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California City Is ‘Ground Zero’ on Costs of Pensions

Costa Mesa in Center of Pension Storm
Visitors gather outside the Renee and Henry Segerstrom Concert Hall in Costa Mesa, California. Source: Orange County Performing Arts Center via Bloomberg

Republican activist Jim Righeimer fought unions for two decades before getting elected in November to the City Council in Costa Mesa, the Southern California city that’s home to the second-largest shopping mall in the U.S.

He’s now trying to fire almost half of Costa Mesa’s municipal employees to rein in what he calls unsustainable pension costs in the city of 116,000, about 40 miles (64 kilometers) south of Los Angeles.

On the recommendation of Righeimer and Mayor Gary Monahan, the council voted March 1 to send termination notifications to 213 employees, 45 percent of the workforce. The news was made even sadder when Huy Pham, a 29-year-old maintenance worker, jumped to his death from City Hall on March 17 after being called in to receive his notice.

Costa Mesa Police Sergeant Patrick Wessel said that while the case was still being investigated, all indications are that it was a suicide. Righeimer, in an interview, called the incident a “tragedy.” The first council meeting since Pham’s death is set for today.

With governments across the country facing deficits, Costa Mesa has become a focal point for advocates of reform. Righeimer’s strategy has won praise from Scott Baugh, chairman of the Orange County Republican Party.

“What Jim does to a budget, he pulls it apart, he examines the details,” Baugh said, according to a video of his speech at a Tea Party event in Costa Mesa March 23. “We don’t have enough elected officials that have the talent.”

Shrink Government

Righeimer’s efforts are part of a larger movement to shrink government and reduce union influence, Baugh said. “Ground zero is right here in Costa Mesa for this revolution,” he said. Baugh didn’t return phone calls and e-mails seeking comment.

“I think we’re putting the city through a lot of unnecessary stress and strain,” said Sandra Genis, a former Costa Mesa mayor and councilwoman in the 1980s and 1990s. “You don’t give notice to that much of your workforce without doing studies.”

Genis, a Republican who said her dog is named after the late conservative commentator William F. Buckley Jr., is calling for the council to rescind the dismissals.

“I used to say no one council member can really wreck a city,” she said. “Now I’m saying, they’re wrecking my city.”

Righeimer grew up in the Chicago suburb of Lincolnshire, Illinois. His father is a retired school teacher. After moving to Los Angeles and getting a business degree from Pepperdine University, Righeimer began building houses in Southern California. The real estate bust of the early 1990s left him $7 million in debt. The experience taught him how cash shortfalls compound if not addressed quickly, he said.

Union Opposition

Righeimer co-wrote a measure to prevent unions from withdrawing campaign funds from worker paychecks without first getting their individual permission in 1998 and ran for the state Assembly two years later. In both cases, union opposition led to losses, he said.

Costa Mesa’s police and firefighters campaigned against his City Council run last year, distributing mailers to residents noting that he had judgments and liens against him. Righeimer said those things weren’t uncommon for developers during the housing bust.

He was the top vote getter in the Nov. 2 election, winning about 13,000 votes or 32 percent of those cast.

The dismissals of city workers aren’t definite. The city has requested bids from companies. The city had to give six months notice because union agreements require that much warning if jobs are being outsourced, Righeimer said.

Proposed Cuts

The proposed cuts are needed because the city has drawn down $35 million of its reserves in two years, its pension costs have risen from $5 million to $15 million in the past 10 years, and will climb to $25 million during the next five years, Righeimer said.

Helen Nenadal, a 51-year-old maintenance technician who heads the city’s union for civilian employees and is on the list to be let go, said she doesn’t believe Righeimer and the other council members who voted for the cuts are considering alternatives.

“They’re on a mission and they’re going full blast,” she said. “They’re trying to say it’s a budget issue. I fully believe it’s not a budget issue.”

Costa Mesa is home to the 2.7-million-square-foot South Coast Plaza, second only to the Mall of America near Minneapolis, according to the Directory of Major Malls in Nyack, New York. South Coast’s website says the retail center “defines the luxury shopping experience.” Median household income in the city was $65,000 in 2009, compared with $58,900 for California as a whole, according to

‘Very Strong’

“It’s a wealthy area and it’s been fairly stable when you look at the tax base,” said Jennifer Hansen, an analyst with Standard & Poor’s in San Francisco, in an interview. Costa Mesa’s AA rating, the firm’s third-highest, reflects what she called a “very strong financial position.”

Wendy Leece, a 62-year-old Republican and the only council member to vote against the terminations, said she felt the city hadn’t done enough analysis to justify the cuts.

“I’m a teacher, I like to do my homework,” she said in a telephone interview.

She said she is also skeptical of the estimates of the city’s deficit and pension costs that Righeimer has been using.

“Why does Righeimer keep saying $15 million” as the size of the deficit, she said. “It’s his wish list, it’s not real numbers.”

Deficit Estimate

Thomas Hatch, the city’s chief executive, said in an interview that Costa Mesa has a deficit of $1.4 million this fiscal year, which will be eliminated by ending a police helicopter program July 1. The estimate for the general-fund deficit next year is $5 million, although additional items suggested by council members such as street improvements and computer investments could bring it to $15 million.

Ten years ago the pension plan for civilians was overfunded and the city didn’t make contributions, according to Costa Mesa’s budget and research officer Bobby Young. Pension estimates the city has been using don’t contain the latest contribution rates from the California Public Employees’ Retirement System, he said. Nor do they include union givebacks negotiated last year that will expire in two to four years.

Righeimer said he doubts Costa Mesa’s unions will agree to the kind of concessions necessary to reduce the city’s pension liabilities long term.

“We’re $134 million short,” he said. “If you’re going in the wrong direction, you have to stop.”

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