We run 'a different offense' in Costa Mesa

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Third in a series about Costa Mesa's political battle.

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For him, local politics is like the Cold War. Costa Mesa City Councilman Steve Mensinger equates the City Council with the Reagan administration and the public employee associations with the USSR.

It's better to amass political weapons than to discuss a truce with labor, he reasons, and eventually the collective bargaining associations will cave in like the Soviets.

"Everybody along the way said, 'Isn't there a better way to do it? Don't you want to sit down with them, hug them, kiss them?'" Mensinger said of Reagan's critics. "We're trying to get the unions to understand that the old way of doing things is not going to work."

With higher stakes and more gamesmanship than ever before, the city's politics could be considered nuclear. Mensinger and the council's ideological architect, Mayor Pro Tem Jim Righeimer, are trying to reshape municipal government in their smaller-is-better vision, which is drawing the ire of community activists and a lawsuit from organized labor.

Righeimer's fundamental argument is that long-term employee costs, including city pensions, will prove unsustainable. That's generally accurate, based on interviews with officials and municipal experts, and a year-long Daily Pilot analysis of city financial records.

But those same records and sources indicate Righeimer's reasons for abrupt, immediate action are less convincing. In calling the city's condition dire, and in describing an impending fiscal cliff, Righeimer has pointed only to worst-case financial assumptions and, experts say, exaggerated the immediacy of the city's problems.

Observers experienced in the complexities of municipal finance argue there definitely is a problem, but most say it is long-term and structural, not immediate.

Righeimer is "the proverbial bull in the china shop," said Brandman University public administration professor Fred Smoller. "I don't think that you have to get into this type of fight to bring about this kind of change."

Over the past year and a half, Mensinger, Righeimer, Mayor Eric Bever and Councilman Gary Monahan have flexed political muscle through their 4-1 majority. In their most audacious move, critics say, they rushed through an outsourcing and layoff plan without thoroughly analyzing the city's finances or knowing whether they could legally send certain services to the private sector.

While some see the council members as conservative visionaries, others call them hasty ideologues.

"You just have this idea," said Perry Valantine, a council critic and retired city planner, "that they have a goal in mind, and they're going to get there however they can get there."

Stymied by an employee lawsuit, the majority's hurried outsourcing plan is costing the city at least $1 million to defend so far, and a court injunction will block layoffs until the suit is resolved. The councilmen will tell you those legal fees are not their fault, because it is the employee association suing.

Mensinger says privatizing could solve short- and long-term budget deficits, the city's unfunded pension liability, and take care of immediate problems, such as an aging infrastructure in need of repair sooner rather than later.

"By shifting to the private sector, you save money," Mensinger reasoned. "By saving money, you're able to solve all those stand-alone issues."

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What they knew then

City leaders didn't know with certainty whether outsourcing would help when they handed out more than 200 pink slips and launched the organization into tumult. In March 2011, they had not yet reviewed private-sector bids to see whether they'd save money.

Since then, city administrators have studied 11 services, finding seven would be more efficiently served fully or partially in-house.

So why the rush to notice some 200 workers?

The public reason is the councilmen — Councilwoman Wendy Leece steadfastly opposes their plans — followed contractually required labor protocol.

"Everybody knows that [a pink slip] doesn't mean you're going to be laid off," said Righeimer, who has proposed a city charter that would avoid such rules requiring long notice.

The city, he said, was just adhering to its agreements with workers' groups, which require a six-month lead time in case positions are eliminated.

A three-judge panel from the state Court of Appeal disagreed with the council majority's argument. In August, the justices upheld an injunction temporarily blocking outsourcing. The Costa Mesa City Employee Assn. had sued the city over the pink slips, throwing a wrench into the council's plans.

Employees who received notices "were faced with the daunting prospect of being terminated," the court ruling stated. "Job loss is always a serious matter, and in this post-recession era of high unemployment, it cannot be taken lightly."

Besides labor rules, the council also issued layoff notices for a political reason, Righeimer said: They were racing a ticking clock that strikes on Election Day, Nov. 6. Righeimer says he needs a council majority — and the political momentum — to push through his changes. Without it, he argues, the plan fails and, over time, so does the city's financial health.

This fall, three other council seats will be up for grabs, and union leaders want to delay outsourcing talks until then, Righeimer alleges, in hopes of breaking up the four-member majority.

"In order to keep your votes together," he says, "that's the little window you have."

It's a notion of political capital usually seen on the national level, where parties try to oust each other, but it's not as common in municipal government, which is designed as nonpartisan. In fact, in Costa Mesa, all five council members are Republicans.

