Steven Greenhut Sr. editorial writer and columnist The Orange County Register [email protected]

"Surprise, surprise, surprise." Say that slowly, in an exaggerated Southern accent, mimicking the voice of Gomer Pyle, the 1960s-era TV Marine who was always surprised at something given his limited mental capacities and naive outlook on life.

Now think about the recent words by Orange County Supervisor Bill Campbell. Although presumably smarter, more savvy and less naive than the above-mentioned TV character, Campbell said he was downright surprised after a new actuarial report found that pension fund liabilities are $1 billion higher than expected.

"We've had for a lack of a better word, a 'June surprise' here," Campbell told the Register [emphasis added]. Supervisor Jim Silva was surprised, too. "These numbers are different from the numbers we had in August," he told me last week.

Well, golleeeee.

I'd be more sympathetic to Supervisors Campbell, Silva and Tom Wilson, and claims of shock, dismay and surprise at the bad news, had they not, as the board majority, done the following:

a) Stridently pushed forward a huge spike in pension benefits for county employees last August, which is the source of a large chunk of the added $1 billion in unfunded liabilities; and

b) Angrily criticized Treasurer John Moorlach, Orange County Taxpayers Association President (and Orange County Employee Retirement System board member) Reed Royalty and others who predicted the very thing that has now happened. (Wilson called critics "uninformed political opportunists.")

The above truth-tellers predicted such things beforethe vote, yet the three surprised supes refused even to back a measure by Supervisor Chris Norby and then-Supervisor Chuck Smith (the two "no" votes) to delay action to give the county time to more thoroughly study the numbers. Campbell ignored the evidence in his rush to do union bidding.

Yet here he stands ... surprised.

County taxpayers, who will be forced to pick up about $114 million a year in new taxes or service cuts just to make up for the pension shortfall, aren't surprised by the actuarial reality, but they do seem angry, if callers and letter-writers are any indication.

Some Republicans are talking, half-seriously, about recalling Campbell and opposing Silva in his run for a Huntington Beach Assembly seat. No one expected much from liberal Wilson anyway, so he gets a pass based on the principle of low expectations. (Supervisor Lou Correa wasn't on the board at the time, but in the Assembly he authored legislation that unleashed the statewide pension tsunami.)

Look, when one ignores the obvious consequences of a bad decision, one cannot credibly claim surprise when those consequences take place. The warning signs were there:

Treasurer Moorlach, whose credibility has been top-notch after predicting the county's 1994 bankruptcy, said at the time that a vote for the deal would cause additional unfunded liabilities and could create financial problems rivaling the bankruptcy.

Royalty sent a letter to the board arguing that there is no guarantee that employees will pick up the entire tab for the new benefits, that the contract is risky to taxpayers and that the premises upon which the contract is based may be "over-optimistic."

County activist Kathleen Moran spoke against the plan at the Board of Supervisors meeting last August. "Beginning in the fall of 2003 I shared correspondences and met with Supervisor Campbell and his senior staff regarding the increased costs of the benefits and the devastating effect they would have on future county fiscal health," she wrote recently in an e-mail to the Register.

If a person throws a big rock through a picture window, that person can't credibly stand there shaking his head in bewilderment after the glass shatters. Yet here are the supervisors, standing around scratching their heads, wondering how this fiscal mess happened.

"Surprise, surprise, surprise."

To recount:

Last year, the three approved a pension increase of 62 percent for county employees except for police and firefighters (who already enjoyed an even-more generous plan). Previously, county workers were allowed to retire at age 57, with 50 percent of their final pay after 30 years. The new contract allowed the workers to retire at the ripe young age of 55, with 81 percent of their pay after 30 years.

The most egregious aspects of the plan: All employees gained the benefit retroactively, even those ready to retire, instead of it being a "go-forward" benefit. This meant that virtually everyone on both sides of the bargaining table stood to personally gain from the benefit, including four of five supervisors, which, no doubt, resulted in widespread support at every level of county government.

Here's how the Orange County Grand Jury explained the county's pension problem in a recently released report: "[A]recent calculation of retirement system funding by an actuarial firm commissioned by [OCERS]puts the system's unfunded liability at $2.3 billion as opposed to the previous projection of $1.3 billion."

More than $300 million of those unfunded liabilities are the result of the pension increase. To offset such direct costs, the contract calls for employees to pay about 2.46 percent in additional payroll deductions, amortized over the 30-year contract. It's a transfer from young workers, who will pay the additional amount for their entire working life, to older workers, who will gain the benefits fairly soon, without contributing much to the account.

But in addition to direct costs, the pension spike has created indirect costs, as county employees change their behavior in response to changed incentives. The younger workers are predicted to stay on their jobs longer, given that they will be made millionaires if they don't leave the payroll, and the older workers are retiring earlier, given that they will be working for a tiny percentage of their pay if they work beyond age 55 (100 percent of salary working full-time vs. 81 percent in retirement).

The new actuarial report reflects these and other unexpected, indirect costs of that pension-benefit increase, according to Moorlach.

The question now is: Who pays?

Campbell still claims that employees will foot the entire bill. He marched union officials to the dais at the August board meeting and got them to agree that the workers, not taxpayers, would pay the additional costs if the assumptions did not pan out.

According to the contract language, however, union members must only pay for the direct costs. They are under no apparent contractual obligation to pay the additional costs caused by faulty assumptions, according to sources I've talked to who are familiar with the contract.

The contract says, "After implementation of this benefit, the county and OCEA will annually review its costs including costs impacted by changes in the investment earnings and evaluate whether any adjustments to employee contributions are necessary." After the evaluation, "any adjustments to employee contributions will be negotiated[emphasis added]as part of the salary reopener discussions in 2006."

As I read it, unions are required to negotiate, not to pay additional costs.

Now, I'm all for legal action to force the unions to live up to the solemn promises they made in a public meeting. But if those promises are not binding, I won't act like Gomer Pyle or the pension-hiking supes.

I won't be surprised.