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John Moorlach speaks on KOCI
COSTA MESA, CaliforniaJohn Moorlach, Vice Chairman of the Orange County Board of Supervisors, spoke on KOCIs (101.5 FM) Saturday morning radio show Money Matters with host Troy Davis. The following is a transcript of his comments:
[NOTE: John Moorlachs comments are quoted in full. The hosts comments are included only where essential for understanding Moorlachs comments.]
[REPLY: A reply by Jennifer Muir, spokesperson for the Orange County Employees Assocation, appears at the end of the transcript.]
John Moorlach: I just yesterday talked to another corporate leader here in the county. [He] said, John, I put up my home in Newport Harbor for rent and Im living in Miami now. And Im running the division here and your state has convinced me that thats actually makes good economic sense.
So, it gets back to our prior discussion. We have to lower tax rates. We have to lower regulations or, you know, reduce them in some way so that were not discouraging, businesses from leaving this state.
We can not just be a service economy. And it just wont work.
HOST TROY DAVIS: Well, you can see what happens to those type communities, because there are those communities and thats all they have. I was speaking with Lucy Dunn about that as well. I mean, look at Detroit and what happened there because they were kind of a one trick pony with automotive business. You know, I think Orange County is much more diverse than that, so you'd think we could spread that out a little bit, more entrepreneurship, less service industry, and more production.
John Moorlach: Yeah. And Orange County is somewhat of an anomaly. We have three point one million people, which means that one out every one hundred people that live in the United States live in Orange County.
And so we are a microcosm of the macro, but we are blessed with a diverse portfolio. We are just not defense industry any more. Or aeronautics any more.
Weve got a great, well diversified portfolio and therefore we have a lower unemployment rate, that matches the U.S. rate more than the California rate.
But we are part of California. And Lucy Dunn will say the same thing. Weve got a dynamic little 800 square miles, but were in California.
HOST TROY DAVIS: Youre right, wed have to pull together as a state to pull out as a state. Now, as were moving forward, we are speaking with Orange County Board of Supervisors Vice Chairman John Moorlach. John, obviously the big thing here is pension reform, pension liabilities, unfunded accrued liabilities, et cetera, so, lets talk about that a little bit. Is there hope?
John Moorlach: Not much.
We tried to litigate the unconstitutionality of granting a retroactive pension benefit to the date of hire, which was, you know, in my mind, criminal.
You would never see that in the private sector. Its unheard of.
So, if you were going to retire with a formula of two percent at 50 at age 50 and you had been there for 25 years, you would have gotten 50 percent of your salary leaving as a deputy sheriff to retire. Basically maybe to get another job somewhere else and then double dip.
But in 2001 our predecessors as supervisors voted to improve that formula to three percent at 50 and make it retroactive to the date of hire, so if you were retiring in a couple of weeks after that was approved, you now got 75 percent of your salary at age 50, so it was a dramatic increase and spiked our unfunded liability dramatically.
And the state constitution says two things.
One, you can not pay someone twice for doing the job once, which we believe, I believe that granting a retroactive benefit violates.
And, two, the state constitution says you can not create any debt, for any reason, that you cant pay in the year you create it, because you dont encumber future boards.
And if you want to do that, then you have to go to the voters and get two-thirds approval.
And that was not done.
Unfortunately, you know, one of the points that I made in this presentation is that the government accounting standards board only requires governmental agencies to report their unfunded liabilities in foot notes to the financial statements.
It does not require them to put the liability in the liability section of the balance sheet.
Theyre just now within the last few weeks issuing a draft statement saying we should put it on the balance sheet.
If Orange County put its unfunded liability now, which is three point seven billion dollars on its balance sheet, it would nearly wipe out our equity.
HOST TROY DAVIS: Well, it would probably be most municipalities would have a huge shock at that point.
John Moorlach: Theyd probably be upside down.
Theyd have more in liabilities than they do in assets, which means youre bankrupt.
If, you know, its just, its really awkward, unless you have a good payment plan to figure out how youre going to take care of it.
So, county, city, state, financially all under water with a federal government thats fighting as we speak about a debt ceiling which seems to be an odometer on where we are as we speed on into oblivion.
So, so, you can kind of imagine why gold prices are so high.
