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Extracted from Consolidated Report
This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.
Orange County Grand Jury
• 2013-2014
Orange County City Pension Liabilties Budget Transparency Critically Needed
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings 12 findings
F1
F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 Responses Cities Councils of: Aliso Viejo X X X X X X X X X X X X Anaheim X X X X X X X X X X X X Brea X X X X X X X X X X X X Buena Park X X X X X X X X X X X X Costa Mesa X X X X X X X X X X X X Cypress X X X X X X X X X X X X Dana Point X X X X X X X X X X X X Fountain Valley X X X X X X X X X X X X Fullerton X X X X X X X X X X X X Garden Grove X X X X X X X X X X X X Huntington Beach X X X X X X X X X X X X Irvine X X X X X X X X X X X X La Habra X X X X X X X X X X X X La Palma X X X X X X X X X X X X Laguna Beach X X X X X X X X X X X X Laguna Hills X X X X X X X X X X X X Laguna Niguel X X X X X X X X X X X X Laguna Woods X X X X X X X X X X X X Lake Forest X X X X X X X X X X X X Los Alamitos X X X X X X X X X X X X Mission Viejo X X X X X X X X X X X X Newport Beach X X X X X X X X X X X X Orange X X X X X X X X X X X X Placentia X X X X X X X X X X X X Rancho Santa Margarita X X X X X X X X X X X X San Clemente X X X X X X X X X X X X San Juan Capistrano X X X X X X X X X X X X Santa Ana X X X X X X X X X X X X Seal Beach X X X X X X X X X X X X Stanton X X X X X X X X X X X X Tustin X X X X X X X X X X X X Villa Park X X X X X X X X X X X X Westminster X X X X X X X X X X X X Yorba Linda X X X X X X X X X X X X Required/Requested
F2
OC cities’ unfunded pension liabilities have been increasing on a year over year basis over the past several years as a result of the 2007-2009 Great Recession and as key actuarial assumptions have been changed by CalPERS and OCERS.
F3
There are risks to OC cities of changes to key actuarial assumptions including revisions downward of expected returns on investment and the likely move by pension funds to using more realistic mortality assumptions, which would increase unfunded liabilities.
F4
Locating city budget information on a city web site is not always straightforward and prior year budgets are sometimes not posted by a city.
F5
City budgets posted online project revenues and expenditures for at most one or two years into the future and sometimes do not show prior year data.
F6
City budgets often lack footnotes explaining key assumptions, risks, and unusual changes in budgeted amounts or revenues and expenditures.
F7
City budgets sometimes do not provide trend data on the accumulation/drawdown of reserves and lack details on the city’s plan for the size of its reserves or their intended uses.
F8
Cities can control most future expenditures by increasing or decreasing budgets for those expenditures as funds are available. However, increases to annual required contributions to their pension systems are imposed externally, change unpredictably, and when they occur, are ramped up over two to five years.
F9
City budgets posted online do not explicitly show the link between planned city pension expenditures and pension system actuarial reports and those reports’ annual required contributions. Risks associated with predictions of future annual required pension contributions based on risk assessment data provided by their pension systems and/or based on their own analysis are not discussed.
F10
Pension costs for New (Post-PEPRA) employees will be substantially lower than for Legacy employees, but only a small percentage of current employees, typically only a few percent of total employees, are New. Substantially reduced pension costs for cities as a result of pension reform will not be realized for one or more decades.
F11
CalPERS Annual Valuation Reports for Miscellaneous and Safety City employees are available to the public online for a very small number of cities.