Such a political calculation would not surprise council critics, who claim the real problem is a lack of practical analysis. They believe the council majority has acted brashly the cliché of shooting first and asking questions later is often ascribed.

Valantine summed up the sentiment at a recent meeting about infrastructure, pleading to the council: "Please think a lot about these things before you make decisions."

That may be the typical government way — deliberative analysis before making a pragmatic judgment — but Righeimer and Mensinger both hail from the real estate development industry, where things happen faster than they do in government.

"In the business world — in the real world — you don't do long studies," Righeimer said. "You figure out what the problem is, then you go out there and ask people if they can either do it, or fix it, or solve your problem at a better price. Government would rather have a bunch of meetings."

Righeimer and Mensinger argue that public employees are out of touch with the economic pressures in the private sector, where executives and employees concede on pay, vacation time, health insurance and other compensation to remain competitive — even to survive.

"Jim and I are running a different offense than everybody else," said Mensinger, a football booster prone to gridiron analogies. "The typical offense that they came up with, the unions knew how to defend against. This one they don't."

Labor leaders see it differently. They say they've been defending their workers — and the city's residents — since Righeimer took office.

"Are you kidding me? This was a political play from day one," said Nick Berardino, general manager of the Orange County Employees Assn.

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Infrastructure a priority

Reducing the public employee payroll will help the city save money to fix crumbling and flooded streets, majority members say. Gauging the infrastructure need, though, has not been an exact science, and critics have seized on their methods.

Almost like writing a pro forma on the back of a dinner napkin, Righeimer slaps dollar figures to a project list.

"I'm going to put in a million a year," he said at a January 2012 council meeting, estimating the cost of upgrades for the city's information technology (IT) system. "Just a million a year just sounds like an easy number."

A more thorough analysis is needed, critics say, and not all capital projects can be started right away.

Righeimer defends his approach. He says the first step is to list all necessary capital improvements, even if it means guessing — a leader can provide the vision and then ask staff to calculate the actual amounts.

"It may not be as pretty as we'd like it," he said. "We're not spending hundreds of thousands of dollars on plans to design a library to find out what it costs. We're just going to put in a number to say, 'Here's what it is.' Are you still interested in going forward with a brand new library?

"Then when it's all there, you start deciding how important those things are, when they're all on the plate."

Indeed, city administrators contextualized some of Costa Mesa's needs and helped whittle down the council's wish list of $27 million in capital improvements to $20 million in the final budget.

"We have all these ideas and expectations," said City CEO Tom Hatch. "Now we've listed them, so the entire community and the council can wrestle with, 'Do we want more of that or less of this?'"

Council critics don't think all of the items are necessities. Costa Mesa's streets, they point out, are good by countywide standards, according to the Orange County Transportation Authority.

Mensinger says those satisfied with the city's infrastructure have set a "low bar" for achievement. He talks about the "Irvine standard," where newer streets are lined with landscaped medians.

In some ways, Costa Mesa and Irvine are not readily comparable. Irvine can afford lush landscaping because homeowners often pay to beautify streets through homeowners associations and assessment districts, which levy fees.

Costa Mesa hasn't had any special tax districts of that type since the City Council eliminated two of them around 2000, former City Manager Allan Roeder said.

In April, the City Council discussed other revenue options, such as infrastructure bonds to cover millions of dollars in proposed capital projects, but the majority members dismissed most of the ideas.

"The whole point of this exercise is to show that there are not many viable revenue options," Righeimer said at the meeting. Instead, he told Hatch, "You're going to have to find more staff cuts somewhere to come up with that number."

The council voted to lay off four city employees in June, while directing about $20 million toward street, traffic, buildings, park and storm drain improvements — more than twice what was allocated last year for capital projects.

The majority of that was paid for with typical capital project funding sources: grants, development fees, gas and county sales tax revenue. About $7.3 million came from the city's general fund — the largest amount of discretionary funds spent on capital projects in the past 10 years.

Some money will likely go to repairing Red Hill Avenue, a street Righeimer and Mensinger often use as a case in point. The city's priorities were so distorted, they claim, that Red Hill was allowed to deteriorate while employees received increasingly cushy benefits.

"Every time someone drives down [Red Hill], they remind themselves why they don't want to be here," Mensinger said.

In actuality, Red Hill repairs have been deferred because state and federal grants dropped off in recent years, said Public Services Director Ernesto Munoz. Most cities, he said, avoid using discretionary funds to fix such streets.

This council majority, though, wants Costa Mesa to have some of the best streets in the county and is willing to cut personnel budgets to achieve that goal. The 2012-13 fiscal year budget includes $14 million in street and alley improvements, double the average of the past 10 years.

