If you are an Orange County taxpayer, get ready to reach deeply
into your pockets and your savings account to pay for the extra
dollars that eventually will be necessary so that the county's "public
servants" can retire at a far earlier age and with guaranteed retirement
benefits that match or even exceed their final pay at retirement.
Not only is the proposed retirement deal a likely assault on county
taxpayers, but it is a dramatic wealth transfer from younger and
newer county workers to those at the tail end of their careers.
Conservative estimates suggest that 5 percent of the county's workforce,
about 800 people, will immediately retire upon approval of this
contract. They will increase their retirement by more than 50 percent,
yet will not have to pay much more toward it.
Meanwhile, the newer workers will have to pay more and forego raises
to pay for this spike.
Because the contract is retroactive to cover all existing employees,
it will add nearly $300 million in liabilities to a system that
already is about $1 billion short of meeting forecasted retirement
The actuarial tables of the county workforce have gotten Orange
County Treasurer John M.W. Moorlach extremely concerned. He points
to the $300 million immediate liability increase, which he notes
is more than one-sixth of the total amount of debt incurred during
the O.C. bankruptcy.
Moorlach - who successfully predicted the 1994 bankruptcy and sees
ominous parallels here - doesn't believe the financial assumptions
will hold for 30 years. The unions pitching this deal have sworn
to the county Board of Supervisors that this dramatic pension spike
won't cost the county anything.
That might be true if the overly optimistic 7.5-percent annual
projected rate of return will hold over 30 years. That's quite an
assumption. Moorlach compares it to banking that the Angels will
be in the playoffs every year for the next 30 years.
Furthermore, union members say they will forego raises for three
years and up their retirement payments to help pay for the additional
retirement costs, but those promises only last for the three years
of the contract, and the liabilities go on for 30 years.
What happens after the union changes its demands after three years?
Across the state, government unions have been amazingly successful
at convincing politicians to continually up their retirement benefits.
Public unions swore that statewide pension spikes approved by the
Legislature in 1999 wouldn't cost anything, either, and now one
California city after another is facing potential bankruptcy, higher
taxes or new bond payments to make good on those "free" promises.
The Register has called that cascading problem the "pension tsunami,"
as the tidal wave of new benefits will start overcoming government
budgets, one after another.
"It's a political problem," said Moorlach. "We have electeds who
seem to believe the line that it doesn't cost anything. But now
we have cities up north that are sucking air. They've increased
benefits so much, and now they can't afford to pay them. They are
looking at layoffs, tax increases, and all the stuff we had to do
after the bankruptcy."
When a government agency agrees to a pension increase, that increase
is a binding contract, and it has implications for 30 years. In
the last few years, various California agencies have been agreeing
to generous deals that are obligating future taxpayers to enormous
The big spike came in 1999, when the Legislature agreed to allow
local governments to grant "3 percent at 50" retirement benefits
for firefighters and law-enforcement agencies. One agency after
another agreed to these benefit terms. That increased pensions by
50 percent instantly for all agencies that approved them.
That means that the employee receives 3 percent of pay times the
number of years worked after 30 years for a total retirement of
90 percent of final pay. Other benefits are thrown in to spike the
final salary, and Orange County allows its public safety employees
to work 33 1/3 years, which means that cops and firefighters in
Orange County retire with 100 percent or more of their final salary.
The pay levels aren't bad, either. A number of Orange County police
officers earn in the six figures, and we've got an Orange County
firefighter earning $227,000 a year. Firefighters are paid for hours
spent sleeping while they are on call, and the average firefighter
earns $92,000 to $122,000 a year, including overtime.
Yet, it's never enough. OC firefighters have submitted signatures
for a 2006 initiative that will allow them to take more tax revenue
from other law enforcement agencies so they can hire more firefighters.
In Sacramento, unions have succeeded in expanding categories to
make non-law-enforcement jobs - i.e., food inspectors at prisons
- considered law enforcement, so these employees can retire with
90 percent to 100 percent of their pay also.
In Orange County and elsewhere, all the other government employees
want their seats on the gravy train. The OC proposal would take
all non-law-enforcement employees from a respectable 1.67 percent
at 57 to 2.7 at 55.
For the plan to work, the stock market must perform at levels Moorlach
describes as "irrational exuberance." Remember when Gov. Gray Davis
went on a spending spree, promising that the new programs wouldn't
harm taxpayers - provided the economy kept providing record levels
of revenue, year after year? We know how that panned out. Would
you incur debt based on the prediction that your house will continue
to appreciate for the next 30 years at the same rate it has appreciated
over the past five years?
I didn't think so.
"It's always an up escalator, there is no down escalator," said
Moorlach. "After three years, employees will come and complain that
they haven't had a raise for three years."
That's what unions do. But Moorlach believes that the unions evenutally
will collapse on their own success, but not until taxpayers are
up to their ears in debt and higher taxes to pay for decades-long
commitments made by city councils and supervisors too gutless to
do the right thing and just say no.
Most private sector employees receive defined contributions. The
employer guarantees to contribute a defined amount, and the employee's
retirement depends upon the amount of contribution and how well
the contributed investments perform over the years. In the public
sector, employees are given a defined benefit. They are promised
a rate of return, and if union projections are too rosy, taxpayers
generally get to pay the difference. Unions always have the incentive
to pitch the rosiest scenario.
Eventually, the fix is for government bureaucrats to rely on the
same type of pensions the rest of us receive. Otherwise, the disparity
between the government masters and their servants in the private
sector will become intolerably stark.
"Taxpayers in the private sector are deferring retirement - sometimes
into their 70s - to support themselves and to pay the taxes that
enable government employees to retire at age 50 or 55 with inflation-adjusted
pensions that approach 100 percent of salary in the highest-paid
year of service," wrote Reed Royalty, president of the Orange County
Taxpayers Association, in a letter to the Board of Supervisors.
What's the chance a majority of supes will stand up for the Average
Joe in the face of union pressure?