F12
OCERS provides pension plans for OCFA and OCSD employees, but there is no way to trace through publically available sources OCERS unfunded pension liabilities to the city budgets which outsource to OCFA and OCSD for fire and police services. Penal Code §933 and §933.05 require governing bodies and elected officials to which a report is directed to respond to findings and recommendations. Responses are requested, from departments of local agencies and their non-elected department heads. RECOMMENDATIONS In accordance with California Penal Code Sections 933 and 933.05, the 2013-2014 Grand Jury requires (or, as noted, requests) responses from each agency affected by the recommendations presented in this section. The responses are to be submitted to the Presiding Judge of the Superior Court. Based on its investigation of Pension Funding Status of Cities in Orange County, the 2013-2014 Orange County Grand Jury makes the following 8 recommendations:
Recommendations 7
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R1R2 R3 R4 R5 R6 R7 Responses Cities Councils of: Aliso Viejo X X X X X X X Anaheim X X X X X X Brea X X X X X X Buena Park X X X X X X X Costa Mesa X X X X X X Cypress X X X X X X X Dana Point X X X X X X X Fountain Valley X X X X X X Fullerton X X X X X X Garden Grove X X X X X X Huntington Beach X X X X X X Irvine X X X X X X X La Habra X X X X X X X La Palma X X X X X X X Laguna Beach X X X X X X Laguna Hills X X X X X X X Laguna Niguel X X X X X X X Laguna Woods X X X X X X X Lake Forest X X X X X X X Los Alamitos X X X X X X X Mission Viejo X X X X X X X Newport Beach X X X X X X Orange X X X X X X Placentia X X X X X X X Rancho Santa Margarita X X X X X X X San Clemente X X X X X X X San Juan Capistrano X X X X X X X Santa Ana X X X X X X X Seal Beach X X X X X X X Stanton X X X X X X X Tustin X X X X X X X Villa Park X X X X X X X Westminster X X X X X X X Yorba Linda X X X X X X X APPENDICES
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R2Each city’s budget information should contain not only this year/next year budget projections, but should show at least five years of projected revenues and expenditures. Projections should be at the same level of detail and use the same line item structure as information for the current budget. (F.1) (F.2) (F.3) (F.5) (F.8) (F.10)
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R3Each city’s budget should show separate line items for predicted employee and predicted employer contributions for the city pension systems. (F.8) (F.9)
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R4Each city’s budget should provide trend data on the accumulation/drawdown of reserves and provide details on the city’s policy for the size of its reserves and on the intended uses of such reserves. In particular any discussion of reserves should address possible use of reserves to accelerate amortization of unfunded pension liabilities. (F.7)
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R5Each city using CalPERS for one or more of its pension plans should identify the names and dates of the CalPERS Annual Valuation Report(s) which call out Annual Required Contributions (ARCs) for these plans and should provide a separate expenditure line item for predicted city catch-up contributions for the city pension systems based on these ARCs. A discussion of the risks associated with these CalPERS projections should also be provided by the city. (F.1) (F.2) (F.8) (F.9)
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R6Each city which outsources fire or police services to OCFA and/or OCSD should require them to provide projections of future costs of service out at least five years into the future and require that these projected costs explicitly show the relationship of projected pension costs including amortization of unfunded liabilities. This level of pension cost information should be provided in budgeted expenditures for outsourced services. A discussion of the risks associated with these projections should also be provided by the agencies and incorporated in the city’s budgets. (F.6) (F.12)
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R7Each city that has CalPERS as a provider for pensions should include a provision in their agreements with CalPERS that CalPERS will post their Annual Valuation Reports online. (F.11) REQUIRED RESPONSES The California Penal Code §933 requires any public agency which the Grand Jury has reviewed, and about which it has issued a final report, to comment to the Presiding Judge of the Superior Court on the findings and recommendations pertaining to matters under the control of the agency. Such comment shall be made no later than 90 days after the Grand Jury publishes its report (filed with the Clerk of the Court); except that in the case of a report containing findings and recommendations pertaining to a department or agency