Task Force Critiques Fire District Fiscal Plan

Orinda Citizens Emergency Services Task Force pokes into details of Moraga Orinda Fire District's 15-year financial forecast.

A citizens task force has posted a detailed response to the Moraga Orinda Fire District's 15-year financial forecast released earlier this month.

The Orinda Citizens Emergency Services Task Force commends MOFD for taking the long view over 15 years and for "taking on the tough job of focusing on underfunded liabilities."  The task force states it agrees with the current forecast for revenue growth through 2022.

However, the task force "believes that the current forecast seriously understates the magnitude of unfunded future liabilities" with a discrepancy as large as $2 million to $5 million annually. Included in the under-projection, the task force states, are:

  • a pension obligation bond
  • a post-retirement medical benefit liability, and
  • underfunded pension liabilities

The district's 15-year plan anticipates a growth in property tax revenues of 2 percent in fiscal 2013-14, 3.25 percent in 2014-15, 3.5 percent in 2015-16, and 4 percent through the remainder of the plan.

The 15-year plan lays out a projection of retiring the current Unfunded Actuarial Accrued Liability by 2026-27. This includes a projection that the Contra Costa County Employee Retirement Association will average an aggregate annual return on investments of 7.75 percent by the end of that term. "Historically, CCCERA has exceed that goal in any 20-year period since its existence," the 15-year plan states.

