ORANGE COUNTY FIRE AUTHORITY –
FINANCIAL FLAMES ON THE HORIZON?
GRAND JURY 2017-2018
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2017-2018 Orange County Grand Jury Page 2
Table of Contents
SUMMARY ................................................................................................................................... 4
REASON FOR THE STUDY ...................................................................................................... 5
METHOD OF STUDY ................................................................................................................. 6
BACKGROUND AND FACTS ................................................................................................... 6
Orange County Fire Authority .................................................................................................... 6
OCFA Member Payment Methods .............................................................................................. 7
Structural Fire Fund ................................................................................................................. 8
Cash Contracts ......................................................................................................................... 8
Structural Fire Fund – Equity Concerns ...................................................................................... 9
Irvine’s Unique Position............................................................................................................ 11
A Victim of Its Own Success ................................................................................................ 12
Tax Equity Allocation ........................................................................................................... 13
Adjusted Equity Calculations ................................................................................................ 14
OCFA – Impact if Irvine Withdraws......................................................................................... 15
Strategic Location .................................................................................................................. 15
Long Term Unfunded Liabilities ........................................................................................... 17
Budget Limitations ................................................................................................................ 18
Irvine – Impact if Irvine Withdraws .......................................................................................... 19
SFF Funds .............................................................................................................................. 19
OCFA Representation............................................................................................................ 20
Fire Stations ........................................................................................................................... 20
Source of Fire and Emergency Services ................................................................................ 20
Unfunded Pension Liabilities ................................................................................................ 20
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Conclusions ............................................................................................................................... 21
Strategic and Financial Impacts ............................................................................................. 21
Why Inequity is Inevitable .................................................................................................... 21
Future Negotiations ............................................................................................................... 22
FINDINGS ................................................................................................................................... 23
RECOMMENDATIONS ............................................................................................................ 24
RESPONSES ............................................................................................................................... 25
Responses Required: ................................................................................................................. 26
Findings: ................................................................................................................................ 26
Recommendations: ................................................................................................................ 27
REFERENCES ............................................................................................................................ 28
Documents ................................................................................................................................. 28
Websites .................................................................................................................................... 29
APPENDIX .................................................................................................................................. 31
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SUMMARY
The Orange County Fire Authority (OCFA) is under threat. OCFA provides fire and emergency
services for twenty-three cities and the unincorporated areas of the County. Payment for these
services is through a mandated allocation from property taxes and negotiated contract fees.
Rapidly accelerating property values and major growth in the City of Irvine have resulted in
significant inequity between Irvine’s financial contributions to OCFA compared to the value of
services received. Consequently, Irvine has threatened to withdraw from OCFA – a decision
which must be made by June 30, 2018 – a rapidly approaching deadline.
Irvine’s withdrawal would insert a hole in the middle of OCFA’s service area. Further, the loss
of Irvine’s financial contributions, as well as fire stations and equipment located in the City,
would impact OCFA’s budget and organizational structure. For Irvine, this withdrawal would
result in assuming responsibility for its own fire and emergency needs, immediately losing its
seat on the OCFA Board of Directors through the effective withdrawal date of July 1, 2020,
continuing mandated contributions until the effective withdrawal date, and potentially assuming
a share of OCFA’s unfunded pension liabilities.
The Grand Jury recommends that the City of Irvine, OCFA and the County of Orange
immediately commence joint discussions to reach an interim agreement addressing Irvine’s
inequity issue. Without such an agreement by June 30, 2018, these unresolved issues would
likely lead to uncertainty, disruption and litigation – significant costs to all concerned.
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REASON FOR THE STUDY
Figure 1: Canyon Fire 2 Photo
Source: Used with permission from Mindy Schauer, photographer, Orange County Register
October 9, 2017
The scope and intensity of the two recent Orange County fires, the Canyon Fire and the Canyon
Fire 2, demonstrated the importance of a comprehensive regional firefighting capability for
Orange County. OCFA, the County’s regional firefighting service, provides fire and emergency
services to approximately 1.8 million County residents. Due to some member cities’ objections
to the amount of fire funds they are obligated to pay, OCFA faces potential reduction in budget
and services if one or more cities decide to withdraw. The City of Irvine, in particular, is
dissatisfied with the level of inequity between increasing payments for fire and emergency
services versus the estimated value of services received.
