When Reed Royalty endorsed Orange County Supervisor Janet Nguyen’s reelection campaign last month, he praised her for seeking to reduce pension benefits for sheriff’s deputies “that may be unconstitutional.”
It was a logical comment for Royalty, an advocate of low taxes and limited government who is president of the Orange County Taxpayers Assn.
But it was a disquieting remark, many thought, for a man who is also chairman of the agency that manages those pension benefits -- an agency now being sued by the county in an effort to roll them back. The lawsuit was initiated by Nguyen and her colleagues, who contend that the higher pension benefits for deputies are unconstitutional.
Royalty’s dual roles, as an anti-tax champion on one hand and an administrator of pension benefits for retired government workers on the other, has put him in a seemingly incompatible position, pitting his private views that public employee pensions have run amok against his legal duty to look out for the financial interests of retirement system members.
It is a fine line that he said he had tried to tread carefully. He said he sought legal opinions from multiple lawyers who assured him he had a 1st Amendment right to continue criticizing public pensions as long as he clearly identifies that he is speaking as a private tax activist. He said he saw no conflict between his public and private roles, and declined to comment on any questions about the county’s pending litigation against the Orange County Employee Retirement System.
“I’m doing a good job for the taxpayers, and I’m not doing anything to the detriment of OCERS,” he said. The distinction is lost on union leaders whose members are in the pension system. They resent the county’s efforts to reduce benefits and fear that, with Royalty leading the way, the retirement board will not defend the case vigorously.
“I was very disappointed to see that the chairman of OCERS, the man entrusted to protect our pensions, has decided to abandon his official fiduciary duty in pursuit of politics,” said Wayne Quint, president of the Assn. of Orange County Deputy Sheriffs. “His public congratulation of Supervisor Nguyen for suing the very organization he chairs is both shocking and bizarre.”
Added Nick Berardino, general manager of the Orange County Employees Assn., the largest union of county workers: “He is basically sitting at the head of a group that is supposed to defend the interests of the retirement system, and at the same time he is going around applauding and aiding another group that is suing that same system. He just makes a mockery out of legitimate county government interests.”
At issue is a 2001 labor agreement between the deputies union and the county that increased pension payments by one-third and granted the benefit retroactively, bringing the average pension salary for retired deputies to $70,000 per year, by the estimate of county Supervisor John Moorlach.
Moorlach believed the county could not legally grant the benefit because he said it violated the state Constitution’s prohibition on deficit spending, committing the county to $187 million more in payments in the coming decades than it had money to pay. He led the board to a unanimous vote in January to file the lawsuit.
Royalty has long criticized public employee pensions, saying their growing cost is eating into government’s ability to provide services and build infrastructure. He is also a member of the advisory board of the California Foundation for Fiscal Responsibility, a group that has pushed to reduce the burden of public pensions on government.
In a March 6 statement, Nguyen announced that she had received the Orange County Taxpayers Assn.'s endorsement. The announcement quoted Royalty as saying, “Fiscal responsibility has always been Supervisor Janet Nguyen’s trademark. . . . In addition to saving taxpayers hundreds of millions of dollars in unfunded liability, Supervisor Nguyen has supported measures to reexamine retirement benefits they may be unconstitutional.”
Royalty’s endorsement remark is also focusing renewed attention on the county’s last-minute decision to name the retirement system as the defendant rather than the deputies union -- prompting speculation that some kind of fix is in because of the political dynamics involved.
When county officials first began talking of suing to rescind the pension spike, the deputies union had always been discussed as the defendant. But in the days before supervisors formally voted to move forward, the retirement board suddenly became the target.
County lawyers declined to explain how that change occurred, saying only it was the recommendation of the law firm hired to handle the case.
The change appeared to catch Royalty by surprise; he testified at the board hearing that the retirement board did not belong in the case.
But he, along with three other members of the retirement board, could well determine how the board handles the case. The board also has four union-backed members, but the deputies union nominee, Richard White, had to recuse himself because he has a direct financial stake in the outcome. The move also created a situation in which the county is paying for both sides in the case, since the legal fees to defend the suit come in part from the money the county puts into the retirement fund to pay for benefits.
The retirement board has sought to move the case out of Orange County to ensure a fair hearing. The deputies union is seeking to intervene in the case because it wants to be sure its members’ interests are represented aggressively.
“From the association’s point of view, you can’t help but be suspicious of this change,” Quint, of the deputies union, said. “Put yourself in our shoes. What would you think?”
Julie Wyne, an assistant chief executive and lawyer for OCERS, said Royalty’s comments do not constitute a violation of his legal obligations.
“As long as he’s not identifying himself as speaking on behalf of OCERS, as long as he’s clearly identifying who he’s speaking for, he’s not breaching any fiduciary duty to our system,” Wyne said. “It’s challenging to manage communication issues, but this specific instance does not appear to violate the policy.”
Royalty defended his remarks in his endorsement message for Nguyen.
The taxpayers association “supports an effort to determine if those benefits are constitutional or legal,” he said. “I’m glad that the Board of Supervisors is taking steps to determine the constitutionality of those benefits.”