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OC Touted for 'Level-Headed' Pension Reform

OC Touted for 'Level-Headed' Pension Reform 

It was a rare sight.



A group of county supervisors and labor leaders sitting across the table from each other at a public meeting having a calm discussion, even offering each other complements. There was no shouting, no finger pointing and even the posturing was kept to a relative minimum.



What made it even more remarkable was the topic: public pensions.



They were together at the behest of the Little Hoover Commission a statewide grand jury of sorts that is looking for solutions to the most vexing of public policy conundrums -- providing public services amid a fiscal environment dominated by shrinking revenues and ballooning annual pension payment obligations.



Orange County has become a darling of late among those who study public pensions.



One of the nation's most politically conservative counties has actually achieved something that looks like progress by -- get ready for this one -- cooperating with labor.



The results?



Landmark deals that radically lowered the public unfunded liability on retiree medical costs and ushered in a new tier of public-sector retirement offering lower benefits to workers.



"Orange County has done a better job of addressing issues proactively," said Little Hoover Commission Chairman Daniel Hancock after visiting Friday with a host of county supervisors and labor leaders to hear about Orange County's reform efforts.



Now, perhaps everyone was on their best behavior because of the audience and the place settings trumpeting the OC as a statewide leader on pension reform. The mood was so cooperative and complimentary that some members from the Hoover panel privately wondered whether they'd just been snowed by a dog-and-pony show.



To be sure, there are those who say that Orange County's newest pension reform proposal isn't reform at all, and could end up costing taxpayers more. Newly elected county supervisor Shawn Nelson -- who, curiously, was not at the meeting -- is in that camp.



But, then again, maybe a corner has indeed been turned.



After numerous years of battling each other on the pension issue through a host of controversial and costly election campaigns, as well as through tough labor contract negotiations, the two sides seem to have gotten to know each other.



And a light seems to have come on.



Both sides seem to be reacting to poll numbers that indicate an increasingly angry electorate over public sector pensions. And as the unfunded liability continues to swell, so does voter anger.



At both sides.



Last week, county elected officials and labor leaders publicly acknowledged those harsh realities to state commissioners. During what at times seemed like the start of peace talks in a conflict, both combatants agreed that they had battled themselves to stalemate.



And after reaching stalemate, the two sides told state commissioners they found that nothing cures an unfunded liability better than open communication.



"It requires a lot of trust," said Orange County Employees Association General Manager Nick Berardino.

Sitting across from Berardino was Supervisor John Moorlach, who basically agreed. Moorlach said he's tried just about every approach in the book -- ballot initiatives, legislation and even lawsuits -- but none work as well as the negotiating table.



However, both sides acknowledged that there are still battles to be waged. And the stakes are astronomically high.



Orange County faces a $3.7 billion unfunded liability for its pension system, one that was largely triggered after large benefit increases in 2001 (for public safety) and 2004 (for general employees). Investment losses and actuarial changes also keep fueling the unfunded liability, which has driven up annual payments considerably and put major pressure on public sector budgets.



Last week, Hoover Commission members got the lowdown on the plan Orange County leaders crafted that allows new hires, and potentially existing employees, to choose to participate in a less expensive pension system.



That plan -- which would allow workers to retire with 1.62 percent of pay for every year worked at age 65 instead of the current 2.7 percent at 55 -- is still awaiting approval from the Treasury Department and may even require an act of Congress.



Since the lower-tier retirement plan was instituted in May, a few new hires have opted into it. However, the majority of hires still appear to elect the 2.7 percent at 55.



Nelson opted for the 2.7 percent at 55 formula and said his own example shows that workers won't opt for something that nets them a smaller retirement payoff.



He's also publicly questioned whether the new formula negotiated by his four colleagues -- Supervisors Moorlach, John (sic) Campbell, Pat Bates and Janet Nguyen -- might cost taxpayers more because of retirement gaming by senior employees. County officials are now studying actuarial assumptions of the new deal and will report back.



Yet the new formula in Orange County is still one of the first approaches that commission members said they have heard from anywhere in the state that can begin to shave off some of the county's unfunded pension liability.



Neither side tried to shy away from the fact that they view the world in radically different ways and often clash verbally at the negotiating table as well as in the press.



"As we work toward policy results, it's a bumpy road," county Chief Executive Tom Mauk said.



Yet the key to getting something done in Orange County seems to be the fact that there are always open lines of communication.



Political leaders on both sides of the aisle need to cool their rhetoric, Berardino said, and figure out realistic policies that can bring the long-term pension liability down.



That means putting a muzzle on the Republican folks who talk about a world without unions, or pensions, or shifting to 401(k)s. And it means sidelining union leaders who don't want to admit there's a problem with pensions that are too generous, he said.



Hoover Commission member Marilyn Brewer, a former state legislator and inhabitant of Orange County's fifth floor, asked Berardino how such a program could take hold at the statewide level, where one meeting participant described unions as "standing in the corner with their arms crossed."



"Continue to build on small successes," he replied. One jurisdiction at a time with solutions that match conditions on the ground.



Supervisor Campbell, who was a key negotiator on the new pension benefit, reiterated the point that each jurisdiction has to create the right set of policies and incentives that match their own realities.



For example, the new tier in Orange County has a chance to work because supervisors and labor already agreed to a key point back in 2004: Employees must pay out of their paychecks to help fund their pensions.



That key point is what may make the new tier more attractive to new hires because having the 1.62 percent formula leaves more in their paycheck, Campbell said. Other incentives, such as capping retiree medical benefits, also helps to encourage people to stay on the job longer, Campbell added.



Little Hoover Commission members left the meeting noting that they are likely to continue hearings throughout the fall and prepare a report on what they heard across the state by early next year.



The most appealing thing about what they heard in Orange County, Hancock said, was a "level headed" approach to start chipping away at the problem.



By Norberto Santana, Jr., nsantana@voiceofoc.org