eventually grind the economies of the two counties to a halt, Vardoulis, a civil engineer from Orange County, has drawn up a proposal to punch a tunnel through the Santa Ana Mountains to provide residents in Riverside County with quick and direct access to the business centers in Orange County.

Despite the evidence that the 11.5-mile tunnel could ease snarled traffic on the notorious highway, Vardoulis said the proposal – which has piqued the interest of the business community and service organizations on both sides of the mountains – is being largely ignored in some political circles.

Politicians are keeping mum on the tunnel proposal, he said, because they don’t want to upset the Irvine Co. – the Irvine-based development company and huge landowner that is a major political force in Orange County.

. . . the tunnel is the best of . . . six alternatives, [Vardoulis] said, because it is the only option that could be built in five to 10 years that wouldn’t cause massive disruption of existing traffic during construction.

Because the tunnel would spare the environment both physically and visually, it is the most viable way to connect the two counties because environmental concerns are often the biggest stumbling blocks to building highways, said Bob Poole, the director of transportation studies for the Reason Foundation, a public policy think tank in Los Angeles.

Vardoulis has another ally in Orange County Treasurer/Tax Collector John Moorlach, who said claims by opponents that the tunnel would cost tens of billions of dollars are overstated, and that the price tag would be closer to $3 billion.

“It’s not unrealistic,” Moorlach said.  “The industry has been drilling 45-foot diameter tunnels all over the world – including under the English Channel – with laser precision.”

Because the tunnels could also carry water lines, electric lines, fiber-optic cables and possibly oil and natural gas between the two counties, it is even more feasible because some of the construction and operating costs could be underwritten by those industries, Moorlach said.

“The synergy between interests makes (the tunnel) viable,” he said.  “It’s a win-win-win situation for everybody.  It’s an extremely fascinating proposal.”

Moorlach said the Irvine Co. is a powerful and persuasive force in Orange County and has a vested interest in where a connection between the counties would occur.

“If you felt your values and net worth were being threatened, you’d be against it, too,” Moorlach said.

A decision on the route is probably at least a year and a half or more away, [Riverside County Transportation Commission Director Eric Haley] said.

But the counties don’t have long to wait before making a decision, Orange County Treasurer Moorlach said, that adding lanes to Highway 91 is only a Band-Aid for the problem.

“What we have to do is think 50 to 100 years ahead (because) we have the potential to become the next Chicago or L.A.,” Moorlach said.  “If we wait too long, we won’t have the chance to build the tunnel; the window will have passed us by.”

October 14

1992

At long last, after six weeks, Daily Pilot columnist Fred Martin returned to his post and updated his readers with “Mary Tyler Moore, The Fugitive kept Fred company” during his medical leave for shoulder surgery.  Here are selected paragraphs:

                During all that time, I accomplished nothing.  I did read the front pages of various sections of the Los Angeles Times.  Only the leads, though, because I couldn’t turn the pages.

                I think probably my major accomplishment was thorough study of the weekly television schedules to ferret out the good re-runs one can find on television.

                Letters and calls and cards from readers were a wonderful boost.

                The most surprising message of all was a card from John Moorlach, a Costa Mesa CPA and the arch-conservative head of the local Republican Assembly.  He also contributes articles to the Pilot on occasion, and I (now literally a left-winger) have been critical of some.

                Most recently I knocked him for certain references to John Seymour which I considered unfair and misleading.  Yet John took the trouble to send a thoughtful card with the note, “Fred:  If the truth be known, I was honored to be included in your article.  And I really hope your recovery is a speedy one.”

                Since the subject of that column was low-road GOP campaign statements, I think there might have been just the slightest blush of sarcasm in the first sentence.  But the gesture was definitely a class act.

2007

H. G. Reza of the LA Times provided the following profile piece:  O.C. government watchdog wants her role to live on – Shirley Grindle, 72, wrote the county’s TIN CUP campaign donation law. Now she’s calling for creation of a panel to carry on her work of keeping tabs on politicians. Predictably, many of them don’t”

Here’s what I wrote in my UPDATE of five years ago:  “The article also brings up some need for clarification.  The first is that Shirley Grindle has not made a presentation to me about a Fair Campaign Practices Commission.  My office looks forward to meeting with her about her plans.  What I recommended to the reporter is that Shirley needs to mentor someone to follow in her footsteps and carry on her passion.  What I’ve been pursuing is adopting the State’s full on-line disclosure policies and procedures.  If you can mine the data electronically, it won’t take someone thousands of hours and 5” X 8” note cards to manage the data.  Maybe there is an opportunity to provide electronic filing and oversight?”

