Commentary By Richard Callahan

How your tax dollars are protected

Over many months the “Commentary” has been critical of the state-mandated custodian of public employee’s pensions, the California Public Employee’s Retirement System (CalPERS).  The state requires that public employees’ retirement funds be managed by CalPERS, which is largely composed of union-appointed managers with generally no discernable or documented financial expertise. CalPERS investment returns have often been losses and have regularly underperformed generally accepted averages and  the agency’s own established benchmarks.  As a result, pension funds are badly underfunded, requiring cities, and in some cases employees, to pony up more money to bring the funding back to a level where promises can be met.

The state continues to insist that CalPERS manage the investments despite its acknowledged dearth of financial expertise, history of under performance and now, admitted corruption and blatant bribery regarding the investment choices made by CalPERS officials.

In a plea in federal court to Security and Exchange Commission (SEC) charges, former CalPERS Chief Executive Federico Buenrostro admitted accepting paper bags and a shoe box stuffed with hundreds of thousands of dollars, along with casino chips and prizes to place investments with firms earning high commissions, but producing dismal returns. State oversight of this operation was woefully lacking and corrective action to the bribery revelations has been tepid.  If such corruption had involved a private entity rather than a government/union partnership, the entity would have been dissolved and professional managers hired.  But no, this is merely another squandering of taxpayer money for the benefit of government-favored entities, so the taxpayer suffers.

Yes, the state’s answer to this unprofessional, corrupt mismanagement of taxpayer funds is to pass a law requiring CalPERS union appointees to take a vanilla course in investing to “strengthen accountability and ensure full transparency,” while top managers have walked off with paper bags and shoe boxes filled with taxpayer’s cash.

A wolf in sheep’s clothing

Seven statewide ballot propositions have been certified for the November ballot.  Two were included on the June ballot and approved by voters.

Numerous pending propositions currently languish in the approval process.  Many of these will be “hot button” issues comprising such topics as gun control/gun rights, abortion, nuclear power, marijuana, taxes, pensions, teacher performance, donor disclosure, minimum wage, term limits, voter ID, the death penalty and several involving health care regulations and associated issues.  Those already approved for inclusion on the ballot include a rainy day fund, a $11.1 billion water bond, health insurance rate justification, increase of the cap on medical practice lawsuits and indian gaming compacts.

One of the more deceiving propositions headed for the ballot is the misnomered “Drug and Alcohol Testing of Doctors. Medical Negligence Lawsuits.  Initiative Statute.”

According to the official summary, this statute “requires drug and alcohol testing of doctors and reporting of positive tests to the California Medical Board.  Requires board to suspend doctor pending investigation of positive test and take disciplinary action if doctor was impaired while on duty.  Requires other doctors to report any other doctor suspected of drug or alcohol impairment or medical negligence.”   And, as almost an intentional afterthought, “increases the cap on pain and suffering damages in medical negligence lawsuits to account for inflation.”

Not highlighted in the proposition headlines is that if the proposition is passed, “state and local government costs associated with higher net medical malpractice costs are likely at least in the low tens of millions of dollars annually, potentially ranging to over $100 million dollars annually.”   Also, the proposition will increase the basic cost of medical services, exclusive of lawsuit settlements,  in amounts from “minor to hundreds of millions of dollars annually.”  And, these increases apply to the government only and do not include estimates  for the much larger private sector.

This proposition is basically a ruse so that trial lawyers can extract higher settlements and thus fees from an already overburdened cost structure in our medical system.  It should be recognized for its deceptive nature and be solidly rejected at the voting booth.

Grand Jury weighs in on critical election issue

The issue of unfunded pensions was introduced to Orange voters  during the election cycle two years ago. Two council seats and the mayor’s office were filled that November, but neither the newcomers nor the veterans took any meaningful action on the pension obligation that threatens to bankrupt the city.

