The Orange County Board of Supervisors Tuesday unanimously approved the reappointment of Lincoln Club President Wayne Lindholm to represent them on the Orange County Employees Retirement System despite protests from public sector labor leaders.
Supervisors, however, delayed the appointment of Costa Mesa resident David Ball, former chief financial officer for Republican mogul George Argyros, after members of several local city councils argued that the public seat on the retirement board or OCERS should include a representative from cities.
Supervisor John Moorlach voted against the delay, saying Ball should be seated immediately despite the protests.
Labor leaders, meanwhile, told supervisors that Lindholm is too political, given his post on the Lincoln Club and his outspoken activism on behalf of lowering investment assumptions for the local pension system as well as tightening amortization periods for obligations.
Lindholm, for example, was the leader of a recent effort to pressure Orange County Treasurer-Tax Collector Shari Freidenrich to change her vote on amortizations. Based on the pressure, Freidenrich manufactured a public excuse to reagendize a June vote. She has resisted public comment on the matter, now scheduled for a vote in November.
Labor leaders has asserted that appointments like Lindholm’s are politicizing OCERS and creating a government crisis, because following those kinds of policies could bankrupt cities and severely cut public services.
Republican Supervisor Todd Spitzer Tuesday chastised labor leaders in public, saying the fact that Lindholm is outspoken, even political, is a plus.
“You see that as a criticism. I see that as a positive,” Spitzer said.
He also echoed the sentiments of supervisors Chairman Shawn Nelson, who publicly argued that political appointments are part of the process and the reason elections matter.
“That’s the system we operate in,” Spitzer said.
Lindholm echoes many Republicans who fear that the pension system has fallen too far behind in securing the cash to maintain current retirement benefits, with the result that obligations are being kicked to the next generation.
Indeed, in recent years the county’s unfunded pension liability, now hovering near $5.7 billion, has become a national campaign issue for Republican candidates and party leaders, who argue that the obligations are a signal that organized labor has secured overly rich retirement benefits from timid local elected officials.
The unfunded liability is the gap between the county’s estimated long-term obligations to retirees and the cash on hand to fund them. At this point, Orange County’s retirement system is about 63 percent funded due mainly to pension benefit increases in 2000 for public safety and 2004 for general employees along with investment losses and actuarial changes over the last decade.
On Tuesday, Nelson fired back at labor leaders, saying that financial experts like Warren Buffet have consistently argued that investment return estimates for public pension systems are too generous and suggested that 6 percent is more appropriate. OCERS estimates a 7.25 percent return, and CalPERS, the state system, assumes 7.5 percent.
“It’s not an aggressive, crazy assumption,” Nelson said. “No one would call Warren Buffet extreme,” he said.
Yet an examination of investment returns for both OCERS and CalPERS shows that both have been in double digits in recent years, except for the period around 2008.
While acknowledging the gap is a concern, Orange County labor leaders fume over the Republican focus on retirement benefits while ignoring numerous other cost drivers in local government, such as lucrative corporate contracts connected to campaign cash, a constant wave of expensive and uncontested change orders and executive benefit packages deemed excessive.
They also argue that appointing conservative activists like Lindholm goes against the principle of shared management of a pension system, because instead of acting as a fiduciary and balancing fiscal responsibility with affordability, activists are aiming to create a financial crisis.
The worry for many city leaders such as Stanton Mayor David Shawver, a Republican, and Westminster City Councilwoman Diana Carey is that efforts to drastically reduce the pension system’s unfunded liability measured over 30 years will create enormous strain on city budgets and have the effect of cutting public services.
Shawver and Carey told supervisors that OCERS appointees have no idea that the rates they adopt each year have massive consequences on cities that contract with the county for law enforcement and fire services, because those workers’ pensions are managed by OCERS.
Both city council members said they were stunned at how little understanding OCERS board members had over the impacts to local governments.
“They didn’t even know that local government is impacted by those decisions,” Shawver said. He warned supervisors that “each decision that is made by that board without input from local government can become a catastrophe.”
Tom Dominguez, president of the Association of Orange County Deputy Sheriffs, was also publicly critical of the fact that supervisors are failing to balance affordability with fiscal responsibility in their appointments. Dominguez also urged “an open and transparent process for open seats on the OCERS board.”
Chris Prevatt, an OCERS appointee representing employees, told supervisors on Tuesday that Lindolm’s efforts to tighten amortization schedules added significant yearly costs to the county and cities. He urged that supervisors keep that in mind.
The concerns by both Shawver and Carey did strike a chord with Spitzer and Supervisor Pat Bates, whose district includes many cities that contract with the county for public safety services.
Bates noted that hearing from city leaders that OCERS board members appointed by supervisors don’t know the impacts on cities was “not good news.”
Bates urged and received a delay until next week on the pension debate, summing up by noting that the pension debate features both political and policy aspects and warning that elected leaders need to consider both.
Supervisor Janet Nguyen supported a delay but said it would not likely change her vote to support Ball.