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HomeMy WebLinkAboutOral Communication - Written Communication ReceivedRobin Roberts From: stephen wontrobski <constructionclaims @yahoo.com> Sent: Tuesday, August 23, 2016 3:18 PM To: Robin Roberts; Clerk - City of Los Alamitos quintanar Subject: OCFA /OCERS Pension UAAL Red Flag Alert Attachments: ocfauaalredflagalert8- 23- 16.doc; wood ruffcityuaa Ilia bility2- 25- 16.doc; ocfauaalcityliabilityl- 29- 16.doc Dear City Clerks of Seal Beach and Los Alamitos, Attached is my written public comment for your next city council meeting and prior informational distribution to your City Council members. These letters were previously issued to the OCFA Board of Directors and contain information applicable to your city. 1. August 23, 2016 letter addressing: OCFA /OCERS Pension UAAL Red Flag Alert 2. February 25, 2016 letter addressing: OCFA Member Cities' Pension Liability 3. January 29, 2016 letter addressing OCFA UAAL - Member City and County Liability Sincerely, Stephen Wontrobski Stephen M. Wontrobski 27132 Sombras Mission Viejo, CA 92692 August 23, 2016 Board of Directors Orange County Fire Authority I Fire Authority Road Irvine, CA 92602 Reference: OCFA/OCERS Pension UAAL Red Flag Alert Member City Managers, Attorneys and Council Members Notice of Red Flag Alert Dear Board Members: The issue of OCFA member city and County ultimate liability for the OCFA Pension UAAL at OCERS came into the spotlight once again at the August 15, 2016 OCERS Board of Directors meeting. August 15, 2016 OCERS Board of Directors Meeting At the August 15, 2016 OCERS Board of Directors meeting, OCFA Assistant Chief Lori Zeller told the OCERS Board that: a) Contract city members of the OCFA JPA have no OCERS /OCFA Pension UAAL liability because they are "contract" city members. (Contract member cities have longed believed that they have no liability of any nature for the OCERS /OCFA Pension UAAL, simply because they were contract cities and not structural fund (SFF) member cities.) b) Structural fund members of the OCFA also have no OCERS /OCFA Pension UAAL liability. (This statement is based on the OCFA's attorney opinion that the JPA agreement shields the SFF member cities and the County from the UAAL liability of the OCFA. In turn, this opinion is based on the JPA Agreement clause stating that parties to the JPA Agreement have no liability for the liabilities of the OCFA.) City Managers and City Attorneys Red Flag Warnin¢ The views expressed by Ms. Zeller are at complete odds with the legal position of OCERS. Please be mindful of the following facts that you should verify. I. The OCFA Attorney's written opinion is solely supported by Contract Law reasoning. It contains no reference or discussion of Pension and Bankruptcy Law. 2. The issue of OCFA/OCERS Pension UAAL liability ultimately centers on Pension and Bankruptcy Law, not Contract Law. 3. Neither the OCFA attorney nor his law firm have recognized experience in the areas of Bankruptcy or Pension Law. 4. Both the OCERS attorney and his law firm are recognized authorities in the areas of Bankruptcy and Pension Law. 5. OCERS has previously issued a legal position on this issue. In a report to the OCERS Board earlier this year, OCERS stated that OCFA SFF and contract city members and the County have ultimate liability for the OCFA/OCERS Pension UAAL. Current August 15, 2016 OCERS Board of Directors Meeting Legal Opinion In the August 15, 2016 OCERS Board of Directors Meeting, the OCERS attorney stated: 1. SFF member cities and the County are ultimately liability for the OCFA/OCERS Pension UAAL. 2. OCFA contract member cities are also ultimately liable for the OCFA/OCERS Pension UAAL. 3. Contract or SFF member cities cannot escape OCFA/OCERS Pension UAAL liability by simply withdrawing from the OCFA in 2018 or any other date. These withdrawing member cities would be still liable for the OCFA/OCERS Pension UAAL incurred prior to their withdrawal. OCERS would have to present them with an amount as to what payment would be required to relieve them of their past OCFA/OCERS UAAL liability. Implications of the Potential Impact of the OCERS Legal Holding If the OCERS legal opinion is correct, the following issues immediately rise to the surface. 1. Contract cities have long maintained that because they are "contract" cities they are not responsible for any UAAL liability. This opinion does not seem to carry any current weight. 2. Many contact member cities are financially strapped cities, and this adds further liability exposure issues to their financial condition. 3. SFF member cities and the County are granted some relief, since they would no longer be the sole providers of any potential OCFA/OCERS UAAL relief. The contract cities would now have to share in this financial responsibility. 4. SFF member cities, contract member cities and the County are responsible for any ultimate OCFA/OCERS Pension UAAL liability. This opinion is completely at odds with the OCFA attorney opinion. 