MOORLACH UPDATE — Hart, Handy and OPEBs — August 29, 2019

Protecting Parks

This year, I have been working with the City of Orange to protect Hart Park and Handy Park with Senate Bill 447 (see https://moorlach.cssrc.us/content/senate-bill-447-city-orange-park-leases).

Caltrans wants to get out of the land leasing business and wishes to sell certain holdings at fair market value. This becomes an issue when the land in question is in the middle of a public park. The OC Register addresses this conundrum over Hart and Handy Parks in the first piece below.

By coincidence, I met with the Chair of the Senate Transportation Committee, Sen. Jim Beall, this morning to discuss the bill and various alternatives to accomplishing a successful and fair transition to the City of Orange.

Financial Woes

The second piece is from The Reporter and provides a look at one California city dealing with its unfunded retiree medical liabilities, the main part of its Other Post Employment Benefits (OPEBs). It may be a preview of what the Golden State’s other 481 cities will be dealing with in the months and years to come.

Fifty State Update

Speaking of OPEBs, the state of Illinois released its Comprehensive Annual Financial Report this morning. Last week I estimated an Unrestricted Net Deficit of $217.3 billion for the Land of Lincoln. The actual amount is $209.9 billion. This means California has dropped from 48th to 49th place in last week’s rankings based on the Unrestricted Net Positions, with Illinois now in 48th (see MOORLACH UPDATE — 2018 State Per Capita UNPs — August 22, 2019).

Fox and Hounds was also kind enough to publish our report (see http://www.foxandhoundsdaily.com/2019/08/cas-finances-now-213-billion-in-the-red-nj-il-worse/).

25th Anniversary Look Back

On August 30, 1994, in a “the band played on” scenario, the Orange County Board of Supervisors approved the issuance of Pension Obligation Bonds (POBs) for refinancing its supposed Unfunded Actuarial Accrued Liability, a liability due to the Orange County Employees Retirement System (OCERS).

The truth was, Robert Citron was running out of cash to make the collateral (margin) calls and OCERS put the cash proceeds into his Orange County Investment Pool (also see MOORLACH UPDATE — SB 598 Moves On — May 16, 2019). One of the two issuances provided that the Investment Pool would purchase back any bonds the owners could not sell in the open market through a remarketing agent.

When the Investment Pool also filed for Chapter 9 bankruptcy protection, it could not honor this provision. The default on these particular POBs is what shattered Orange County’s great credit rating for years to follow. It was also a point of malfeasance, as the Board of Supervisors approved the POBs knowing that interest income was a significant component of the County’s annual budget. It was also revealed that there had been collateral calls during the prior months (thanks to my campaign).

The Securities and Exchange Commission conducted an investigation. Its January 26, 1996 report stated that the Orange County “Supervisors testified that they did not understand the investment strategy, the risks of that strategy or the potential risk of loss to the County Pools’ principal” (see https://www.sec.gov/litigation/admin/3436761.txt). Consequently, I read everything as the County Treasurer-Tax Collector and Supervisor, and continue this discipline as a State Senator.

Orange is trying to save Handy and Hart parks before its leases with Caltrans expire

By JEONG PARK

https://www.ocregister.com/2019/08/29/orange-doesnt-own-all-of-handy-and-hart-parks-a-proposed-bill-would-make-keeping-that-land-more-affordable/

Two of Orange’s most popular parks, Hart and Handy, may get chipped away at in the next few years, and city officials are reaching out to the state leadership to intervene.

Caltrans for nearly 50 years has leased Orange 9 out of 41 acres in Hart Park and 6 out of 7 acres in Handy Park. But in 2017, the agency notified the city it will not renew the leases, which expire in 2023 for Hart Park and 2024 for Handy Park.

Caltrans’ guidelines would require the agency sell the property to the city at fair market value, Orange Community Services Director Bonnie Hagan said. That could be nearly $2.3 million, according to an appraisal commissioned by the city last year.

State Sen. John Moorlach, a Republican who represents most of Orange, has proposed a bill that would let Caltrans to transfer the land to Orange as long as the city agrees to keep it as parks in perpetuity. That could allow the city to buy their parks for much less – possibly even free.

The bill, which has been held over to the 2020 legislative year for more discussion, “would ensure those two crucial public parks continue to be recreational and open space forever,” Hagan said.

“There is no telling what may become of these parks if the city cannot guarantee their future,” Moorlach said in a committee hearing in April, describing the parks as popular to his colleagues.

The Orange City Council is spending $30,000 on lobbying for its passage.

Caltrans also owns the majority of Cascade Park off the 405 Freeway, and Westminster’s lease for the park is also up soon. Westminster Public Works Director Marwan Youssef said he contacted the city’s attorneys to have them get in touch with Orange officials to learn more about the proposed bill.

As the state agency built the 55 and 22 freeways in the 1950s and the 1960s, Caltrans came to own land in Orange for potential improvements. Orange signed a 50-year lease with Caltrans in the mid-1970s to use some of the property for park space.

At Hart Park, the Caltrans-owned property next to the 22 Freeway is used for a softball field, restrooms and the historic orange grove.

In Handy Park, the property next to the 55 Freeway is set aside for two softball fields, two sand volleyball courts and a snack bar building, among other amenities.

Caltrans officials alerted city leaders in 2017 the agency intends to decommission the lands once their leases expire. An agency spokeswoman, citing pending legislation, declined to comment.

