Unfunded liability: a disastrous solution?

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The Orange County Employees Retirement System’s (OCERS) board of directors has recently taken a poorly-timed action to unreliably increase the system’s unfunded liability. 

On December 5, 2012 a sharply divided OCERS board of directors voted 5-4 to lower the assumption rate on its investments from 7.75 percent to 7.25 percent, a decision which increased unfunded liability by nearly $1 billion and dramatically increased the employers’ cost rate. 

The Orange County Employees Retirement System’s (OCERS) board of directors has recently taken a poorly-timed action to unreliably increase the system’s unfunded liability. 

On December 5, 2012 a sharply divided OCERS board of directors voted 5-4 to lower the assumption rate on its investments from 7.75 percent to 7.25 percent, a decision which increased unfunded liability by nearly $1 billion and dramatically increased the employers’ cost rate. 

The county Sheriff’s Department employer rate rose from 50.9 percent to 58.2 percent, an increase of 7.3 percent. The Orange County Fire Authority’s employer costs rose from 43.2 percent to 49.2 percent, an increase of 6 percent. Taxpayers living in a city that has contracts with the Orange County Fire Authority or the Orange County Sheriff’s Department will ultimately pay for these increased protective service costs. Cities with both agencies will have twice the increased cost to taxpayers.

As taxpayers, these increased costs will be passed on to us with no notice or input. The OCERS board is poised to take additional action on Monday, April 15, which could have a dramatic and negative impact on Stanton’s and other Orange County cities' budgets. 

As the mayor of Stanton, I am extremely concerned. It doesn’t have to be that way. We need your help in asking OCERS board of directors to fully assess the potential ramifications of this decision and explore more tax-payer friendly alternatives.

The action scheduled for April 15 is for the OCERS board to shorten the time in which taxpayers, cities, and agencies of Orange County would pay off the future unfunded liability. 

This approach is similar to a homeowner being forced to refinance a 30-year mortgage to a 15-year mortgage to quickly pay off debt during tough economic times. This is exceptionally bad timing since many taxpayers and cities are just now beginning to recover economically. There is no doubt a 15-year mortgage would pay off debt quicker than a 30-year mortgage, but it's not a better solution when citizens can't afford higher taxes, and cash-strapped cities can't afford higher payments.

If the board votes on April 15 to shorten the time period in which it pays off the OCERS debt. We taxpayers will be making those higher payments. I believe that the OCERS board needs to choose a program that will provide some fiscal relief now by lengthening the time period to pay off the debt and reducing the minimum payments of taxpayers, cities and Orange County Agencies. 

Cities could always pay more than the minimum payment during months when fund reserves are higher because of continued economic growth and continue to pay off the debt in a shorter period of time. Lowering the minimum payments would allow taxpayers to get some relief from the constant increase in taxes that hit us from every direction.

I do support the OCERS board’s responsibility to reduce and balance their unfunded liabilities. However this must be accomplished with a system that does not contribute to the financial ruin of Orange County cities that have already been impacted by a state government with out of control spending and taxing. The taxpayers of Orange County must be treated fairly and given an opportunity to pay what they can afford to help reduce the OCER liabilities.

This can only be accomplished with cooperation between all concerned stakeholders and after a careful study of all available options. There is no compelling emergency for the OCERS board to make a hasty decision. 

The vote on April 15 should be postponed until they allow input from every taxpayer, city and Orange County agency responsible for making the cash payments for their administrative actions. Delaying any action would allow valuable time for taxpayers, city leaders and Orange County agencies to find out the real impact these decisions will have affecting their ability to pay. 

The decisions to be considered by OCERS are not mandatory, but discretionary and there are several accepted fiscally responsible alternatives that will accomplish the long term pension goals without increasing our taxes and damaging the economic recovery of our cities and Orange County.

Please join me at 9 a.m. on April 15 at the Orange County Employees Retirement System 2223 E. Wellington Avenue, Suite 100 Santa Ana, CA 92701.  Let your voice be heard.

Also, call OCERS Chief Executive Officer Steve Delaney at 714-558-6222 or contact him by email at sdelaney@ocers.org.