5. Under California law would the JPA Agreement provision, regarding no member city and County exposure for OCFA/OCERS pension liabilities, be held to be illegal as against public policy, Pension Law or Bankruptcy Law? 6. If the JPA Agreement provision regarding no member exposure for OCFA liabilities is held to be illegal, would surviving OCFA members be held to be jointly and severally liable for the OCFA/OCERS Pension UAAL liability, if a financially strapped member city declares bankruptcy? 7. Does GASB 68 require the OCFA or any member city to footnote their financial statements regarding any potential financial impairment or ultimate pension liability? South County City Council Meetings My attendance at various South County City Council meetings has shown that many individuals in the following groups are lacking in needed information regarding their city's ultimate liability for the OCFA/OCERS Pension UAAL liability for the firefighters: a) City Managers b) City Attorneys c) City Council Members d) Member City Residents I excuse the member city residents from being unaware of the implications of the OCFA UAAL, since they have been given bad information in certain circumstances by their own city attorneys. Some of the city attorneys appear to have based their own attorney advice on the incomplete unsupported legal advice of the OCFA Attorney. However, this reasoning does not excuse the City Attorneys, Managers and Council members. They all have a responsibility to accurately report to their residents on this issue with a soundly based legal opinion. Currently, there are various City Council members that believe their city has liability exposure for the OCFA/OCERS Pension UAAL, and other City Council members, who believe the opposite. Who is right? OCFA Recommended Course of Action I have continually expressed in writing without any success the need for the OCFA to issue a well - grounded legal opinion with case reference support for the OCFA position on this issue. (Please see my attached January 29, 2016 and February 25, 2016 letters on this issue.) My request has found absolutely no support from the individual city and County OCFA Board members. Based on current events, there is now a pressing need for such a well- supported legal opinion. The OCFA attorney has responded to my requests by stating that the individual member cities should issue their own city attorney legal opinions. Does this recommendation make any sense? Why would the OCFA attorney state there is a need for over twenty separate city attorney opinions on this matter? How can city attorneys without any experience in Pension and Bankruptcy Law be expected to issue such opinions? They lack legal expertise in these critical areas. Hence, the OCFA quickly pushes off its own primary responsibility on this issue to the member cities. And the public remains ignorant of impending potential problems, which could actually destroy the financial stability of their city and curtail needed services to their residents. In effect, this simply continues the long standing OCFA practice of keeping the public ignorant of key OCFA financial issues. Wouldn't the most practical solution be for the OCFA to issue a legal opinion assignment to a well - qualified law firm with an experience background specializing in Pension and Bankruptcy Law? OCERS /OCFA UAAL Pension Liability Ouestions The OCFA/OCERS Pension UAAL liability information issues revolve around four simple questions. Ouestion No. 1: Are the contract member cities ultimately liable for the past OCFA UAAL pension liability at OCERS, whether or not they decide to withdraw or not withdraw from the OCFA? Ouestion No. 2: Are structural member cities (like Mission Viejo, Irvine, Laguna Niguel, Aliso Viejo, Dana Point, Lake Forest, Villa Park, Laguna Hills and Rancho Santa Margarita) ultimately responsible for their cast OCFA UAAL pension liability at OCERS, if they decide to withdraw from the OCFA in 2018? Ouestion No. 3: If the OCFA declares bankruptcy, are all the member cities and County jointly and severally liable for the OCFA UAAL pension liability at OCERS? Ouestion No. 4: If the OCFA declares bankruptcy, would OCERS be expected to seek reimbursement for the OCFA UAAL pension liability at OCERS from three large member stakeholders (City of Irvine, County, and Mission Viejo) and other financially well managed JPA member cities? Recommended Course of Action The recommended course of action is to have the OCFA enlist a highly respected California law firm to issue a well - grounded legal opinion based in Pension and Bankruptcy Law to address issues raised in this letter and any other issues raised by OCFA Board members or member city attorneys and managers. Sincerely, Stephen M. Wontrobski E:oafauaalrednagalen8 -23 -16 cc: Orange County Board of Supervisors; OCERS Board of Directors Stephen M. Wontrobski 27132 Sombras Mission Viejo, CA 92692 February 25, 2016 Board of Directors Orange County Fire Authority 1 Fire Authority Road Irvine, CA 92602 Ref: OCFA Member Cities' Pension Liability Response to OCFA Attorney Letter