Other Pension Systems Are Tempting O.C.

Wrestling with an added $1-billion projected shortfall to Orange County’s retirement system, the Board of Supervisors on Tuesday said it would consider enrolling its workers in alternative systems.

Supervisors also gave county officials the final go-ahead to refinance $600 million in county bankruptcy debt, allowing the county to retire its debt 10 years early, at a significant savings.

The Orange County Employees Retirement System is fully funded to meet current demands, but a recent study found that its projected long-term debt was $2.3 billion, twice what was previously estimated.

The county hired a consultant to confirm the latest figure, but the study won’t be done for another week.

At Tuesday’s meeting, the board authorized county officials to examine retirement systems that serve Los Angeles and San Bernardino county employees, state workers and federal employees.

The board initially considered examining only CalPERS, the state retirement system.

“If the goal is to examine some well-run funds as an alternative, then I believe it’s wiser to do them all to help decide whether or not to stay with [the county retirement system],” said Board Chairman Bill Campbell.

The decision marks one of the first times that the board has given serious consideration to switching its retirement system, which it established in 1945. The system is now an independent agency.

With more than $5 billion in assets, the Orange County system provides retirement, death and disability benefits to county employees and workers from other public agencies, including the Orange County Transportation Authority.

The board’s decision was prompted by the projected shortfall and statements by county union officials that CalPERS offered its members a better system and lower rates.

Keith Bozarth, the Orange County system’s executive director, said he welcomed the board’s actions and expressed confidence that the county system “will show pretty well in this process.”

The board’s approval of the debt repayment plan addresses the county’s financial disaster of 1994, a $1.64-billion collapse of the county investment pool that made it the largest municipal bankruptcy in U.S. history.

The county will refinance its debt by selling new bonds, saving an estimated $471 million through lower interest rates while paying it off in 10 years, said Tom Beckett, county public finance manager.

The decision came on the same day the county announced that its credit rating was upgraded from neutral to positive by Standard & Poor’s and other rating agencies.

The rating will help reduce insurance costs for the bond transaction, Beckett said.

Supervisors were elated at the idea of retiring early a debt that has hung like a cloud over county finances. Since 1995, the county has paid $90 million each year to help lower the debt.

In a recent report, “Riches to Rags,” the county grand jury criticized the county for siphoning $7.5 million of its $67 million yearly budget for the Harbors, Beaches and Parks Department to help pay off bankruptcy debt, saying it has “wounded” a once-premier parks system.

“I’m hoping that as we move ahead with this transaction, we are writing the final chapter to the Orange County bankruptcy,” said Supervisor Lou Correa.

The total costs for the bond transaction are about $5 million, and the interest rate won’t be known until the day of the bond sale, which begins Monday, Beckett said.

As with a home mortgage, the county seeks a low interest rate for paying off the bonds by 2016.