As a result of OCFA’s inability to alleviate its concerns, Irvine has threatened to withdraw. If a
major funding source like Irvine withdraws from OCFA, the agency would face both financial
and operational challenges which would affect services to a significant portion of Orange County
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residents living within its service area. The rapidly approaching June 30, 2018 OCFA deadline
for members to submit a notice of withdrawal further exacerbates this threat.
METHOD OF STUDY
Local news reports and on-line research led to the investigation of this complex subject through
interviews with eleven top decision makers drawn from OCFA management, the OCFA Board of
Directors, the Orange County Board of Supervisors, Orange County executive management, city
managers and council members of certain OCFA member cities. Concurrently, the Grand Jury
carefully examined pertinent budgetary and financial documents, as well as historical and current
applicable legislation.
BACKGROUND AND FACTS
Orange County Fire Authority
Prior to May, 1980, fire services for nine cities and the unincorporated areas of the county were
provided by the California Department of Forestry. Those nine cities were:
Cypress
Los Alamitos
Tustin
Irvine
Placentia
Villa Park
La Palma
San Juan Capistrano
Yorba Linda
In 1980, the Orange County Fire Department (OCFD) was formed as a County department
reporting to the Board of Supervisors. Over the course of the next decade, five new cities were
formed from the unincorporated areas and two additional cities contracted with OCFD for their
fire services. However, the member cities wanted greater input into how their fire and emergency
services were provided and after joint discussions a new governance structure was selected – a
joint powers authority (JPA).
As a result, the Orange County Fire Authority (OCFA) was formed as a JPA in 1995. According
to the JPA agreement (Amended Orange County Fire Authority Joint Powers Agreement, 1999),
OCFA was formed to provide “fire suppression, protection, prevention and related and incidental
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services, including but not limited to, emergency medical and transport services, and hazardous
materials regulation . . .” to the County of Orange unincorporated areas and member cities.
OCFA is an independent organizational entity similar to a special district. It is the largest
regional service organization in Orange County, and is one of the largest in California, serving
approximately 1.8 million residents (OCFA 2016 Statistical Annual Report). The service area
now includes twenty-three member cities and the unincorporated areas of Orange County. A
twenty-five member Board of Directors governs and sets policy for OCFA. This Board includes
one elected official appointed to represent each of the twenty-three member cities and two
representatives from the Orange County Board of Supervisors. OCFA is led by a Fire Chief who
is appointed by and reports to the Board of Directors.
OCFA’s regional approach provides many advantages for the members it protects. By pooling
resources, OCFA can purchase additional fire engines and specialized equipment – significant
expenses – which some cities could not afford on their own. The OCFA does not allocate
equipment based on city boundaries. Instead, all member agencies have access to OCFA
resources, including helicopters for brush fires and the use of sophisticated rescue equipment to
save the lives of accident victims. In addition, administrative functions such as human resources
and accounting are not required for each individual member, but are consolidated for all
members.
The current twenty-year term of the JPA began July 1, 2010 and ends on June 30, 2030. The JPA
will automatically renew in 2030 with the same terms and conditions, with certain exceptions.
Member cities have the right to withdraw after the first ten years (in 2020) but to do so they must
submit a written notice of withdrawal prior to July 1, 2018 (First Amendment to Amended Joint
Powers Agreement, 2008.)
OCFA Member Payment Methods
OCFA’s members pay for fire services through two different payment methods. A basic
understanding of these two payment methods is helpful to understand the issues discussed in this
report. Sixteen of OCFA’s twenty-four members (fifteen cities and the County) pay for fire
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services through the Structural Fire Fund (SFF) property tax allocation and eight members,
referred to as “Cash Contract Cities,” pay for their fire services through negotiated contracts.
Structural Fire Fund
Prior to Proposition 13 (1978), Orange County paid for fire protection through a property tax
levied on properties in the participating cities and unincorporated areas. The County adjusted the
amount of these taxes to reflect the estimated cost of providing services to each jurisdiction. This
fire protection portion of Orange County’s property tax is known as the Structural Fire Fund
(SFF) and the cities that receive fire services this way are called “SFF cities.” SFF cities have
never had their own municipal fire departments. Proposition 13 locked the portion of SFF
property taxes, estimated to be approximately 11.6% of the 1% basic levy, into statute
(FY2015/16 OCFA Adopted Budget, 78.) Per the JPA agreement, the County is obligated to
allocate all SFF funds it receives to OCFA to meet expenses and fund reserves.