One task force member,

c5 November 21, 2012 at 06:59 PM
the revenue assumptions are far from conservative, and the roi assumptions are, as with all of our public sector plan assumptions, totally ludicrous and negligent.
Steve Cohn November 21, 2012 at 08:19 PM
c5 - As the Task Force's "numbers guy" I can address your apprehension (not unfounded). I am more familiar with Orinda property values but (1) Orinda provides 2/3 of MOFD's revenue so its values are more dominant and (2) Moraga values are lower but have the same characteristic as Orinda's; namely assessed values way below market values which properties are reassessed at upon sale. Currently Orinda homes (the vast majority of the tax base) are assessed at an average of $250 per square foot. Currently they are selling for about $400 per square foot. The average home sold increases in assessed value by 60% (and the homes held the longest, those most likely to sell, increase even more). Assuming 60% increase for the 4% of homes sold each year (long term average) and a 2% increase for the 96% that do not sell (the prop 13 cap is the lesser of inflation or 2% and with US deficits the way they are it is hard to see inflation going away). This produces an average of 4.3%. On top of that there are homes that get reassessed up for capital improvements and there is some new building (Pulte and Wilder in Orinda) which could increase Orinda's tax base by 10% (1% per year for ten years). All of this makes a 4% assumed annual increase not overly optimistic.
Steve Cohn November 21, 2012 at 09:06 PM
Clarification - I was justifying the 4% tax revenue increase assumption. re. the roi (return on investment of pension assets), I agree. Either they should target a much lower return, in keeping with the fact that they are "gambling" with public funds, or they should plan for a significant "over funding" of future obligations much as engineers optimize designs but then add "margins of safety" on top of the optimal design. Assuming a 30 year average life of pension funding investment (from a 35 year old mid-life working age to a 65 year old mid-life retirement age for someone who retires at 50), a 7.75% earning rate, which is currently assumed, will earn 63% more than a 6% earning rate. Therefore, liabilities being 163% funded while assuming a 7.75% investment rate is equivalent to liabilities being 100% funded with a 6.00% assumed investment rate. Plan for the worst, hope for the best and no one gets hurt.
Fritz 'Congodog' Stoop November 22, 2012 at 06:29 PM
Does this mean we are going to hang the outrageous salary/retirement structure of the MOFD's hat on the continued basis of property tax increases? How about we analyse the financial structure of this semi-rural district and stop comparing them to urban fire departments. They are very different. I recently was in a meeting of private investors looking into arranging financing a startup enterprise. Among the potential investors was a retired (at 50) 'Chief' (apparently these hierarchies can have lots of 'chiefs') of a Bay Area FD. This guy was by no means 'rich' but he was 'comfortable for life' and young. Another glaring thing he was, well he wasn't very bright. He had a HS diploma and the oodles of FD specific training courses like "leadership". He spent 25 years in a very narrow area of focus, owned his home and was hauling in $20K/month plus benes for life. I do appreciate the service provided by FDs, but they are in a far less dangerous occupation than police personnel, for instance (their danger is so glaring they strap on a gun daily as a matter of course). Yet here we are arguing back and forth about how to fund them when we should be discussing a plan to welcome them back to reality.
Lamorindan November 22, 2012 at 06:42 PM
To Fritz: Amen to your comments. And you do not even state that in most cases they claim "disability" upon retirement which provides an excuse for tax rellief, etc...
Fritz 'Congodog' Stoop November 23, 2012 at 07:22 PM
I did not mention that because I was not aware. Is that a fact, where can I find supporting data? The MOFD is a liability that is draining the local resources at an alarming rate. Is it a fair statement to say that sending fire trucks to obvious medical situations (the vast majority of their call outs) is simply a means of padding their response statistics. A close look at this report should be on every Moraga/Orinda property owner's 'must read' list. Most folks here are capable of critical analysis of such documents, so I'd advise you be seated when you read it.
Diana Stephens November 24, 2012 at 11:49 PM
Thank you Fritz. The Emergency Services Task Force Report was an incredible amount of work, and while it is an effort to educate oneself about MOFD, it is one of the largest expenses property owners face and well worth the time. There is an Orinda leaning, if you will, as the Task Force members believe Orindans to be paying a greater share than they should, but there is a lot of pertinent information for everyone served by MOFD. Please check it out online at www.orindataskforce.org.
c5 November 26, 2012 at 02:20 PM
your comments justifying a budgeted 4% increase in property tax revenues forever and a 7.75% investment return forever remind me of an old saying.... 'if you don't learn from the past you are destined to repeat it'....and that in a nutshell is where the state of public sector pension and benefit finances stands.
Fritz 'Congodog' Stoop November 26, 2012 at 03:18 PM
c5 If it is so obvious that the MOFD is outsized for the size of the communities it serves and a fiscal nightmare, then why not do something about it. The current Board seems mesmerized by the 'empire building' antics of Chief Bradley and seems incapable of grabbing this costly bull by the horns. The weak Board needs either a serious change of attitude or replacing. The lack of citizen outrage is perplexing as this juggernaut continues to plow through tax dollars. The Task Force's Report is very clear: The district as comprised is at least twice as big as necessary, salaries/benefits/retirement structure begs revision and actual structure fires represent 1% (that is correct, ONE percent) of the call outs. The two hamlets need an ambulance service and a bare bones "structural fire department" augmented by a volunteer force. This model is common all over the United States in semi-rural communities such as ours. We need to stop being satisfied with our simple outrage and do something. Soon.
Steve Cohn November 26, 2012 at 04:27 PM
@c5 - I do not say a 4% increase in assessed values should continue forever but I do believe they can continue for 15 years, at least in Orinda. They might actually be higher for a while, as Pulte and Wilder are developed. They could get another boost if downtown Orinda is ever re-developed. And although I would not bet on it, if Prop 13 was amended to only limit residential properties to the 2% annual cap or if that cap was determined to be a cumulative cap and not year-by-year (so if it goes down 3% one year it could recoup that 3% plus another 2% in the future, not to exceed CPI cumulative growth). All in all, 4% average over the next 15 years given the current state of the tax base being 60% of the market value is not unreasonable. The 7.75% asset earning assumption for public funds is overly aggressive. That is why we are in the hole we are i. Assets would have to earn at 11% over the next ten years to make the 20 year period we are in the middle of average 7.75%. We need to "assume" a much lower rate which will cause us to have to deposit a much higher amount to fund the current promises and we will then have to tell the employees "if you want to save your money and assume those rates, fine, but we cannot afford to". MOFD is in contract negotiations. Will they tell their employees that or accept the current forecast presented by Chief Bradley to the Board and kick the bad news and huge budget down the road? Only "the people" can tell them to back off.


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