Once the city improves its infrastructure, Mensinger argues, Costa Mesa can attract businesses and families with more disposable income, who would then boost property values and sales tax receipts.

Then, the thinking goes, the city could use new tax revenue to pay off the unfunded pension liability, which is the city's long-term problem.

Much of that pension debt is owed to police officers and firefighters.

"Cops don't stop crime," Mensinger said in an interview. "It's who you attract to your city."

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Pension budgets: a 'value judgment'

The latest police and firefighter contracts locked in salaries and benefits before Righeimer took office, and they wouldn't be up for negotiations until four years later. He said the city needed to fix a budget crisis and reduce crushing unfunded pension liabilities, and the only option was to lay off employees.

An examination of the city's pension projections, though, shows Righeimer and the Finance Department selected certain assumptions that portrayed the pension problem as urgent.

Costa Mesa currently has promised $131 million more in retirement payments than its investments could cover. The city's annual pension payments are expected to climb to $19.5 million in the 2016-17 fiscal year, according to recent city Finance Department estimate. That is up from $14.7 million in fiscal 2011-12.

"This city will file bankruptcy if we don't solve the problem," Righeimer said in 2010.

But the latest city projections are much lower than what then-city Budget and Research Officer Bobby Young told the council a month before it voted to pursue outsourcing.

Righeimer pointed to Young's chart at the March 2011 outsourcing meeting that showed the pension payments shooting up to more than $26 million in the 2015-16 fiscal year.

"We'll be going from $15 [million] to $26 [million] or $27 million in five years," he said, recommending they issue pink slips. "It is the fiduciary responsibility of this council up here to look at these items in the future, to see where these things are going."

Young, who is now Finance Director, made an important caveat that Righeimer glossed over. The $26-million figure was based on an assumption that the retirement fund's investments would perform worse than the California Public Employees' Retirement System, or CalPERS, officially projected. In that case, the city would have to pay more to cover promised pensions.

Righeimer claimed that CalPERS, an independent agency, provided the projections.

"It does get subjective," Young said at the meeting. "This isn't going to happen, but it is a possibility."

Also, the city's pension forecasts assume employees will not pay into their pension accounts beyond their current contracts, and the city would have to make up the difference. But the employees, starting in 2007, have agreed to contribute to their retirement funds. Firefighters stopped contributing to theirs in late 2011.

Municipal pension forecasts usually assume the status quo, said Stanford University public policy professor Joe Nation. In Costa Mesa's case, that would be employee contributions continuing.

But Righeimer said in a follow-up interview that he told Young to make a "worst-case scenario."

"You never budget based on what somebody may or may not give you," Righeimer said.

A fairer way to present the projections would have been to show the different scenarios: with and without employee contributions, and with the two investment-return scenarios, Nation said.

He added that cities should indeed make worst-case projections, in case CalPERS drops its investment rate of return again, as it did this spring.

"I think that's actually a smart thing to do," he said, "because it's such a big impact."

With the revised rate of return, the city's pension payments may eventually climb to the level Young forecasted, but it will not be as soon.

So how serious of a problem are the city's pensions, and how soon does the council have to act?

Those are "value judgments," Smoller, the Brandman professor, said.

Most conservative politicians are clear on the issue: Cities should do as much as they can now to prevent the pension system from falling apart in the future. Gov. Jerry Brown, a Democrat, is expected to soon sign a pension reform package.

"We all have to start dealing with some major issues," said Orange County Supervisor John Moorlach, a Republican who has made pensions a signature career issue, "because the money's running out."

An accountant by training, Moorlach, a Costa Mesa resident, has done his own number crunching. He compares various cities' assets to their liabilities, and when unfunded pension liability is factored in, Costa Mesa ranks 31st out of the county's 34 cities.

Despite their declamations about the crushing pension debt, the council majority is only budgeting $500,000 per year to pay off the unfunded liability. It's instead diverting funds to capital projects. And that may be a smart move, experts say, although the city should develop a long-term plan to pay off the debt.

"Just because you have an unfunded liability doesn't mean you should take drastic action one way or another," said the city's pension consultant, John Bartell, at a 2011 meeting.

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Cash crisis?

Pensions aren't the only reason Righeimer says he voted for outsourcing. The city was on the edge of a fiscal cliff, with dangerously low cash levels, he and the other councilmen argued.

Experts, though, say the city had options.

The available cash in the general fund hit a low of $5 million the month Righeimer was elected, and the city had used $32 million in reserves to balance the budget during the three worst years of the recession.

"If we did not pull up, we were going to crash," Righeimer said later, citing those two facts.