This year candidates are vying for two council seats and the mayors position.  It can be expected that during the course of this election campaign that there will be much rhetoric about the city’s  ambience, the resurgence of Old Towne, new tax revenues brought in by the new Outlets of Orange and auto dealerships, the tax revenue sharing plan and the heartwarming phrase of “sweet, sweet Orange.”  

But missing from the discussions will be the elephant in the closet, the over $200 million pledged to city employees in the way of pension benefits. City council members seem to expect those millions will be miraculously addressed by the woeful investment performance of the California Public Employees Retirement System (CalPERS)  or the heavily underfunded state. 

The Orange County grand jury has recently weighed in on this problem, hoping in some way to alert council candidates and voters to the serious nature of the problem.  The question it first posed is "why should you care"?  These retirement benefits are guaranteed to a point.   If there is not enough money in the pot, taxpayers must make up the difference.   “Money spent by OC cities to deal with unfunded pensions necessarily comes at the expense of other services cities provide to their residents,” the Grand Jury wrote.  “Catch-up contributions to amortize these unfunded liabilities can be a significant expenditure in a city’s budget and the growth and unpredictability of these liabilities make it difficult to budget for future years.”  More importantly, the size of the unfunded amount in the City of Orange is more than double its annual revenue. 

This year’s election campaign is expected to be conducted as in the past with minor issues important to voters being emphasized primarily in the public safety and ambience areas, while the unfunded amounts continue to grow and become due and payable without much attention.

Voters be prepared to ask tough questions.  Ask where the city will obtain the funds to meet these obligations and how your potential council members intend to protect the worker’s pensions and the taxpayer’s money along with promised services.  These obligations will be upon us before we know it, and the practice of prospective candidates addressing it with some catchy phrase can no longer be accepted.

School bond regulations protect education, property values

Many months ago the Orange Unified School District (OUSD) set out to generate the millions of dollars it will take to modernize a basically dilapidated set of schools to provide better educational opportunities for our children.  The last two school bond measures had failed. It was the opinion of the board majority that they had failed to recognize their best option for partnering with the taxpayer by contributing the district’s assets to the upgrading process. 

The first step the board took was to address Peralta, OSUD’s most valuable property.  The board hired a financial advisor with a reputation for promoting unregulated leasing activities, and chose to consider a 99-year lease agreement with a developer who wanted to build apartments on the site.  

The board majority was romanced by an impressive set of financial representations by their advisor.  But, the numbers presented to the board were challenged.  The board resisted the challenge for months but the project was eventually voted down.

Having learned from its ill-fated attempt at a leasing proposal, the board opted to pursue a lower profile option to generate upgrade funds.  The board has approved the sale of lesser surplus district properties coupled with a school bond issue to be placed on the ballot in November.   But now some opponents of the bond are claiming that board is once again being led astray by lack of proper oversight.   This time, however, the board’s actions are more closely regulated and there are very specific procedures that must be followed to protect taxpayer and district money.  Education Code Section 15278-15282 contains strict requirements for independent oversight of expenditures of school bond-related  funds.

First, the sale of any property is conducted by sealed bid opened in public by an official independent of the school board.   Secondly, state law requires that an independent committee be established to oversee  expenditures authorized in the bond issue.    The committee composition must contain at least seven independent citizens with clearly defined backgrounds.  They are charged with “ensuring that bond revenues are expended only for the purposes described” and “ensuring that … no funds are used for any teacher or administrative salaries or other school operating expenses.”  

Opponents’ claims of lack of oversight regarding the current asset sale/bond funding are without merit and a fear tactic.  The combination of district asset sales and taxpayer approved tax contributions is the perfect win/win solution for improving our schools.  It is time for voters to realize that our schools have deteriorated and are in dilapidated condition, hurting educational opportunities and adversely depressing property values.   Modernization safeguards are in place and after 20 years or so, it is time to pass a bond issue and bring our schools out of the dark ages.