Moorlach’s Folly

“A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity,” (Gutierrez v. Board of Retirement, 72 Cal Rptr 2nd 837 (1998); Betts v. Board of Admin., 582P.2d 614 (Cal 1978)).

Orange County Supervisor John Moorlach on Friday July 20, 2007 proposed spending potentially millions of dollars in litigation costs to sue, the Association of Orange County Deputy Sheriff’s and the Orange County Employee’s Retirement System over the 2001 decision of the Orange County Board of Supervisors to increase the pension benefits for our Deputy Sheriffs.  Moorlach claims, as though he is some magical predictor of things, that the five year old action is unconstitutional, never mind the fact that virtually every public employer of peace officers has taken the same action. 

I find it hard to believe that with hundreds of jurisdictions in California taking the same action that no “taxpayer advocacy” group has thought of this wild-assed legal theory before.  If the theory was so sound then why didn’t Moorlach bring it up in 2001 when it came before the Board of Supervisors?  For that matter, why didn’t any of these great legal theorists suggest filing a request for an injunction to stop these increases from happening at the time?

John Moorlach is far more political opportunist than legal or constitutional genius. You can always pose a question to a number of attorneys and come up with multiple conflicting legal points of view.  Heck, if that were not the case, there would be far less lawyers and lawsuits in this state.  No matter what the legal question though one fact remains, the County of Orange negotiated in good faith an agreement with the AOCDS and granted an increase in pension benefits.  That decision was not unprecedented, and has happened many times in virtually every jurisdiction in the state. 

It is unethical for the current Board, to now spend taxpayer funds on litigation to overturn their contractual agreement because new members of the Board believe the agreement to be unconstitutional.  If there is some group out there that wants to raise the money and file a suit that’s fine; but the taxpayers of Orange County should not be left holding the bag for millions of dollars in legal fees.  Further, if the County were to lose in this endeavor, the taxpayers could be on the hook for the legal fees incurred by the AOCDS and OCERS as well.

Moorlach’s theory is an interesting question of Constitutional law, but not one that should be determined at the expense of the Orange County taxpayers. Also, it is a long settled matter of law that A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity, (Gutierrez v. Board of Retirement, 72 Cal Rptr 2nd 837 (1998); Betts v. Board of Admin., 582P.2d 614 (Cal 1978)). If the Board of Supervisors accepts Moorlach’s proposal they would violate these well established precedents. 

However, for the sake of discussion, let’s take a look at Moorlach’s primary argument.  He claims that “the retroactive portion of the pension increase probably violates the California Constitution by violating of the debt limitation (Article XVI, Section 18).”

It is not unconstitutional for a retirement plan to have a portion of its forecasted future liabilities be unfunded at any point in time.  Fluctuations in markets and investment returns, and assumption rates make it impossible for unfunded liability forecasts to be finite, and thus cannot be calculated as finite obligation of public funds.  If you were to follow Moorlach’s theory to its logical conclusion, the County of Orange would have exceeded the debt limitation provided for by this section of the Constitution every time it failed to fully contribute its employer share of pension contributions in years where investment returns were high.

While there is indeed a liability, since it cannot be calculated to a finite amount, there is no way to determine whether the benefit increase actually exceeded the debt limitation.  In reality, the pay as you go principle that Moorlach refers to allows the government to forecast their costs and encumber and invest only enough funds which, based upon a reasonable assumption rate, would raise the necessary amount of funds to cover their future costs.  If the Moorlach feels that the County has not met the obligation of funding its liabilities he should propose that the County invest the appropriate amount of funding to meet that obligation.  The only Constitutional violation here, if any, would be the County’s failure to appropriately contribute to its retirement system the necessary funds to meet its future payout obligation.

Sorry John, rescinding the increase in pension benefits is not the appropriate remedy here.  Funding the obligation is.  So rather than spend millions of dollars to try to have the benefits declared unconstitutional, spend that money to fund the future liabilities and what you see as a problem is solved.

Maybe, it’s just my so-called “pro union bias,” but I’m seeing a lot of political grandstanding and not a lot of legal foundation to his arguments. Finally, I believe the proper defendant in Moorlach’s proposed action would be the County of Orange as it is that entity that took the alleged unconstitutional action in the first place.  I could be wrong, but I do not think the County of Orange can be both plaintiff and defendant in this matter.

  21 comments for “Moorlach’s Folly

  1. July 23, 2007 at 8:58 pm

    So, it’s legal to give retroactive pension increases because “everyone is doing it”?

    That’s a novel legal theory.

  2. July 23, 2007 at 9:04 pm

    Chris, this is a very disingenuous post. Moorlach is not proposing undoing to increase to “3% at 50″ — as you imply.

    He is targeting the retroactive portion — yet curiously, nowhere in your post do you mention that. You also ignore the two other arguments advanced by Moorlach to argue that the retroactive pension spike — not 3-at-50 itself, as you wrongly imply.