HOST TROY DAVIS: And John, someone like myself whose an independent contractor, it seems easy looking in that these are some easy fixes and put together, but I guess its just the unions are so large and so powerful that its not an easy fix. Is that, am I going on the right path there?
John Moorlach: That is, that is precisely the problem. The majority of legislators in Sacramento, the state senators, the state assembly men, they are funded and were put into their positions by public employee union funding.
And so when you control your employers, then you have a field day in creating your benefits. And thats whats happened in the last ten to twelve years.
Just it has gone up sill-i-o. And we have a steep price to pay. A steep price to pay. And were all broke now.
And, and, the voters just havent figured it out because they keep sending, you know, these union endorsed legislators to Sacramento. They keep approving just about every bond measure thats on the ballot.
So, so, you know, when it all comes down to it, the voters brought us here.
And the voters have got to wake up, get educated, and take us back to a position where we have more reasonably educated and less in the pocket of interest groups people up to Sacramento, and that starts with the governor on down.
HOST TROY DAVIS: And I think you had also mentioned it seems kind of silly for political contributions to be coming from any union.
John Moorlach: Its the biggest conflict of interest that I can think of in this state.
And it happens here too. I mean at least some of the union guys are kind of honest and theyll tell me that they elect these people and they just call them bobbleheads because when they come in with their contract proposals, when its time to negotiate under collective bargaining agreements, their new contract, those supervisors that they used to get in here with their money would just bobble their head yes, well do whatever you want, whatever you ask for, well give it to you.
And thats not happening now, so, you know, the deputy sheriffs arent really pleased with me as a supervisor, I know that.
But they dont know that Im sort of in the role of a parent.
When you can see what the problem is and say, Hey, wait, time out. As a parent I can see what youre doing wrong. Im not here to harm you. Im just here to say hey, lets get this adjusted and fixed so that twenty years from now so that you dont get a post card that says, sorry, your pension plan is out of money. You know, sorry.
HOST TROY DAVIS: John, you also talk about the government accounting standards board and what they are trying to do. And from an accounting perspective, you must have a lot to say about that.
John Moorlach: Well, yeah, half of me says its good, but the other half of me says you should have done it twenty-five years ago.
HOST TROY DAVIS: Well, obviously thats great to look back like that, but we cant, so moving forward, can they implement this quickly and make this transparency there and part of the solution?
John Moorlach: Yeah. Theyre out for public comment right now and guess whos giving all the push back?
HOST TROY DAVIS: Unions?
John Moorlach: Youre great, Troy. Youre such a great host.
HOST TROY DAVIS: Well, first of all, you tell me, because you have a much better background on this. Give me an idea of what this transparency theyre trying to accomplish with accounting and municipalities.
John Moorlach: Well, what theyre trying to say is, look, you need to report as a liability your pension plan liabilities.
And, in fact, if your pension liability funding is low, in other words, youre below 80 percent funded, you ought to even recalculate that unfunded liability and show it with a much lower interest rate assumption.
Most governmental pension plans use an interest rate assumption of about eight percent a year.
Now, if you could make me eight percent a year, Troy, youd be my new best friend.
HOST TROY DAVIS: What are you getting at the bank with CDs and what not? Theyre one point two, one point four.
John Moorlach: Or if youre, you know, last week if you were buying a U.S. Treasury bond you were getting point oh one per cent for three months.
I mean its just like Will Rogers said, Give me a return of my money as opposed to a return on my money.
So, its a difficult time, so maybe we need to reduce the interest rate assumption to what a 30 year bond makes, maybe about four percent.
That would double unfunded liabilities. That would be a wipe out. I mean a wipe out speaking that youre going to report. You know, if our unfunded liability went from 3.7 to 7.4, then wed be under water so fiercely wed be a Chapter Nine bankruptcy candidate again.
The terms are a defined benefit, which is a pension plan that gives you a benefit based on a formula of years of service and age and the government takes the risk of making sure theres enough money there to pay that benefit.
With a defined contribution or 401K plan the employee takes the risk. If the investments dont do so well, no one makes it up for you in a 401K, but in a defined benefit the government does. And you are the government, you are the shareholder for the government which means we have to tax you more to pay up a retirement benefit for a few thousand employees here at the county or at the city.
