O.C. Approves Budget, Hears a Fiscal Warning

Orange County supervisors on Tuesday approved a no-frills, $4.9-billion budget for the 2005-06 fiscal year as the grand jury warned of a financial mess looming in the county’s underfunded pension plan.

Although the risky nature of the pension’s liability has been known for months, the Orange County Grand Jury added yet another warning about the recently estimated $2.3-billion deficit in the long-term pension pool.

It reproached supervisors in its report, “Another County Crisis: Pensions, Health Care and Other Benefits,” and chided the board’s approval, for instance, of generous benefit increases three years ago, and even greater benefit increases last year.

“It appears the current [board] is repeating the pattern of granting generous benefits -- this in light of tight county budgets and the residual effects of the bankruptcy 10 years ago,” the report said.

Board Chairman Bill Campbell said the report was “very fair.” It said, for instance, that employees gave up wage increases for two years, made healthcare concessions, and will pay the brunt of any new pension benefits. “It’s all there,” he said.

But Campbell said the county had paid attention to its pension responsibility. He said that each time the retirement system had requested more funds, the county had paid them.

The county’s pension contribution has grown from $45 million in fiscal year 2000-01 to $178 million for the 2004-05 fiscal year, an increase of 296%, the grand jury said.

Next year the county’s pensions costs are expected to rise another $110 million, which could mean layoffs and hiring delays as an estimated 800 county workers retire, Campbell said after the board meeting.

“We’ll have to look harder at retirements as they occur and basically encourage the county not to hire replacements, or delay them,” Campbell said.

The county does not need to contribute more to the pension fund in the next fiscal year, which begins Friday.

But employees, who agreed to increased pension benefits in exchange for a wage hike freeze, will see additional payroll deductions of from 4% to 9% in paychecks starting July 15.

That will help pay for an estimated $300 million in new pension benefits, said Nick Berardino, general manager for the Orange County Employees Assn.

“The grand jury report is just more rhetorical bias we’ve already heard,” Berardino said.

Supervisor Lou Correa noted that one reason for the pension problem was that investments in the retirement system -- stocks, bonds and real estate -- declined in 2000, 2001 and 2002.

“The footnote that gets lost here is that employees have said they will pay for the shortage in the new contracts for pension benefits,” Correa said.

Supervisors also approved a $91-million prepayment to the retirement system, about half this fiscal year’s pension bill. The prepayment saved the county about $3 million, Correa said.

The county still must find ways to come up with $4.4-billion in pension, health and bankruptcy-related costs, the grand jury report said. That was calculated using the $2.3 billion deficit estimate, $1.3 billion in unfunded healthcare costs and $800 million in costs for paying off the county’s bankruptcy debt.

The county’s new budget, 6% higher than last year’s, reflects the state’s more robust economy, county officials said. It allows for 188 new jobs.

A year ago, there were layoffs in the probation department, and several family resource centers that provided counseling and job training in unincorporated areas were closed.

Under the new budget, the probation department will get 85 new positions, the public defender will get 10 more employees, and John Wayne Airport will get 18 new positions. The district attorney and social services agency will each get five new positions.