  3. July 24, 2007 at 12:13 am

    Matt,

    I did not address the other two reasons Moorlach highlighted because I only addressed the primary reason Moorlach gave in the context of this post. Rather than address the points I have made you choose to ask why I didn’t address all of Moorlach’s points. Back to your tried and true debating tactics Matt? Diversion to another topic does not detract from my argument.

    The reversal of the retroactive portion of the 3@50 benefit is what I was addressing. I cannot find where I said the he was proposing to undo the total increase.

    Moorlach asserts that the retroactive increases are payment of additional compensation and gifts of public funds. Increasing pension benefit rates both forward and backwards are not the payment of additional compensation for work already performed. Pensions are not compensation, they are benefits. The increase in the benefits retroactively are also not gifts of public funds because they are contractually negotiated beneits.

    I return you to one of my initial points…

    I find it hard to believe that with hundreds of jurisdictions in California taking the same action that no “taxpayer advocacy” group has thought of this wild-assed legal theory before. If the theory was so sound then why didn’t Moorlach bring it up in 2001 when it came before the Board of Supervisors? For that matter, why didn’t any of these great legal theorists suggest filing a request for an injunction to stop these increases from happening at the time?

    You cannot convince me that simply no one has thought of it before.

  4. Aunt Millie
    July 24, 2007 at 6:12 am

    There do appear to be unique elements to the unholy deal in the OC between the Stupes and the sheriff’s union.First, Most jurisdictions required public safety employees to fund at least part of the cost of the benefit, or included it in part of negotiations over compensation. Second, many jurisdictions are part of some larger pension pool where funding is constantly adjusted and actuarial calculations are ongoing and professional. Most local agencies don’t have the option of kicking the can down the road the way that Orange County and San Diego did.

    As to Chris’ contention that the County should just fund the obligation, I would welcome an opportunity to vote on the tax increase to pay for it, which I would cheerfully vote against, and watch as it failed by a three to one margin. While I believe in a fair pension for public safety employees, 3% at 50 is absurdly generous, and strips government of revenues that could be better utilized. We mortgage our present and future public safety by paying too much to retirees.

  5. July 24, 2007 at 7:06 am

    Aunt Millie,

    Your chance to vote was when you voted for the Supervisors who approved what you call an absurdly generous benefit. I recognize that most people think the members of the Board of Supervisors ant their local City Councils are unimportant. This is one example of how wrong they are for thinking that.

    My bottom line here is that regardless of the Constitutional questions that surround this issue, the taxpayers should not be in the position of paying fot the wild goose chase necessary to determin the answer.

    If some other group wants to fund this effort, more power to them. The decisions wer made by the previous Board who the residents of Orange County elected to make them. It is not the County’s job to fund litigation to reverse the decision of a previous Board.

  6. July 24, 2007 at 9:15 am

    Quick quiz for US History buffs.
    What is/was “Seward’s Folly”?
    Promise me you won’t cheat and google it!

  7. RHackett
    July 24, 2007 at 9:18 am

    I thought the findings of Green Machine on the OC Blog were very interesting. Moorlach claims this passage as part of his support:

    Article XI, Section 10(a) of the California Constitution similarly provides that, “[A] local government body may not grant extra compensation or extra allowance to a public officer, public employee, or contractor after service has been rendered or a contract has been entered into and performed in whole or in part …”

    But what does the CA Constitution actually state?

    http://www.leginfo.ca.gov/.const/.article_11

    Article XI, Sec. 10. (a) A local government body may not grant extra compensation or extra allowance to a public officer, public employee, or contractor after service has been rendered or a contract has been entered into and performed in whole or in part, or pay a claim under an agreement made without authority of law.

    Why would he leave off the part I bolded? Brevity? I doubt it.

    The Supes should proceed carefully with this issue before they commit the potentially millions of dollars a case that is destined for the CA Supreme Court might cost.

    The only reason to proceed recklessly would be if this were political grandstanding.

  8. July 24, 2007 at 9:19 am

    Lovable Curmudgeon, c’mon, that’s easy.

    Alaska.

  9. Evening Coffee
    July 24, 2007 at 10:20 am

    Chris,

    Jubal says,”this is a very disingenuous post”. Practically everything Cunningham writes over on his blog is DISINGENUOUS! But maybe he wasn’t thinking clearly at 9:04 PM, which explains the terrible sentence structure, grammar, spelling etc…

    You are to be commended Chris, for taking the time at 12:AM, to play English professor and make sense out of Jubal’s reply. You were also very kind in not responding to his wisecrack about “legal theories”. If there’s anything lacking over at OC blog, it’s definitely a knowledge of law. But hey, they’re trying to learn, evidenced by all the time spent on the recent BOS election result debacle.

  10. July 24, 2007 at 10:46 am

    Nowhere in your post does the word “retroactive” appear, nor do any words or phrases equivalent to “retroactive” appear. You just accuse Moorlach of trying to undo the 2001 Board action to “increase the pension benefits of our Deputy Sheriffs.” You completely ignore that the sole target is the retroactive portion.