So, when Costa Mesa's saying weve got some serious issues, theyre right. They are technically living with a negative net worth and when someone walks in and says hey. I found 26 million dollars in an account. Well, guess what, if you have a negative net worth, that cash is not yours. It belongs to a lender.
And so, it makes the local financial picture all the more fascinating and interesting.
As people are saying dont do layoffs, Im kind of saying are you crazy? Weve got to do layoffs.
Theres an education process as well.
Costa Mesa is what we call a full service city. They want their own police department. They want their own fire department. And they want their own street cleaners. And theyve hired everything, whereas if you go just south to south county down the 405 a little bit, youve got cities that contract out their police to the sheriffs department. They contract out their fire to the Orange County Fire Authority.
And so when you look at the number of layoffs in the city of Costa Mesa, half of them are for the fire fighters, who on their own, as a union, requested that they be reviewed for being taken over by the fire authority.
So, if you dont get the facts quite right, you can get manipulated by union advertisement on your Facebook, on your internet, on you know where ever you go.
But it should also show you how much money the unions have you know to go after elected officials and replace them with people that are sympathetic to public employee unions.
HOST TROY DAVIS: Whats our number one thing Orange County, the state of California has to do to get healthy?
John Moorlach: Well, the number one thing is you got to defund the unions. And Costa Mesa should be watching it in full glory right now.
Its the union money thats everywhere going after some council members that are finally saying hey, weve got to address this problem, weve ripped through too much money, weve ripped through our reserves, were almost out. Its time to settle it.
So, thats one of the first things that needs to be done.
The second is you need some elected officials, say like Jim Righeimer and Steve Mensinger to step in there and start making the difficult decisions.
So, the voters have got to get, you know, a little more calloused to the mailers where you see people in front of fire engines and police cars, and say wait, those arent, maybe those arent the candidates we want to support.
We need people who are independent of from unions that can actually be acting like mature adults and provide the supervision thats necessary to run the city on a steady course, and glide down when the economy is gliding down and then, you know, rebuild and build reserves when the economys going up.
So, those are I guess the predominate things.
The third would be speaking locally, weve really got to get some pension reform. Its choking us out and the unions have to come to the bargaining table and say you know, were going to go back to our old formulas.
We cant sustain these Rolls Royce formulas that weve recently negotiated. Weve got to go back tot he Cadillac plan and reduce these unfunded liabilities.
We cant just rely on new hires with new tiers to solve the problem because the pig is too big. Too big to go through the python. And thats just gotta be resolved.
So, theres plenty to do. We got to hope that the real estate market turns up. So, we got to be more focused on the business community. We need lower unemployment. We need people working. We need people buying homes.
You know, and so those are kind of in a nutshell the things we should be focused on.
reply by Jennifer Muir
Jennifer Muir is the official spokesperson for both the Costa Mesa Employees Assocation and the Orange County Employees Association.
Excluding any group from participating in the political process is against every value that we hold true as Americans. We dont tell the oil companies or Wall Street that they cant participate, and suggesting that working families should be treated like second-class citizens flies in the face of democracy.
OCERS just reported a 19 percent rate of return for this year. CALPERS and CALSTRS are even higher at close to 25 percent.
Labor groups across the state, including in Costa Mesa, are active participants in addressing pension issues. In Costa Mesa, for example, the employees proposed a lower pension tier for new hires and agreed to contribute more than double the amount toward their pensions. Remember, they dont receive social security, and the City doesnt have to pay into Social Security for them. These reforms were done BEFORE Jim Righeimer and Steve Mensinger joined the board.
Orange County also did some significant reforms, creating a unique hybrid pension model that has been recognized across the state, including in the statewide Little Hoover Commission report.
Unfortunately there are many elected officials who continue to take advantage of the pension systems they criticize. For example, members of the Orange County Board of Supervisors not only receive a pension, they allows taxpayers to pay what is supposed to be the employee share. In contrast, rank-and-file employees pay their fair share into the system. In addition, County supervisors receive a taxpayer funded 401K, a $4,500 cash bonus and a $765/month car allowance. So Supervisor Moorlach and I agree that some reforms are needed we need to refom the lavish perks that executives and elected officials receive.
Hope this helps.