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Orange County

Study of Plan to Cut Pension Fund Gap OKd

County supervisors hire a team of analysts to recommend whether they should sell bonds to make up a $734-million shortfall for its workers.

June 04, 2003|Jean O. Pasco | Times Staff Writer

A team of financial experts will analyze whether Orange County should sell $734 million in bonds to meet the county's long-term obligation to pay retirement benefits earned by its employees.

The study was approved Tuesday by Orange County supervisors on a 3-1 vote, with Supervisor Chris Norby voting "no" and Supervisor Tom Wilson absent. Supervisors Bill Campbell, Jim Silva and Chuck Smith voted "yes."

By state law, the county must pay annual retirement contributions for current employees and cover future retirement costs. The amount that the county and other government employers must pay varies based on how much money is earned from investments.

As of May, Orange County's retirement system was $734 million short in funding all earned benefits. The deficit ballooned because the retirement system suffered three years of losses in the stock market, forcing the county to cover the difference.

Norby cautioned against assuming that the county could cover its debt by selling bonds, which can be affected by the stock market.

The county could also close the retirement funding gap by dipping into its general fund or seek other financing help.

Norby also questioned the involvement of bond underwriters in the $20,000 study. "This is like paying a used-car salesman to tell us whether to buy a car," he said. "It's pretty obvious what their recommendation is going to be, [because] their real money is in financing the bonds."

Treasurer-Tax Collector John M.W. Moorlach urged county officials to examine ways to cover retirement payments and analyze the potential risks of bond financing. "You need to deal with every 'what if,' " he said.

Many governments, including Orange County, are faced this year with soaring retirement costs because of benefit increases approved in the last three years even as investment income began to plunge. The county's annual retirement costs have climbed from $38.3 million in 2001-02 to an estimated $134 million for the coming fiscal year.

The retirement fund, which covers 33,000 current and retired workers, is valued at $4.2 billion. The county is the largest employer in the system. Other members include the Orange County Fire Authority and the Orange County Transportation Authority.

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