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Plans Progress for New Orinda Fire Station

Orinda Planning Commission approved design; now MOFD will review the plan before approving construction. Timetable is completion by end of 2013.

With a design approved, a new fire station on Via Las Cruces, Orinda, awaits the fire district's long-range financial plan before the board will approve the construction phase.

On Sept. 25, the Orinda Planning Commission approved the Moraga-Orinda Fire District site plan and architectural design for the replacement of Fire Station 43, according to a news release from MOFD.

The district reported that it worked with area residents to ensure the design complemented the neighborhood. The proposed two-story fire station of about 5,000 square feet is due to be completed at the end of 2013. District staff is drafting a 13- to 15-year financial plan to address unfunded liabilities, capital equipment and infrastructure needs.

Bailey Lee October 02, 2012 at 05:19 PM
WOW! That is great news! Of course the entire community should be involved in naming this wonderful project. I humbly suggest STATION VERSAILLES or if the sign is too small, how about STATION TAJ. Of course, there will be cake served at the dedication catered by the Antoinette Patisserie
Steve Cohn October 02, 2012 at 05:46 PM
As the Emergency Services Task Force reported (www.OrindaTaskForce.org), MOFD is under severe financial strain. It should only be spending money on absolutely essential items and this station is not one of them. If you have concerns you should share them with the MOFD board (http://www.fairfororinda.org/sitebuildercontent/sitebuilderfiles/orinda-moraga-elected-officials-10-02-2012.pdf). Below is a letter I sent to the MOFD Board. Dear MOFD Board: As you know, the written word is my preferable means of communication so please accept this in lieu of a personal presentation at the public comment period of this Wednesday's meeting. I am concerned, as you are, about the district's finances. I see that you passed a budget with $800,000 of red ink in the operating budget and $2.3 million of expenditures in the capital budget. I further see that you have on the current agenda thoughts of more capital expenditures for administrative facilities. I implore you to only make capital expenditures that are crucial to health and safety of the District residents and employees. You need to keep your reserves at a maximum. You recently received from CCCERA notice that your unfunded liabilities increased from $18 million to $24 million. This additional $6 million will need to be paid back over the next 18 years including $7.75% interest. That will be an additional $630,000 expense. (continued next frame)
Steve Cohn October 02, 2012 at 05:47 PM
(continued from above) But that is not all. The $24 million unfunded liability assumes $144 million in total liabilities offset by $120 million in assets. However, the $120 million is the Actuarial Value of the assets. The market value of those assets, which will slowly make itself known, is only $112 million. There is another 8 million of unfunded liabilities "waiting in the wings". Paying this down will result in an additional $840,000 in payments for 18 years. But that is still not the end of the story. As you know, GASB has recently revised its accounting procedures for defined benefit plans with a Statement 67 for CCCERA (in effect next year - 12/31/2013) and Statement 68 for MOFD (in effect 6/30/2014). Not only will this require you to put your net liability above the line (so last year's positive net worth will go negative), but it does not allow all liabilities to discounted at CCCERA's 7.75% projected asset earning rate. As the Emergency Services Task Force report estimates, if this re-evaluation took place today MOFD's pension plan's unfunded liabilities would skyrocket from $24 million to $125 million. How CCCERA might require you to "repay" this underfunding is anyone's guess. It is not (yet) proscribed by GASB. Again, I implore you to retain as many reserves as possible and only embark on the most necessary of capital expenditures.
carrera October 02, 2012 at 05:54 PM
CalPERS reduced its expected return from 7.75% to 7.5% several months ago. That return target is still viewed as aggressive by many. How is CCCERA able to earn a greater rate of return than CalPERS?
Steve Cohn October 02, 2012 at 06:04 PM
They can't. Their ten year average return is just under 5%. They project future earnings at 7.75% so as to deeply discount future liabilities and allow for lower contributions from their members who are already going broke by trying to fund their pension commitments. If they reduced their assumed earning rate from 7.75% to 6.00% MOFD's discounted liabilities would increase from $144 million to $184 million and the $72 million underfunding (assuming $112 million market value of assets) would cost MOFD $6.6 million per year for 18 years to pay down, assuming the same 6% interest rate. See http://g.virbcdn.com/_f/files/71/FileItem-265324-Table_VI2bliabilities_600pcnt.pdf
El Cucuy October 02, 2012 at 06:32 PM