  11. July 24, 2007 at 10:48 am

    Chris:

    Benefits are a form of compensation. That’s why they are included in what are commonly known as “compensation packages.”

  12. July 24, 2007 at 10:51 am

    Evening Coffee:

    Ah, another intellectual giant who confuse insult with argument. You and Aunt Millie should get together.

  13. Aunt Millie
    July 24, 2007 at 11:46 am

    Ah Jubal,

    Here I am agreeing with you on this subject, and you need to gratuitously attack me.Such class.

    Nevertheless, I’ll continue to object to Chris’ arguments on this issue. The Constitution of the state of California as written and subsequently amended limits the power of elected representatives on taxation and certain fiscal matters.

    I think Moorlach has made a great case here that the previous board of supervisors acted illegally in granting exorbitant benefits in excess of their legal authority. And Moorlach is the type of principled conservative who is extinct in the corrupt national Republican party, willing to criticize powerful political interests and his own party.

    As to the argument that tax dollars should not be used to pursue this, there is a smoetimes distasteful yet fundamental requirement for government to expend money on legal matters if they are acting to honor their oath of office to defend the Constitution of the State of California.

  14. July 24, 2007 at 12:22 pm

    Sorry, Aunt Millie. I hadn’t seen your comment when I commented. It’s just that your usual tendency with me is, regrettably, to call me a series of names and leave it at that.

  15. July 24, 2007 at 12:30 pm

    Aunt Millie,

    You claim that Supervisor Moorlach is a “principled conservative” and the the action he is proposing is consistent with his oath of office.

    I have a few questions for you.

    1. Which “principles,” specifically, are you assigning to Supervisor Moorlach?

    2. If a Supervisor were to disagree with any of his “constitutional theories” that they are not living up to their oath of office?

    3. If a Supervisor were to take an act that was unconstitutional based upon Supervisor Moorlachs theories, that they would be in violation of their oath of office?

  16. July 24, 2007 at 4:43 pm

    Matt,
    For the purpose of discussing a pension plan, and even a 401K plan compensation is wages paid to an employee for labor performed. This is usually calculated by multiplying an hourly rate by a number of hours worked (or compensated in the case of vacation, sick, and holiday pay).

    Pension benefits are then calculated based upon the compensation earned by an individual employee. An employees pension is not calculated by considering their wages and benefits recieved. Only wages are used. You don’t add in the amount of the employee’s health plan and their pension contribution paid by the employer to determine their base compensation for calculating their pension benefit.

    Therefore since the retroactive increase in pension benefit cannot be considered compensation, Moorlach’s claim that pension benefits are extra compensation for services already performed is on its face flawed.

    Pensions are a benefit accrued over the time of an employee’s service. No matter how much Moorlach tries to turn logic and common sense on its head, he is still wrong.

  17. RHackett
    July 25, 2007 at 7:24 am

    An interesting letter in today’s OC Register.

    In one noteworthy week, Supervisors John Moorlach and Chris Norby made it easier for marijuana smokers to get high while at the same time they proposed a plan that would cut the pensions of thousands of current and retired cops. Unbelievable. I never thought I would see the day when Orange County druggies would cheer the supervisors while the cops jeered them.

    How embarrassing.

    Steven Christian of Orange

  18. DooDah
    August 2, 2007 at 4:49 pm

    Let’s see: A couple million $$ to avoid paying 2 billion $$$$$$. Sounds like a good investment! Because if the OC has to pay it all, it’s going broke anyway — what’s a couple extra $$ on top of it?

  19. RHackett
    August 2, 2007 at 8:07 pm

    Here’s some more math. The county is going to spend millions and won’t change a darn thing. This case is a joke. More holes than a screen door.

    It will prove that conservatives think nothing of spending millions of dollars for their own self aggrandizement.

  20. moorlach supporter
    August 14, 2007 at 12:02 am

    An employer’s contributions to a pension fund are a form of deferred compensation. OC should simply stop paying the portion that pertains to retroactive benefit liability and let the unions decide how to subsidize the guys who’ve already retired on higher-than-earned pensions. The state constitution is clear: extra compensation for services already rendered is illegal.

  21. buck henderson
    August 21, 2007 at 8:23 pm

    The repubs and all on this board who did not strangle this goofy baby in the cradle will end up looking foolish in the extreme— I am a 30 year lawyer practicing in LA and OC— 10 minutes of legal research reveals Calif. Supreme Court holdings in each of his 3 areas of con law “theory” are 100% in support of the public employee and the clearly vested pension—– this type of retirement is specifically exempt from the proscription he claims—- who on earth has done his research? This is bush league and odd….. he should have to pay the legal fees instead of wasting our money by redecorating his office…I was blown away to wwatch all the lemming sups vote to move this to the next stage— I sincerely hope that gov employees do the right thing when this is over and work hard to get these clowns out of office— I am sure they will…

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