The fifteen Structural Fire Fund cities are:
Aliso Viejo
Irvine
Laguna Niguel
San Juan Capistrano
Cypress
La Palma
Laguna Woods
Villa Park
Dana Point
Laguna Hills
Lake Forest
Yorba Linda
Cash Contracts
Cash Contract Cities were not originally part of OCFA because they had their own municipal fire
departments. They later negotiated contracts with OCFA and relinquished their municipal
departments. Therefore these eight jurisdictions do not have a fire tax mandated as a portion of
their 1% property tax levy. Instead, these eight cities pay for fire services by contract with OCFA
through payments from their general funds. Cash contract charges are based on OCFA’s annual
budget and include a cap provision that governs the maximum amount that the contract charges
can increase each year (Amended Orange County Fire Authority Joint Powers Agreement, 1999.)
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The current eight Cash Contract City members are:
Buena Park
San Clemente
Seal Beach
Tustin
Placentia
Santa Ana
Stanton
Westminster
Structural Fire Fund – Equity Concerns
For this report, OCFA “equity” refers to the extent to which OCFA revenue (i.e., SFF or Cash
Contract payments) received from a member bears a reasonable relationship to the value of fire
and emergency services that the member receives.
In 1996, just one year after it was formed, OCFA conducted an equity study on its revenues from
participating jurisdictions after some SFF cities expressed concerns about their payments. The
City of Irvine has long protested that, because its property values are disproportionally high, its
contribution of SFF funds is also disproportionally large and exceeds the funds necessary to
provide fire services to the City.
A 1999 amendment to the JPA agreement created a fund to benefit SFF cities. This fund, the
Structural Fire Fund Entitlement Fund (SFFEF), created from the unencumbered fund balance
each year, offered allocations to SFF cities to offset inequities when financial conditions
allowed. The allocations could be used for Board-approved and OCFA-related services or
resource enhancements to SFF members. In 2002, legislators enacted AB 2193 (Maddox) in
response to the concerns of the Orange County Professional Fire Fighters Association, IAFF –
Local 3631 (firefighters’ union) that funds were being used for non-fire protection services. This
legislation prohibited the use of property taxes received by OCFA on expenditures not directly
related to fire protection purposes. However, even while adhering to this restriction, OCFA has
been able to distribute some SFFEF allocations in various years, depending upon available funds
and mandated calculations.
In March 2012 the City of Irvine raised renewed concerns about inequity to the OCFA Board of
Directors. Irvine representatives, due to OCFA taking no action to mitigate their concerns, stated
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their intent to exercise their option to withdraw from OCFA in 2020. In response, the OCFA
Board formed an Ad Hoc Equity Committee for the purposes of studying the equity issue. Their
proposed solution for addressing the equity concerns resulted in the Second Amendment to the
JPA agreement (2014, Second Amendment to Amended Orange County Fire Authority Joint
Powers Agreement).
The key terms of the amendment stated that SFF agencies contributing more than the average
SFF Rate to OCFA would be eligible for “Jurisdictional Equity Adjustment Payments.” The
Amendment was approved by two-thirds of the OCFA members in 2014, but was later
challenged by the County and invalidated by the Appellate Court. The Court held that only the
County, not OCFA, can adjust the allocation of SFF property tax revenues, and that OCFA funds
must be spent specifically for “fire protection purposes” as defined by Section 6503.1 of the
California Government Code. In light of the invalidation of the Second Amendment, the Irvine
City Council met in closed session in January 2017 and instructed staff to explore leaving
OCFA in 2020 (Irvine City Council Regular Meeting Minutes, January 24, 2017).
In October 2017, the California State Legislature passed SB 302 (Mendoza) which amends
Section 99.02 of the Revenue and Taxation Code, and applies very narrowly to Orange County,
OCFA and SFF funds. The bill was sponsored by the Orange County Professional Fire Fighters
Association, IAFF – Local 3631.
Prior to this legislation, existing regulations in the California Revenue and Taxation Code
prohibited transfers of revenues between local agencies unless certain requirements were met.