Dear Board Members. This is my response to the February 8, 2016 letter from David Kendig from the Woodruff, Spradlin & Smart law firm. It concerns OCFA member cities' individual city contingent liability for the OCFA's over $400,000,000 pension liability at the Orange County Employees Retirement System ( OCERS). Issue This is a pension /bankruptcy law issue. The issue is whether individual OCFA member cities (both structural fund member cities and contract cities) and the County could be eventually held liable for the OCFA's pension liability at OCERS. OCERS believes it can hold the OCFA member cities and County liable for the OCFA UAAL. This is despite the fact that the OCFA member cities and County are governed by provisions in their Joint Power Authority (JPA) Agreement. This JPA Agreement specifically states: Liabilities. Except as otherwise provided herein, the debts, liabilities and obligations of the Authority shall be, the debts, liabilities or obligations of the Authority alone and not of the parties of this agreement. OCFA Law Firm Background Information Before responding in detail with answers to various questions asked of me in the OCFA attorney letter, I offer the following information regarding the Woodruff, Spradlin & Smart law firm and David Kendig, the author of the February 8, 2016 letter. Woodruff. Spradlin & Smart Law Firm Background Information On its web site Woodruff, Spradlin & Smart describes itself as "Southern California's Premier Local Government Law Firm ". It is a local government law firm. The "About the Firm" Section states: Woodruff, Spradlin & Smart is a full- service local government law firm with thirty -seven attorneys. Since 1976, we have served as general counsel and special counsel to cities and special districts throughout Southern California. We also represent private clients on a range of matters. We provide expert advice and representation in the following practice areas: • Code Enforcement • Construction • Eminent Domain • Employment and Labor • Environmental • Inverse Condemnation • Land Use • Litigation • Public Law • Redevelopment • Transportation • Water and Wastewater In its "Representative Matters Section ", it lists Construction Law Eminent Domain and Inverse Condemnation Employment and Labor Law Environmental Law Land Use Law Litigation Water and Wastewater In its "Practice Area Section ", it lists Code Enforcement Construction Law Consumer Law Eminent Domain and Inverse Condemnation Employment and Labor Law Environmental Law Land Use Law Litigation Products Liability Public Agency Law Redevelopment Law Toxic Tort PRECAUTIONARY NOTE: Woodruff. Spradlin & Smart does not profess any expertise in pensiontbankruptcv law on its web site. David Kendio Backaround Information The Woodruff, Spradlin & Smart Law firm web site provides the following information regarding Mr Kendig. Practice Areas: Environmental Law I Land Use Law I Public Agency Law David Kendig serves as the City Attorney for the City of Tustin and as General Counsel to the Orange County Fire Authority, a 25- member joint powers authority providing fire protection and emergency medical services throughout Orange County. Mr. Kendig also serves as Assistant City Attorney to the cities of Laguna Hills and Rancho Santa Margarita, and serves as General Counsel to the non - profit Orange County Fire Authority Foundation, and the OCFA Benevolent Association. He regularly advises city councils, boards of directors, city managers, city and Fire Authority staff, commissions, and other government agency staff on all aspects of public law. Mr. Kendig has represented public agencies since 1991, developing expertise in planning and zoning law, general plan and housing element updates, the Ralph M. Brown Act, the Political Reform Act, the Public Records Act, multi- agency agreements, State and Federal emergency management grant programs and other grants, the Government Tort Claims Act, the Public Contracts Code, the Elections Code, the Subdivision Map Act, the California Environmental Quality Act, LAFCO reorganization law, the Federal Telecommunications Act, municipal code enforcement, and municipal contracting and procurement. Mr. Kendig has negotiated and drafted a variety of agreements, including professional services agreements, complex real property purchase and sale agreements, employment agreements, telecommunications site lease agreements, leases, licenses, real property instruments, operating covenant and exclusive right agreements, public works contracts, and engineering agreements. He also prepares complex ordinances, resolutions, deeds, settlement agreements, administrative enforcement procedures, and administrative policies. Before joining the firm, Mr. Kendig served as LAFCO Counsel for the Santa Cruz County Local Agency Formation Commission and as Assistant County Counsel for the County of Santa Cruz. In 2004, the California Association of Local Agency Formation Commissions (CalLAFCO) recognized Mr. Kendig as the Outstanding LAFCO Professional for his work as LAFCO Counsel in