But it's unclear to the general public how much else Righeimer and then-mayor Gary Monahan knew about the budget crisis and the potential effects of outsourcing before they recommended potentially privatizing 19 services — from firefighting to video production.

The two comprised the Budget and Capital Improvement Working Group, which met out of the public eye. Members of the community demanded a more open government after the councilmen passed confidences in those sessions.

Cash is an important measurement, but not as significant as some others, Young said earlier this year.

Essentially, lower cash levels could force the city to take out short-term bank loans during a disaster, he explained. Many cities also rely on commercial paper to get through tough periods.

The city's credit rating, while lowered slightly in 2011, is still considered strong and the city has few long-term bond obligations for its size, said Moody's spokesman David Jacobson.

"It's doing pretty well," he said.

Also, if the city really needed to access cash, it could have relied more on money in other funds, such as the one set aside for workers' compensation claims or for vehicle replacement, said Tom Wood, a retired Anaheim city manager who reviewed the city's financial records at the Daily Pilot's request.

In November 2010, those two funds alone had more than $12 million cash.

"A one-month look isn't telling," Wood said about the cash levels.

Indeed, the general fund cash balance jumped back up to $20 million the following month, as predictable property tax revenue rolled in.

By the end of the 2010-11 fiscal year, revenues regained expenses and the City Council passed balanced budgets for the next two fiscal years, without dipping into general fund reserves.

So what should Righeimer have done when he assumed office in late 2010?

Some say that the big changes were already underway, and that the city was righting itself.

The City Council offered early-retirement incentives in 2009 and forced employees to take furloughs. The next year, it issued layoff notices to workers and renegotiated union contracts so employees pay more, albeit temporarily, toward their retirement plans.

"I think that the decisions we started to make, the concessions we started to ask for, were necessary because yes, we were in a financial crisis," said Newport-Mesa Unified school board Trustee Katrina Foley, an ex-councilwoman who supports the city's unions. "But we were coming out of the financial crisis in 2010. We weren't digging deeper."

In summer 2010, quarterly sales tax receipts jumped 14%. They had been building for months. Hotel bed tax receipts also climbed that summer for the first time since 2007. The city had also approved an increase in the bed tax rate, and was projecting about $1 million additional annual revenue beginning in early 2011.

Righeimer says he didn't want to assume that the economy would recover. He argues it is better for government agencies not to forecast on optimism.

"Forget the concept that the world is rosy and everybody is going to go back to South Coast Plaza and buy $1,800 purses," he said. "That world is over."

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Ideology or necessity?

When facing the council's arguments, organized labor cried political warfare and said it was an assault on a loyal middle-class workforce. The broader public watched both sides and wondered who was motivated by the residents' best interests.

The council members' allegiance to the local GOP agenda has created issues of perception with local Democrats and moderate Republicans. Righeimer shares an office suite in Newport Beach with Scott Baugh, chairman of the Republican Party of Orange County.

Righeimer and Mensinger also tend to speak in Republican talking points: "We have a spending problem," Mensinger says. "We don't have a revenue problem."

"Government grows," Righeimer says.

The Righeimer council is upholding Costa Mesa's long-standing reputation "for being the county's conservative hub," said Smoller.

It is not just the council majority members who speak in ideological sound bites. Labor representatives say Costa Mesa's travails are symptomatic of a larger problem.

"I've seen what happened to the middle class over the last 30 years," said Billy Folsom, a city mechanic who protested the council's move to outsource jobs.

"We just can't go down without a fight," added Folsom, a Republican.

Costa Mesa, according to voter registration records, is majority Republican, and the city's ideological battle often pits members of the same party against each other.

In addition to Folsom, outspoken council majority critics like Councilwoman Leece, former Mayor Sandy Genis — who is running for council again — and blogger Geoff West are also Republicans. This sort of dynamic has made it nearly impossible to paint Costa Mesa's battle with that trusty old brush — labor and Democrats vs. Republicans and business.

While the strife doesn't fit into neat partisan lines, the battle is more like a classic union vs. management debate. One side, the white-collar administrators, see city employees as numbers in a math problem while the other, the blue- and pink-collar mechanics and clerks, see them as "human beings."

Righeimer, when sizing up the city's long-term pension debt, said: "Part of getting that number down is to get our head count down."

"People are not numbers," countered Foley, a Democrat. "And for the long-term health of an organization, you have to take into consideration your people."

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Righeimer on perks

At the mention of public employee perks, Righeimer loses his composure. Twelve sick days a year, which roll over to the next year, for public employees when the private sector is offering six or less?

He throws his hands up in the air. "Only in government would you have a process like that," he says.