Regardless of the rate of return, you have to eventually fund that unfunded liability somehow. There are a number of ways. (1) Increase the amount firefighters pay into the pension fund; (2) increase MOFD payments into the pension fund; (3) increase market returns; (4) reduce overall expenditures. Number 1 looks like a drop in the bucket for MOFD, since you have a relatively small number of employees and a large unfunded liability. Number 2 means taxpayers have got to bite the bullet and pony up somehow. Number 3 means cross your fingers and hope the markets are more gracious to your public investments than they've been to your 401(k). Number 4 is a political hot-potato. A wildcard fifth solution is reducing unfunded liability by somehow reducing pension obligations. The legality of this is dubious. Pension benefits appear to be vested rights under law, which means that public employees qualified to receive pensions will get them until they die.
Eastofthehills October 02, 2012 at 06:47 PM
@steve if you lengthen your time span of your returns your results are alot better. Besides if it all goes south you can probably disolve the district in bankruptcy and have MOFD and become MFD and OFD again. The investment returns of 7.75% is actually pretty conservative if you take the S&P over 20 years you get something like 11%
Steve Cohn October 02, 2012 at 06:58 PM
20 year returns included the roaring 90's. Not sure many want to bet we will be going back there anytime soon. The instruments that CCCERA is forced to invest in to meet these returns, with the taxpayers taking all of the risk of for investment returns, longevity, inflation (cost of living adjustment to pension payments), is not right. The taxpayers should guarantee a modest return and if the employees want to say "roll the dice" and take the upside (or not), then fine. But right now it is all on the taxpayers' shoulders. Here are the last 10 year's returns. The volatility gives you some idea of how our money is being invested. -10.28% 23.44% 12.27% 8.71% 14.23% 6.03% -28.35% 19.68% 13.35% 1.76%
Chris Nicholson October 02, 2012 at 07:06 PM
@East: But you need to consider the medium term impact of a risk-free rate of zero and quite modest macro growth expectations, coupled with COLA escalators in the defined benefits (inflation hurts taxpayers but not beneficiaries). Even if things return to "normal" for years 5-20, your total 20 year return will be hamstrung by crappy year 0-5 results. I would gladly trade all my upside on a portion of my portfolio in exchange for a guaranteed 7.75% return. The guaranteed 20 year rate (T-bills) is 2.4% and is NOT inflation protected (e.g., real return of zero or perhaps negative).....
carrera October 02, 2012 at 08:38 PM
@Eastofthehills, no endowment or pool of assets can be concentrated in a single asset class, like equities, so the long term equity return is interesting only as a component of an overall allocation. And that points out the risk inherent with a 7.75% target for the entire portfolio.
c5 October 02, 2012 at 09:36 PM
...and more importantly, it is extraordinarily unlikely that any portfolio that is diversified will return anything near the 7.75% return assumption built into the system...
El Cucuy October 02, 2012 at 10:14 PM
The bottom line is that the expected rate of return is an arbitrary number. It varies across different funds/pension systems/endowments, and is based on two things: 1.) Conventional wisdom (yes -- past performance is indeed being used to predict future returns!) 2.) Political tolerance for risk Number 1 dictates that most public pooled funds hover in the mid 7s right now (with 7.5% and 7.75% being the norm), with a slightly downward trend following the recession (and the old crazy 8s). Number 2 usually means that more conservative systems will be in the low 7s or even high 6s, while the more liberal systems (Illinois teachers pension just came down to 8 from 8.5) will be higher. As with anything, the more political pressure is exerted, the more the dial moves. Regardless, 7 is a tough target for public investments. It will continue to trend down if the economy does not recover significantly in the next few years. Here are some sage words from Michael Bloomberg: “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”
Steve Cohn October 02, 2012 at 10:28 PM
If CCCERA went with Mr. Bloomberg's advice and adopted 7%, MOFD's net unfunded assets would increase to $50 million and they would have to start paying CCCERA an additional $3mm to fund it. As I said; tell your MOFD Board representative to keep their powder dry.
Gene G October 02, 2012 at 11:21 PM
Bailey, have you looked at the existing 60-year-old station, which fails to meet current seismic standards, is unprepared for housing on-duty male and female firefighters, is not ADA compliant, and has inadequate space and ventilation for storage and maintenance of modern firefighting apparatus? Have you looked at the plans for the new station? Can you produce an alternate set of plans that will meet all the requirements (including neighborhood needs) at substantially lower cost? If so, please produce them. Otherwise, you are just showing off your prejudices.
Bailey Lee October 02, 2012 at 11:38 PM
Dear Gene, Apparently YOU haven't been paying attention to the volumes of financial information that the Task Force has been putting out. If you are too lazy or YOUR prejudices control you too much, I am not gonna repeat all the data. THERE IS NO MONEY IN THE PIGGY BANK. GET THAT THROUGH YOUR HEAD. Instead of bleating the company/FD line, how about YOU proposing how the current deficits get made up BEFORE anyone goes around building another station. Go ahead, we're waiting...