Santa Cruz County. Mr. Kendig has assisted agencies In various permitting matters and compliance with federal and state environmental regulations. He has helped clients, for example, secure coastal development permits from the California Coastal Commission, streambed alteration agreements from the California Department of Fish and Game, Clean Water Act fill and dredge permits from the Army Corp of Engineers, and Federal Endangered Species Act incidental take permits from U.S. Fish and Wildlife. Mr. Kendig has also assisted agencies in proceedings to obtain federal and state grant funding, as well as in annexations, amendments of spheres of influence, and municipal service reviews. Mr. Kendig received his undergraduate degree from the University of Southern California and his law degree from the University of Southern California School of Law (J.D., 1991). PRECAUTIONARY NOTE: Woodruff. Spradlin & Smart does not ascribe to Mr. Kendig on its web site anv expertise in oension/bankruotcv law. Precautionary Notes Question The Woodruff, Spradlin & Smart Law firm web site shows absolutely no expertise for the firm or Mr. Kendig in the area of Pension Law or Bankruptcy Law, around which this UAAL issue centers. This pension /bankruptcy law issue is a major topic in various cities in California and across the United States. Question: Should Woodruff have subcontracted this work out to a law firm that had established bankruptcy /pension law expertise? February 8. 2016 Letter Resoonse Paae 1. Paraaraoh 2 Mr. Kendig states that I have criticized his June 23, 2014 memo as being devoid of any supporting case and statute references or reasoning. I continue to stand by my "devoid" assertion. I still cannot find one state, federal or Bankruptcy Court pension case reference in his letter. In fact, there are absolutely no cases cited in his letter to support any of his letter conclusions. Furthermore, I cannot find any federal or California statutes in the memo that address the issue of "waterfall' city liability for pension liability, if the OCFA JPA goes bankrupt. In addition, I cannot find any discussion in the memo of the issue of "waterfall" potential joint and several liability of the remaining financially sound OCFA members, if the OCFA declares bankruptcy. This could be caused by: 1) a withdrawal by Irvine and other member cities from the OCFA in 2018; and 2) this cascades into the bankruptcy of financially strapped other OCFA member cities. Page 1 Paragraph 2 It is a very strange form of criticism to state that I did not identify cases or laws that cite potential legal liability of member cities. Shouldn't Mr. Kendig's legal memo have done that? Wasn't he directed and paid to write a properly supported legal research memo? Shouldn't he be the one to cite all the case law across the country that is currently addressing this issue? Should he be criticizing a member of the public for not completing his own assigned task? Page 2, First Paragraph Mr. Kendig advises me to encourage each city or public agency that has a concern similar to mine to consult their city attorney or county counsel to evaluate it. Let me explain how strange this advice is. Woodruff, Spradlin & Smart is also the law firm for a) Orange County b) City of Laguna Hills c) City of Rancho Santa Margarita d) City of Tustin Should the County and these three cities request a properly researched memo at their own additional cost from Woodruff, which Woodruff was directed by the OCFA to do in the first place? Should the other 20 OCFA members be requested to pay for their city attorneys to compile 20 other research memos that Woodruff was directed to do in the first place? Other Letter Comments The OCFA attorney_response letter to me has highlighted the following concerns: 1. Woodruff had a responsibility to submit a properly researched and documented legal memo. In my opinion it failed to do so. 2. Since I and the public now know that neither Woodruff nor its attorneys have any identified experience in pension /bankruptcy Law, the Board should no longer direct them to do any further work in this area. 3. The Board should seek a fully supported legal opinion from an expert pension /bankruptcy law firm on the UAAL liability issue. 4. 1 question whether the OCFA members should rely on and trust the "no worry" Woodruff legal memo in their future city financial planning or decision making process on whether to withdraw or not withdraw from the OCFA in 2018. 5. OCERS has publicly stated that it believes it can legally go against all of the OCFA members for any OCFA UAAL, if the OCFA collapses or declares bankruptcy. 6. 