I’m glad to report that I was successful in providing the campaign reports online.  I will also report that my office did try to work with Ms. Grindle.  In this business you need some collaboration and some compromise.  Ms. Grindle wants what Ms. Grindle wants, period.  All to say, we still have TIN CUP on our books, flaws and all.   Here is the beginning of the piece:

It is the message no Orange County politician wants to hear: Shirley Grindle is on the phone. If money is the mother’s milk of politics, Grindle is the health inspector who makes sure the milk is not tainted.

For nearly 30 years, she has recorded every dollar local politicians have received. In rough numbers, that’s about 50,000 contributors she’s kept tabs on. She wrote the law that limits campaign donations to county candidates. And she’s never taken a nickel in pay.

For all this, she is both loathed and loved, her name forever linked with two words of warning: Shirley Grindle — political watchdog.

Now 72, Grindle is concerned about her legacy and who will carry on her work.

"I’m not going to be here forever. Who the hell is going to keep track of them when I’m gone?"

She is betting there will be a dearth of volunteers and wants the Board of Supervisors to establish a county Fair Campaign Practices Commission to enforce the 1978 law she wrote, known as TIN CUP, or Time Is Now, Clean Up Politics. The ordinance applies to officials elected to county offices such as supervisor, sheriff and district attorney.

The proposal, like TIN CUP, has supporters and critics.

Former Supervisor Roger Stanton said Grindle’s suggestion "is a great idea."

"She’s had a lot of good ideas over the years and has never played favorites," Stanton said. "She’s been a great public asset."

But Supervisor Chris Norby, who is board chairman, said a commission would only "harass well-meaning candidates and their supporters who want to participate in the political process."

"You can put me down as a no vote," said Norby, who was fined $10,000 in 2005 by the state’s Fair Political Practices Commission after Grindle complained that his state campaign reports did not list the names and employer information of some donors.

Norby said he also opposed the current $1,600 contribution limit because he said it restricts donors’ free speech rights and give incumbents an unfair fundraising advantage. The limit applies to individual donors for each county candidate for every election cycle.

"For Shirley to suggest we spend public money to continue what was her own personal hobby is not the direction I want to go," Norby said.

Grindle, a grandmother who relaxes by playing softball in a senior women’s league and going to movies, is not discouraged by such critiques. She has spent most of her life fending off criticism and accomplishing the unexpected.

Divorced, she has lived in the same house in Orange for almost 40 years. She said she graduated from UCLA in 1956 with a degree in aerospace engineering in an era when young women were more likely to be encouraged to study home economics.

Grindle said she spent the 1960s testing nose cone materials used by space vehicles re-entering Earth’s atmosphere.

Grindle’s civic work has been exhaustive but decidedly low tech. In tracking tens of thousands of contributors, she catalogs her information on 5-by-8 index cards she organizes in about 25 boxes kept in a converted bedroom that serves as her elections office.

She does not use a computer, choosing instead to type the date, amount and recipients of the political contributions made by individual donors.

Predictably, politicians are not tripping over themselves to support Grindle’s plan for a county ethics commission. But voters may.

Supervisor Bill Campbell said Grindle had talked to him several times about a commission over the years.

"I’m not excited about the idea of putting down another layer of government," he said. "But I’ve learned never to say no until I see a proposal in writing."

Supervisor John Moorlach said he preferred more disclosure of candidates’ campaign statements and making uncensored copies of them available online for wider public scrutiny.

Candidates, he said, can be just as effective in a watchdog role as Grindle.

"If you’re running for office, don’t you think opponents are going to scrutinize these forms looking for the smallest illegality?" Moorlach said.

None of this makes sense to Grindle, who said complete transparency of the source of donor money can best be provided by a commission.

Eight California cities have ethics commissions, including Los Angeles, according to the state Fair Political Practices Commission.

"If the supervisors don’t like this idea, well, what’s their idea?" Grindle asked. "The problem is that politicians have never liked the idea of anybody monitoring their fundraising. It was like that in 1978, and it’s like that now."

If history is an indicator, do not bet against Grindle.

Fourteen years after getting the TIN CUP ordinance passed, she persuaded supervisors to ban all gifts, including doughnuts and coffee, to county executives from anyone doing business with the county. The ban was later modified to allow employees to receive up to $5 in gifts.

Grindle said it cost $3,500 to place the TIN CUP ordinance on the ballot. In 1992, an amendment to limit contributions was adopted by 85% of the voters.

"I’d put my money on Shirley getting this commission established," said Stanton, the former supervisor.