Gene G October 03, 2012 at 06:14 AM
@Bailey: Your colorful response to my comments didn't mask the fact that you were unable to suggest a less expensive alternative to the current plans for Station 43, or to deny that it is essential to protect the fire apparatus and personnel housed therein so they will be able to respond to YOUR emergency when it happens. You can check with MOFD to find out how they developed a capital fund specifically reserved for that kind of essential expenditure. And as for Steve Cohn's report, it is unfortunate that so much effort has been put into massaging a set of inaccurate data based on a false premise. Garbage in, garbage out.
Steve Cohn October 03, 2012 at 02:37 PM
Dr. Gottfried (@Gene G): 1) Orinda taxpayers have paid $8 million of parcel taxes to MOFD over the past 15 years. One of the express purpose for the creation of the Fire Flow Parcel Tax, according to the arguments in favor in the June 1997 voters pamphlet, was to "seismically repair our fire stations." Seismic retrofitting is not rocket science (I am a registered civil engineer and can opine on that). It does not require tearing down a structure of the stature of Station 43 and starting over. As director over a 6 year period (representing the Division where Station 43 is located) you had over $3 million dollars of Orinda Parcel Tax funds, which were supposed to be used solely in Orinda, at your disposal to fix this station. You did not. It must not have been that important then. Why, when the District is in deep financial stress to the extent that some think it might actually fall into bankruptcy, is it so important now? 2) Your "garbage in; garbage out" comment regarding the Task Force report. The Task Force used publicly available documents received from MOFD and other government agencies. Most of these documents are included as exhibits to the Task Force report on line (www.OrindaTaskForce.org). If those documents are flawed, please let the community know how they are inaccurate.
Eastofthehills October 03, 2012 at 04:53 PM
Bill Gross and Pimco are getting bond fund to return at ~6.9%-7% over the past 10 years (PTTRX). Furthermore there is no such thing as "guarenteed" even with T-Bill's and other long term "safe" investments you still run a significant inflation/interest rate/duration risk. Without getting into the specifics of fixed income analysis you could probably get a pretty good 5% to 7% return investing in fixed income assets alone. That being said you take on a basket of fixed income risks. Equities on the other hand will give inflation protection in most cases especially when you diversify into indexes. IF since 1988 I had invested $100 per year in the S&P 500 I would have ~81K right now. Now Imagine if you had invested $2000 you'd have $1.7M. Long term 7.75% overall isn't unrealistic with a mixed asset class. 12% probably is unless you talk aggressive equity or distressed debt.
Gene G October 03, 2012 at 11:29 PM
@Steve Cohn: 1) The fire flow taxes have indeed been dedicated to the purchase of essential capital equipment, seismic upgrades, etc.to make up for the poor state of the existing stuff when the Orinda district was turned over from Contra Costa Fire. The plans for rebuilding Station 43 were there from the beginning, though there were other even more urgent issues to address at that time. Your suggestion to do a seismic upgrade on Station 43 was also considered early on, but it was determined to be inadequate, as it would still leave a very old building with severe deficiencies (as I listed earlier). 2) You have consistently overestimated the extent of the long-term budget shortfall and undervalued the steps being taken to remedy it. Your repetition of the same stuff over and over again doesn't make it correct. I accept full responsibility for any errors or omissions that I made during my tenure as an MOFD director, but not for my lack of clairvoyance or my lack of authority over the rash pension policies of CCCERA.
Steve Cohn October 04, 2012 at 06:26 PM
Since MOFD was formed in 1997 the Consumer Price Index in the Bay Area has increased from 160 to 240. That is a 50 percent increase and an average annual increase of 2.74 percent. At the same time MOFD's tax revenue, exclusive of parcel taxes, has increased from $7.5 million to $16.3 million. That is a 120 percent increase and an average annual increase of 5.31 percent; twice the rate of inflation. Where has the money gone? 85 percent of MOFD's budget is for personnel compensation. I think where the money has gone is pretty clear; leaving not enough to even seismically strengthen what is probably our oldest station most in need. 15 years. No excuse. Now no funds are available to do this because of massive underfunded employee benefit liabilities due to poor pension asset performance which some say should have been anticipated. You say the Task Force has overstated MOFD's liabilities. I have asked MOFD multiple times for what their liabilities actually are. All they can provide is a single discounted value for 60 years of liabilities. The bottom line is they do not know what their liabilities are. So for you to say that the Task Force overestimates them is an opinion, not a fact. Unless you have the actual liabilities (in which case please share them with the entire community, including MOFD) do not claim that the Task Force has overestimated them.

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