1 maintain that the Board members have a responsibility discuss this potential financially devastating issue as an agenda item in a future Board meeting. Sincerely, Stephen Wontrobski Cc: Orange County Grand Jury; OCERS a :woodruffcityuaalliability2 -25 -16 Stephen Wontrobski 27132 Sombras Mission Viejo, CA 92692 January 29 2016 OCFA Board of Directors I Fire Authority Road Irvine, CA 92602 Ref: OCFA UAAL — Member City and County Liability Dear Board of Director Members: For years I have requested that the OCFA attorney issue a legal opinion with case and statute supporting references that back up his assertion that OCFA member cities and the County are not at risk for any of the OCFA's UAAL, if the OCFA goes bankrupt. Disappointedly, he has refused to issue such research memorandum. Instead, he has done the following. I. Issued a legal opinion on this matter completely devoid of any supporting case and statute references or reasoning. 2. Advised the OCFA member cities and County that they are not exposed to OCERS UAAL liability based on a provision in the JPA that states they are not liable for the UAAL. 3. Failed to opine whether the California Supreme Court with their bias to preserving pension rights and payments, would rule that the JPA provision was unconstitutional, against public policy, or illegal, and hence, non- enforceable. In my opinion the above items demonstrate a need for a well reasoned and supported legal memorandum on OCFA city and County UAAL liability from another attorney, most notably a respected California Pension Law attorney. The OCFA attorney without pension law expertise is clearly not the individual to do such work. Furthermore, I maintain that his current unsupported opinion on this matter should be disregarded by all. Accordingly, in no uncertain terms, I no longer request that the OCFA attorney conduct any additional legal research on this matter. New Develooments The OCFA failed to attend the important January 19, 2016 OCERS Board of Directors meeting that discussed the legal liability of the OCFA member cities and County for the OCFA UAAL, if the OCFA went bankrupt due to member withdrawals or other reasons. I attended that meeting and commented on the lack of an OCFA legally supported opinion on the matter. Discussion of this matter was found under the section entitled, "Impact on OCERS from Withdrawal or Termination of Members or Dissolution of the OCFA JPA ". One immediately understands that the OCERS view of city and County liability for OCFA UAAL is completely opposed to the OCFA attorney's opinion. The mere fact that OCERS and the public are concerned about this issue should finally raise your own concern for needed answers to this issue. The liability issue could threaten the financial stability of your own city liability, regardless if you are a Structural Fund or contract city. Various member cities that are currently encountering serious financial strain could not handle such additional liability exposure. And financially stable cities should also be concerned. If financially strapped cities are forced themselves to declare bankruptcy due to the UAAL exposure, will the financially stable cities be declared by the Court to be jointly and severally liable for the UAAL of the bankrupt cities? I offer no opinion on that issue. OCERS agrees that the JPA agreement expressly disclaims members' liability for debts incurred by the OCFA. In fact it states: I. The withdrawal or termination of a Structural Fire Fund City would not alter the County's obligation to pay into the OCFA JPA that city's share of annual property taxes collected by the County. (What is not addressed is whether the County could also reform the property tax allocation method to the OCFA and impose a drastically more reasonable and equitable compensation method.) 2. The OCFA has the authority to impose new special taxes or assessments in order to make up any funding shortage. 3. Under CERL and the California Constitution, OCERS has the right to accelerate the amortization of OCFA's UAAL so that it could be immediately due and payable in the event of a threatened dissolution of the OCFA. However, the OCERS report goes on to state "Ultimately, however, if OCFA were to dissolve or elect Chapter 9 bankruptcy protection, OCERS' liability to recover the nearly $500 million in UAAL payments for which the JPA is presently liable could be at risk. Among other available remedies, OCERS may be entitled to subrogate to the rights of the JPA in order to proceed directly against any SFF or contract city for its share of the pension obligations generated during the term of that city's membership in OCFA." Bottom Line Contract cities, exclusive of Santa Ana, believe they have no exposure to the OCERS UAAL, simply because they are contract cities. This is directly opposite to an OCERS opinion that believes it can come against the contract cities for their share of the UAAL. The simple statement in the JPA stating that member cities have no liability for OCFA liabilities appears to have major holes and should not be relied on by OCFA members. Hence, the OCFA attorney's unsupported opinion should not be used by Board members in their discussion of the matter with their City Councils. There is a need for a respected pension attorney to provide a well reasoned and legally supported opinion on this issue. Sincerely, Stephen M. Wontrobski E: odauaalcityliabilityl -29 -16 Cc: Orange County Board of Supervisors; OCERS Board of Directors