headed by an elected County official (e.g. District Attorney, Sheriff, etc.), such comment shall be made to the Presiding Judge with an information copy sent to the Board of Supervisors. Furthermore, California Penal Code Section §933.05 (a), (b), (c), details, as follows, the manner in which such comment(s) are to be made: (a) As to each Grand Jury finding, the responding person or entity shall indicate one of the following: (1) The respondent agrees with the finding (2) The respondent disagrees wholly or partially with the finding, in which case the response shall specify the portion of the finding that is disputed and shall include an explanation of the reasons therefore. (b) As to each Grand Jury recommendation, the responding person or entity shall report one of the following actions: (1) The recommendation has been implemented, with a summary regarding the implemented action. (2) The recommendation has not yet been implemented, but will be implemented in the future, with a time frame for implementation. (3) The recommendation requires further analysis, with an explanation and the scope and parameters of an analysis or study, and a time frame for the matter to be prepared for discussion by the officer or head of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This time frame shall not exceed six months from the date of publication of the Grand Jury report. (4) The recommendation will not be implemented because it is not warranted or is not reasonable, with an explanation therefore. (c) If a finding or recommendation of the Grand Jury addresses budgetary or personnel matters of a county agency or department headed by an elected officer, both the agency or department head and the Board of Supervisors shall respond if requested by the Grand Jury, but the response of the Board of Supervisors shall address only those budgetary /or personnel matters over which it has some decision making aspects of the findings or recommendations affecting his or her agency or department. Comments to the Presiding Judge of the Superior Court in compliance with Penal Code section §933.05 are required from: Required/Requested F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 Responses Cities Councils of: Aliso Viejo X X X X X X X X X X X X Anaheim X X X X X X X X X X X X Brea X X X X X X X X X X X X Buena Park X X X X X X X X X X X X Costa Mesa X X X X X X X X X X X X Cypress X X X X X X X X X X X X Dana Point X X X X X X X X X X X X Fountain Valley X X X X X X X X X X X X Fullerton X X X X X X X X X X X X Garden Grove X X X X X X X X X X X X Huntington Beach X X X X X X X X X X X X Irvine X X X X X X X X X X X X La Habra X X X X X X X X X X X X La Palma X X X X X X X X X X X X Laguna Beach X X X X X X X X X X X X Laguna Hills X X X X X X X X X X X X Laguna Niguel X X X X X X X X X X X X Laguna Woods X X X X X X X X X X X X Lake Forest X X X X X X X X X X X X Los Alamitos X X X X X X X X X X X X Mission Viejo X X X X X X X X X X X X Newport Beach X X X X X X X X X X X X Orange X X X X X X X X X X X X Placentia X X X X X X X X X X X X Rancho Santa Margarita X X X X X X X X X X X X San Clemente X X X X X X X X X X X X San Juan Capistrano X X X X X X X X X X X X Santa Ana X X X X X X X X X X X X Seal Beach X X X X X X X X X X X X Stanton X X X X X X X X X X X X Tustin X X X X X X X X X X X X Villa Park X X X X X X X X X X X X Westminster X X X X X X X X X X X X Yorba Linda X X X X X X X X X X X X Required/Requested R1 R2 R3 R4 R5 R6 R7 Responses Cities Councils of: Aliso Viejo X X X X X X X Anaheim X X X X X X Brea X X X X X X Buena Park X X X X X X X Costa Mesa X X X X X X Cypress X X X X X X X Dana Point X X X X X X X Fountain Valley X X X X X X Fullerton X X X X X X Garden Grove X X X X X X Huntington Beach X X X X X X Irvine X X X X X X X La Habra X X X X X X X La Palma X X X X X X X Laguna Beach X X X X X X Laguna Hills X X X X X X X Laguna Niguel X X X X X X X Laguna Woods X X X X X X X Lake Forest X X X X X X X Los Alamitos X X X X X X X Mission Viejo X X X X X X X Newport Beach X X X X X X Orange X X X X X X Placentia X X X X X X X Rancho Santa Margarita X X X X X X X San Clemente X X X X X X X San Juan Capistrano X X X X X X X Santa Ana X X X X X X X Seal Beach X X X X X X X Stanton X X X X X X X Tustin X X X X X X X Villa Park X X X X X X X Westminster X X X X X X X Yorba Linda X X X X X X X APPENDICES
Conclusions 1
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CL1Orange County cities have large unfunded pension liabilities. They do appear to have sufficient resources to amortize these liabilities, but these liabilities are volatile and need to be clearly addressed in cities' budgets in order to gain the confidence of their residents that this is actually the case. Such confidence can only be achieved by far greater transparency in their budgets.
Agency Responses 28
Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.