SB 302, specific to OCFA, adds a fifth condition on property tax transfers that applies only to the
transfer of SFF revenues. It requires that the transfer of SFF property tax revenues be approved
by the Orange County Board of Supervisors, the city councils of a majority of OCFA member
cities, and two-thirds vote of the OCFA Board of Directors. Also, the transfer may not violate
existing law that requires SFF revenues to be expended by OCFA exclusively for fire protection
and related purposes. It is anticipated that the added requirement of the approval of a majority of
member city councils will prevent any resolution of Irvine’s concerns, as a reduction of Irvine’s
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and/or other SFF agencies’ contributions would likely result in increased charges to cash contract
members.
These equity resolution attempts are summarized in Table 1.
Table 1: History of attempts to address OCFA equity concerns
Year
Measure
1997
Equity Formula was placed in the amended JPA to allow allocation of year-end
funding (per Board discretion) for enhanced services to member cities/county
deemed overfunded, per an agreed-upon formula. (SFFEF)
2010
First Amendment to the JPA made the equity allocations mandatory every 10 years,
removing the Board's discretion at each 10th year.
2012
Irvine requested new discussion of equity. In response, OCFA formed an Equity
Ad Hoc Committee to review options.
2012-13
A Second amendment was approved by OCFA members, providing for return of
funds to eligible overfunded members per a new agreed-upon formula. In return,
Irvine agreed to commit as a member of OCFA through 2030.
2013
County of Orange opposed the Second Amendment in a judicial validation process
and prevailed. The ruling was jointly appealed to the Appellate Court by Irvine and
OCFA.
March
2016
The Second Amendment was nullified by the Appellate Court.
January
2017
Irvine reported out of closed session that the City Council directed staff to explore
leaving OCFA in 2020.
October
2017
SB 302 was signed by Governor Brown and enacted.
Irvine’s Unique Position
Irvine is one of sixteen SFF members in OCFA, with eleven of the seventy-two OCFA fire
stations (15%) located within its boundaries. OCFA’s 2016-17 SFF revenue from properties
within Irvine represents approximately $79 million, or approximately 35% of the total OCFA
SFF revenue (Appendix 1). Property tax (SFF) revenue as a whole represents approximately 42%
of OCFA’s funding sources (OCFA 2016 Statistical Annual Report, Page 2). Therefore, Irvine’s
SFF contribution represents approximately 15% of OCFA’s total revenues.
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A Victim of Its Own Success
Irvine representatives have always maintained that the equity discussion is financially driven,
and that they are otherwise satisfied with OCFA services. At the root of Irvine’s concern is the
degree of inequity resulting from the SFF payment basis. If the revenue flowing to OCFA from
an SFF city’s property taxes exceeds the estimated value of the fire services that city receives in
return, the city is known as a “donor city.” Although there are fourteen other cities as well as the
unincorporated County areas who are SFF contributors to OCFA, Irvine is in a unique position.
Not only is it a donor city, it is a donor city by a much larger amount than any other due to its
rising assessed property valuation, resulting in increased SFF payments (Tables 2 and 3).
Irvine property owners have the same mandated percentage of their property tax allocated to
OCFA as property owners in any other SFF jurisdiction. In actual dollars, however, the City of
Irvine pays much more than any other SFF member and continues to face steadily escalating SFF
payments that exceed the estimated value of the fire services the City can receive from OCFA.
Growth in Irvine’s SFF portion of property taxes has resulted from substantial new development
and escalating property values (Table 2), compared to older and fully built-out cities in the
OCFA region.
Table 2: Irvine Assessed Property Valuation (Billion $)
Source: Office of the Orange County Assessor
48.7
50.9
55.6
60.9
65.8
71.8
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
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Table 3: Budgeted FY 2016-17 SFF payments ($)
Source: OCFA
In 2016-17, with its assessed property valuation at more than $65 billion, Irvine paid an
estimated $79 million in SFF dollars to the County, which was passed through to OCFA (OCFA
Auditor-Controller Report AT68AD73). It is estimated by both OCFA and Irvine that Irvine’s
2016-17 equity share of OCFA services, based upon its population, assessed value, and
consumption (number of fire-related/emergency calls), was approximately $56 million. The
difference, approximately $23 million, is the basis of Irvine’s complaint.
