20 Years Later, Orange County is Still Dealing with ‘Legalized Corruption’

Former Orange County Supervisor Tom Wilson passed away on July 16, 2024. While it’s generally considered poor form to criticize the recently deceased, we must remember that he was a public official, and it is critical to reflect on his impact on Orange County, the nation’s sixth-largest county and one of its wealthiest. 

No matter where you live in California, there are lessons for you here.

I came to know Tom while involved in Orange County politics. I ran for Orange County Treasurer-Tax Collector in June 1994 on a nearly single-issue campaign: I warned that incumbent Robert L. “Bob” Citron was borrowing at three-month low rates and betting that he could make money by investing in much higher yielding four-year bonds – a strategy now known as the carry trade. 

I had determined that he’d lose the bet if overnight interest rates continued to be tightened by the Federal Reserve Board – and that his losses would blow up the county’s investment pool. That would produce financial chaos.  I lost the election, and within six months my prediction became reality: The County lost nearly $1.7 billion overnight. On December 6, 1994, Orange County declared bankruptcy, the largest American municipal bankruptcy ever. It was an international embarrassment.

Chagrined, the Board of Supervisors that had rubber-stamped Citron’s bet, appointed me to replace him in March 1995. I began working to restore the Treasurer’s Department, to assist the county in its efforts to exit from its Chapter 9 bankruptcy filing, and I worked to assure that it never happened to Orange County again.

Just one year into that work, Gov. Pete Wilson appointed Tom Wilson (no relation) to serve out the remainder of a vacant seat on the Board of Supervisors. Tom would go on to win re-election in 1998.  Shortly afterwards, thanks in part to Tom, the County’s finances would start to unravel once again.

In 2001, Wilson and his four Republican Supervisorial colleagues voted to approve a 50 percent retroactive defined benefit pension plan increase for the County’s public-safety unions, known as “3 percent at 50.” In a single vote, they created a massive unfunded pension liability for the county’s sheriffs: One day, the retirement program was fully funded; by the next morning, it was only two-thirds funded.

You might ask why they’d do that. The answers, sadly, aren’t unusual: In California, powerful government unions bankroll the campaigns of politicians who, once in office, return the favor in the form of higher pay and benefits for employees and more power for union leaders. Taxpayers pay more even as the quality and quantity of public services declines.

That’s why Tom and his colleagues continued with the work of rewarding their union backers throughout government. In 2004, the remainder of the county’s workforce lobbied for an arrangement like the deal with the county’s sheriffs. I tried to convince Wilson to vote against their proposal as it would only further exacerbate the unfunded pension liability.  He was in no mood for discussion. His was one of the three votes needed to pass another exorbitant retroactive pension formula increase.

So, there we were: Not even 10 years after the bankruptcy and county supervisors were mismanaging county finances again. As in 1994, few in the media understood the problem because it involved math. Orange County Register editorial writer Steve Greenhut was among the few who understood the threat. He wrote:

“I don’t wish ill stomachs on my readers. But had every Orange Countian attended the meeting, everyone would know exactly how the county is run.  They would have watched three supervisors – [including] Chairman Tom Wilson – acting as union shills, granting dramatic pension increases to government employees, in total disregard of sound actuarial advice.

“Wilson offered ad hominem attacks on critics, including John Moorlach, instead of engaging their arguments.

“The three duped supes refused to even support Supervisors Chris Norby and Chuck Smith’s motion to delay the vote for two weeks to allow more investigation of a plan that will create an immediate $300 million liability in a system that is already $1 billion short of fulfilling current obligations.”

It would become a major inflection point in my career. In 2006, frustrated by the board majority’s financial illiteracy, I left my position as Treasurer-Tax Collector and ran for – and won – a seat on the board of supervisors. I would briefly sit on the dais alongside Tom Wilson, as he would term out at the end of that year.

Upon reflection, Tom did three things that had a major impact on me and the residents of Orange County.  

First, he encumbered the County with the majority of what is now a $4.7 billion unfunded actuarial accrued liability with the County’s pension system

Second, my frustration with the destructive power of government unions – especially where public finance is concerned – earned me the moniker of “pension hawk” in local media. It stuck.

And third, because I’m a former public official, I’m a beneficiary of Wilson’s legalized corruption: I have earned a much nicer pension benefit. (Thank you, Tom.)  But it is tinged with guilt because it should not have been so generous.

Twenty years later and Orange County is still dealing with a $1.4 billion unrestricted net deficit as of June 30, 2023, resulting from his two votes. The county’s annual budget will include massive payments to the pension system that could otherwise be used for assisting the homeless, the mentally ill, and providing adequate public safety services by the Sheriff’s Department, for years to come.  It’s a very sad and expensive legacy.

Tom was not alone, of course. Too many of California’s 58 county boards of supervisors and 482 cities’ council members did – and still do – the same thing. And the liabilities are reflected when you review their annual comprehensive financial report rankings provided on the California Policy Center website.  

The lesson for voters is to elect individuals who have financial literacy, follow sound advice from accountants and actuaries, and emphasize timely transparency. Regretfully, too many are beholden to self-interested public employee union leaders who helped get them elected to their positions.  And the annual comprehensive financial reports provide the accountability of the actions of prior elected officials.  The impact of Wilson’s two votes will linger for decades.