Under agency guidelines, the city will be given the first opportunity to buy the property. If the city can buy the land at what Hagan called a “fair and reasonable price,” perhaps based on how much Caltrans paid in the first place, the city could save a lot of money while preserving its park spaces, she said.

“It doesn’t necessarily have to be free,” she said. But, “it’s about ensuring those stay as parks in perpetuity and the taxpayers pay an appropriate amount.”

Vacaville City Council approves grand jury response, suggests looking into creation of citizens advisory committee

By NICK SESTANOVICH

https://www.thereporter.com/2019/08/28/vacaville-city-council-approves-grand-jury-response-suggests-looking-into-creation-of-citizens-advisory-committee/

The Vacaville City Council approved the city’s response to a Solano County Grand Jury report scrutinizing the city’s retirement benefits package, while suggesting the city look into establishing a citizens advisory committee.

On June 25, the grand jury authored a report warning that the city’s Other Post-Employment Benefit (OPEB) package for city retirees was “not sustainable” and would lead to a loss of employees and services to citizens if not addressed.

Among the report’s recommendations were to establish a citizens oversight committee to study OPEB and make recommendations to the council, placing OPEB-related items on the council’s main agenda rather than the consent calendar and directing staff to include the fiscal impact of changes and methodology used in determining the financial impact of OPEB in simpler language.

The city partially disagreed with several of the report’s findings, including the implementation of a citizens oversight committee. The city noted that it was making “steady progress” to address the city’s unfunded liability and such a committee was “not necessary” at the moment.

The city’s full response can be viewed at vacaville.granicus.com/MetaViewer.php?view_id=5&clip_id=1631&meta_id=82748.

During the public comment portion, several speakers took issue with the city’s response. Resident Danny Wells delivered a presentation, highlighting the city’s financial status. He cited a report by Sen. John Moorlach which ranked Vacaville in the bottom 10 percent among California’s 482 cities and that Vacaville had only 23 percent of the asset reserves to cover an OPEB liability of $106 million, leaving an unfunded liability of $82 million. He also took issue with the City Council approving an 11 percent pay raise for firefighters.

“The benefits of this is $3.7 million that had not been previously budgeted for this purpose, using essentially all of Measure M funds for the firefighters contract alone in 2023,” he said.

Former Councilman Curtis Hunt saw the grand jury report as “a platform to make real change and come up with public policy.” He subsequently expressed three points: lifetime retired medical benefits for employees and their families was not sustainable, that 85 percent of Kaiser continued to expose the city to major fiscal risk and that memorandums of understanding between labor groups should not be placed on the consent calendar as they have in the past.

“The consent calendar is for items that require little or no discussion (and) are not controversial,” he said of the third point. “Yet, the last two council meetings…you have made efforts to approve a 9 percent increase to police salaries, an 11 percent increase to firefighters in the consent calendar.”

Hunt suggested more time was needed for the city to develop, short-term, long-term and medium strategies.

“Your dismissive response to the grand jury is really poking a bear,” he said. “The next six months, you’ll see whether you’ve poked a teddy bear or whether you’ve poked a grizzly bear.”

George Guynn, past president of the Solano County Taxpayers’ Association, suggested the council take the grand jury’s recommendations into consideration.

“They’re gonna help you get in a position where you don’t have a lot of people trying to peck on you all the time,” he said.

Several speakers suggested the city seriously consider the recommendation of a citizens oversight committee.

“Way too often, things happen in here that the community doesn’t know about until it’s actually happening and they can’t do anything about it,” resident Alice Reed said. “Just listening to people that were here tonight shows that there’s a lot of good, smart people out here that can help you solve this problem.”

Vice Mayor Dilenna Harris agreed with the report that all matters concerning OPEB or MOUs should be on the regular agenda rather than the consent calendar.

“I don’t want to discuss that more,” she said. “I want that to happen.”

Councilman Nolan Sullivan agreed that a citizens oversight committee should be established, containing at least one active retiree, employee and the city treasurer.

“We have a duty to educate and engage the public, and I think this is a great opportunity to do that,” he said.

Councilman Mitch Mashburn said that past councils had worked hard to eliminate OPEB.

“We have to do this through a negotiation process with the employees,” he said. “As Vice Mayor Harris pointed out, that ends up being an expensive proposition.”

Mashburn also corrected the citation of an 11 percent raise for firefighters.

“That’s in totality over four years,” he said. “If we were to look back to 2008 and in totality look at the raises that the employees gave up for the money that they gave back, and what they have gained since then. Our firefighters have gained about 1 percent a year, which doesn’t even keep up with inflation.”

Finally, Mashburn took issue with a citizen-based committee being termed an “oversight committee” because it suggested the committee would have some jurisdiction over OPEB policies.

“I would not be in support of the council surrendering any of its responsibilities or its authority with regard to governance of the policy in regard to OPEB,” he said.

However, Mashburn said he would support a citizens advisory committee to provide suggestions to the council.

“I’m always open to solutions,” he said.

Mayor Ron Rowlett asked City Manager Jeremy Craig if the council would have to go over what an advisory committee would entail. Craig said it could come back as an item at a later council meeting.

The council unanimously voted to accept the response with the suggestion of setting aside time to formulating the methodology of establishing a citizens advisory committee and stipulating that OPEB and MOU items always be placed on the main agenda.

In other business, the council unanimously approved an ordinance levying special taxes within the annexed property of the Farmstead at North Orchard property to pay for police and fire services.

The council’s next scheduled meeting on Sept. 10 has been canceled. The next regular meeting will be Sept. 24.

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