County Budget Balanced but Pension Battle Ahead

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Citing rising annual pension costs, an expanding $4.4-billion unfunded pension liability and an environment of flat revenues, Orange County officials sounded alarm bells Tuesday while unveiling a largely stable $5.6-billion budget for the 2012-2013 fiscal year.

As supervisors took a series of straw votes on the proposed budget, which does not cut services or tap reserves, Supervisor Shawn Nelson sent the strongest message, chiding budget officials for tame assumptions about this year’s labor talks with the county’s major unions.

County Budget Director Frank Kim told supervisors that the budget calls for the county to get about $12.5 million in additional pension payments from the county’s top managers, attorneys and public safety officials.

But that’s not even close to what Nelson wants.

If supervisors do their job correctly in negotiations and make top executives pay their full share of the annual payments to fund their pensions, most of the last-minute additions to this year’s budget — more than $30 million in program funding hikes called “augmentations” — wouldn’t even be needed, he said.

Most of the county’s 18,000 lower-tier workers already pay their full share of the employee cost of annual pension payments. Asking top execs to do less should be unacceptable, and the budget should reflect that goal, Nelson stressed.

“It’s time for all employees at every level to pay the employee portion of the pension,” Nelson said in an interview after Tuesday’s public session. “If they just pay the employee share, it’s a huge change in the budget.”

“That’s step one,” Nelson said. “Until we get to that part, we’re just blowing smoke about reform. It’s called the employee share for a reason. And the OCEA [Orange County Employees Association] folks, the lowest-paid people in the county, already pay that.”

“Everybody else is going to have to get in line, because we’re not going the other way,” Nelson said.

County Financial Officer Bob Franz told county supervisors that the county’s pension payments have been “basically flat for the last five years.”

Officials are estimating that the county will pay $329 million into the pension system in 2012-13, just $2 million more than it did in 2008-09. “We’ve had rate increases every year since FY 2008-2009, yet our pension costs have remained flat. That’s because of reduction in staff,” Franz said.

In upcoming years, however, payments are projected to rise steadily, topping out at $398 million in FY 2016-2017.

That got Chairman John Moorlach thinking out loud.

If reducing staff can keep pension payments stable, Moorlach asked, “where else can we outsource?” Such comments raise the specter of the approach taken by Costa Mesa officials, who are studying outsourcing City Hall services to save annual pension costs.

“Maybe that’s an area we need to spend a little more time on,” Moorlach said.

Moorlach lamented that the county’s unfunded pension liability continues to grow, highlighting the fact that the Orange County Employees Retirement System will vote later this month to accept actuarial estimates that add an additional $700 million to the estimated $4.4-billion unfunded liability of the system.

Later this year, the local retirement system is expected to also lower its assumptions on investment returns, which will increase the unfunded liability even further, Moorlach said.

“Our new top priority should be our pension debt,” Moorlach said. “Maybe it isn’t more staff and raises.”

Moorlach reminded the public that Tuesday was the anniversary of the date in 1996 when the county emerged from bankruptcy proceedings after then County Treasurer Bob Citron lost nearly $1 billion on risky investments.

Moorlach stressed again on Tuesday that the county’s pension woes are just as bad, noting that the $700,000 being added to the unfunded liability is close to the same amount lost on Wall Street by Citron.

The county’s pension liability “is going to overwhelm us if we don’t attack it,” Moorlach said.

Correction: A previous version of this story misstated the estimated increase to the county’s unfunded pension liability.

Please contact Norberto Santana Jr. directly at nsantana@voiceofoc.org and follow him on Twitter: twitter.com/norbertosantana.

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