Robert M. Stern, president of the Center for Government Studies in Los Angeles, said Grindle is almost certain to get the commission established if supervisors reject it and she goes to the voters again.

"The public is ready for more regulation and politicians are ready for less," Stern said. "If she goes the ballot route, she’s likely to get 90% of the vote."

Grindle said lawyers are writing an ordinance that would establish the commission but declined to say when she would present it to supervisors.

She envisions a five-member panel screened by the Grand Jurors Assn. of Orange County and led by an executive director with administrative enforcement power.

October 15

2007

The OC Register had two pieces on this day.  Martin Wisckol’s “The Buzz” column, titled “Janet Nguyen gets hit again,” covered complaints filed with Attorney General Jerry Brown and the Fair Political Practices Commission about bounced checks by Supervisor Nguyen’s attorney, Phil Greer.  The second half of the piece concerned the topic of the day, my fun with the Association of Orange County Deputy Sheriffs.

Deputies look for friends

Deputy sheriffs have been hanging “Back the Badge” fliers on homes in three supervisorial districts. The propaganda is intended to win support for the deputies in their long-running contract negotiations and in their battle against Supervisor John Moorlach’s effort to trim pension benefits. Moorlach is portrayed as the bad guy on the door hangers.

Then comes this sentence:

“Thankfully, other members of the Board support our deputies and stand for public safety – including your own Supervisor Janet Nguyen.”

That’s how the piece reads in Nguyen’s district. In Supervisor Pat Bates’ district, Bates’ name replaces Nguyen’s. In Supervisor Bill Campbell’s district, it’s Campbell’s name.

You’d think the three had supported the deputies in the current skirmishes and Moorlach didn’t. In fact, the board voted unanimously to pursue a possible legal challenge of deputies’ pensions.

“Just because you don’t agree on everything doesn’t mean they don’t support public safety,” said Mark Nichols, the new executive director of the deputies union.

Translation: Moorlach is deputies’ biggest obstacle on the board, so they’re hoping they can start by winning over Nguyen, Bates and Campbell on pension and other contract issues.

The second piece in the OC Register was by Peggy Lowe and it was titled “Vote on treasurer postponed – Supervisor John Moorlach postpones vote that would remove the investment powers of Treasurer-Tax Collector Chriss Street.”

Embattled Treasurer-Tax Collector Chriss Street won’t have to defend his work before the Orange County Board of Supervisors this week.

Street’s former ally, Supervisor John Moorlach, postponed a vote that sought to strip Street of his investment powers tied to the county’s $6.2 billion portfolio. Moorlach has sought the sanction because of a pending investigation into Street’s work during his 10 months in office.

The vote was scheduled for Tuesday, but was put off by Moorlach last week. Moorlach said he will wait for District Attorney Tony Rackauckas to finish his investigation into Street’s possible misuse of county purchasing and contracting procedures.

“We’re more than happy to wait for the district attorney to conclude his investigation,” Moorlach said.

But it was also apparent that Moorlach didn’t have the votes from the five-member board to push forward on the sanctions against Street. When the issue came before the panel on Sept. 11, three of the supervisors said they were uncomfortable approving any emergency action against an elected official. They also said they believe the county’s investment funds are well protected by several safeguards put in place after the 1994 bankruptcy.

Asked to respond to the postponement, Keith Rodenhuis, a spokesman for Street, said the county’s investment pools were recently given top ratings by two financial research groups.

“Our office continues to work under the guidelines in place for over a decade and our daily operations remain unchanged,” Rodenhuis said.

Street, 58, is under fire for splitting the nearly $1 million remodel of his office into small contracts meant to bypass board scrutiny. He has also been questioned by district attorney investigators about an $18,000 contract awarded to an Irvine architectural firm for a redesign plan for the facade of the Hall of Finance and Records.

Street blames the county’s facilities and planning department, saying he followed the county procedures they directed. Two employees of the Resources and Development Management Department are on leave pending an internal investigation into the proposed architectural contract.

Street is also the subject of a U.S. Justice probe into his past work as a trustee for a bankrupt trucking company.

Nick Berardino, general manager of the Orange County Employees Association, the county’s largest public workers union, said he was disappointed that Moorlach pulled the item from Tuesday’s agenda. Berardino has called for a recall of Street and funded a poll that indicated voters had strong negative reactions to the investigations and the board’s refusal to do anything about Street.

“We believe that removing it (from the agenda) is a disservice to the community and flies in the face of the poll that clearly demonstrates Orange County citizens want the board to act,” Berardino said.

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