With Righeimer, the payment of overtime becomes political. It's a way for workers to pad their base salaries, he says.

Foley says some city workers deserve compensation for sacrifices that typical 9-to-5 types don't make.

"You live in the firehouse three days a week," Foley said. "You're away from your family three days a week. A lot of these guys have families with young children or teenagers."

Mike Ruhl, a firefighter who in 2011 made 35% of his $115,000 salary in overtime, sees both sides. While it's hard to be away, he says, "it means we can provide for more at home."

The typical city worker isn't getting rich.

Folsom, who makes about $70,000 a year, says he lives paycheck to paycheck and fixes friends' cars in his driveway to get by.

"Yeah, we don't buy rims for the car," he joked.

A vacation for Folsom and his girlfriend might be a trip to a local motel or a ride on his Harley-Davidson to Slab City, a desolate outpost near the Salton Sea.

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Effects of the cuts

Folsom and other workers say they are severely stretched, and their performance has suffered.

Bruce Lindemann, a 22-year employee and supervisor in the maintenance division, says it is hard to get everything done after the layoffs and vacancies created through attrition. Lindemann holds up a photo of his 12-person crew in 2008 and another from this year, with just three workers.

Longtime workers and highly-qualified ones are stuck in menial jobs, when they'd typically be supervising. Mike Tucker, another maintenance supervisor, is a college graduate who has recently driven a street sweeper.

Since Costa Mesa politics turned tumultuous, Folsom says he developed a heart condition and found more gray in his beard. Other employees he knows are now going to therapy.

"The load just gets heavier on the people who are left," he said.

While employees are clearly affected, it is harder to measure the impact of cutbacks on residents. By most accounts, it has not affected their day-to-day lives.

Valantine, the council critic, says that some streets need repairs, as they have for years, but otherwise his quality of life has not changed.

"If I didn't read the newspaper and go to the council meetings," he said, "I don't think I'd be more unhappy today than five years ago."

Certainly, the City Council majority members downplay any reductions in service. Cutting the workforce is better than skimping on capital improvement costs, they say.

To balance the budget, they added more civilian employees to the Police Department while cutting back on officers.

But property crime is up in the city, according to FBI statistics for 2011. That could be a coincidence, as some studies show that more police officers do not necessarily mean less crime, or there could be a relationship.

"If we spend all of our resources on the Police Department, would there still be some crime?" asked Hatch. "I think there would be."

Cutting employees — and even outsourcing — may be necessary, critics say, but they contend that the council majority's methods have damaged the organization.

Newport Beach Councilwoman Leslie Daigle contrasted her city's labor relations with that of Costa Mesa, saying Newport won more concessions from its public safety unions than its neighbor. "We don't demean and degrade our employees," Daigle added.

The effects aren't limited to hurt feelings.

City maintenance worker Huy Pham committed suicide in 2011 by jumping off the roof of City Hall as his department received pink slips. At age 29, he had been suffering personal problems, and cocaine was found in his system. While it has never been entirely clear why he took his own life, other workers have speculated that the political climate contributed to his anguish.

Also, city administrators continue to pay legal fees defending the Costa Mesa City Employee Assn. lawsuit, and to get their charter proposal on the November ballot. They hired Jones Day, a white-shoe law firm.

"I hear all this talk about running the city like a business," said Foley, an attorney. "If I ran my business how they're running the city, I would have no employees and I would be … spending all my money on lawyer fees."

Indeed, many employees have left the city for other municipalities, and some fear that trend could continue. Meanwhile, none of the outsourcing savings — at least $2.3 million projected annually — can be realized because of the injunction against the layoffs.

Fred Smoller says that the Costa Mesa majority's layoff notices became counterproductive, turning the employees who need to agree to lower compensation against Righeimer and the others.

The city could lose people with key institutional knowledge — for example, someone who could quickly identify a sewer line during an emergency, Smoller warned.

However, the brash moves may have been necessary to get union leaders to truly concede, said Wood, the retired Anaheim city manager.

Labor leaders want to hold onto as much of their hard-won benefits as possible, although they have agreed to some higher pension contributions during and after the recession.

"There is a balance here somewhere that seems to be missed by both sides," Wood said. "Maybe this is just a process that needed to occur, but at what cost?"

mike.reicher@latimes.com; joseph.serna@latimes.com

Twitter: @thedailypilot

Copyright © 2014, Los Angeles Times
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PoliticsBusinessFinanceLocal GovernmentElectionsLaws and LegislationUnemployment and Layoffs
  • Costa Mesa city employee Billy Folsom works on a police department motorcycle in July.

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