Tax Equity Allocation
To further complicate this issue, there is a mitigating factor for Irvine’s property taxes which is
not directly related to the SFF payments. According to the Office of the Orange County Auditor-
Controller, there are other provisions of the state tax laws which apply to Irvine. Proposition 13
(1978), followed by AB 8 (1979), proportionally compressed the property taxes down to 1% of
the assessed value of the property, establishing a “base rate” for each city. These base rates were
established in 1978-79 when Irvine’s property values and development were significantly less
than they are today.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
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As a result of the established low base rates, some cities were not receiving their fair share of
taxes back from the state so AB 709 (1987) and AB 1197 (1988) were enacted. Together they
comprise the Tax Equity Allocation (TEA) legislation. These statutes require that some counties
shift some of their own tax revenue back to “qualifying” cities. The result was that qualifying
cities would receive 7% of the property taxes collected within their boundaries. Counties must
make up the difference between what a qualifying city would receive under the normal property
tax revenue calculation process and the 7% required by TEA. Orange County has only one
qualifying city – Irvine. According to the Office of the Orange County Auditor-Controller, under
Revenue and Taxation Code 98, the County must make up the difference – the TEA adjustment
amount. The following are TEA adjustment amounts apportioned to Irvine for the last three years
(Table 4).
Table 4: Irvine – Apportioned tax equity allocation
Fiscal Year
TEA Adjustment Amount
2014-15
$14,788,490
2015-16
$16,379,292
2016-17
$17,774,500
Source: Office of the Orange County Auditor-Controller
Adjusted Equity Calculations
As the basis for their objections, Irvine has estimated that in FY 2016-17 it overpaid OCFA by
approximately $23 million. However, the County considers the approximate $18 million TEA
apportionment to be an offset to Irvine’s SFF overpayment, thereby reducing the estimated
overpayment to $5 million. In addition, in 2016-17, Irvine received approximately $530,000
from OCFA’s SFFEF - Structural Fire Fund Entitlement Fund (City of Irvine FY 2016-17
Adopted Budget, 72.) Combined with the TEA apportionment, the SFFEF payment reduces the
estimated overpayment to $4.5 million (Table 5).
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Table 5: Irvine – Equity calculation for FY 2016-17
Calculated Items
$ Million
(rounded)
Irvine SFF funds paid to OCFA
79.0
Less: OCFA/Irvine estimated value of services
received
(56.0)
Resulting Estimated SFF Overpayment (per Irvine)
23.0
Less: Tax Equity Allocation (TEA) from County
(18.0)
Less: SFF Entitlement Funds from OCFA
(0.5)
Resulting Estimated SFF Overpayment (per
County)
4.5
Source: Based on financial data from OCFA, County of Orange, City of Irvine
Irvine, however, maintains that the TEA funds received from the County should not be applied to
the SFF overpayment, but rather to their General Fund revenues. It should be noted that one of
the causes of Irvine dropping below the 7% required minimum and qualifying for the TEA
payment is due to the large SFF amount passed through to OCFA.
OCFA – Impact if Irvine Withdraws
Irvine’s withdrawal from OCFA would pose various difficulties for the JPA. Not only does
Irvine’s SFF contribution represent approximately 15% of OCFA’s total revenues, but Division 2
(Irvine) occupies a critical location – central in the total fire service area (Figure 2).
Strategic Location
Irvine’s withdrawal from OCFA would insert a hole in the middle of the OCFA’s service area,
the current Division 2 (Figure 2). Not only is the City of Irvine included in this Division, but
Emerald Bay, John Wayne Airport and UC Irvine are as well. Irvine’s withdrawal may force
OCFA’s renegotiation of fire services for these important entities. Additionally, eleven of
seventy-two OCFA fire stations (15%) are located in the City of Irvine and the potential loss of
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these stations from the organization would force new mutual aid contracts with these three
entities as well as with Irvine itself.
Figure 2: OCFA Service Area by Division (Division 2: Irvine)
Source: OCFA
Division 2: Irvine
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Long Term Unfunded Liabilities
OCFA participates in the Orange County Employees Retirement System (OCERS), a cost
sharing, multiple-employer, defined benefit pension plan. OCFA has indicated that much of the
excess SFF funds from donor cities has been expended in recent years to pay down OCFA’s
Unfunded Actuarially Accrued Liability (UAAL) – “unfunded liability.” This pay down
represents a very large benefit not only to OCFA, but also to OCERS and the county taxpayers as
well.
Table 6: OCFA long-term unfunded liabilities (June 30, 2017)*
$ Amount in Millions
% of Total
Defined Benefit Pension Plan
$400.40
77.00%
Defined Benefit Retiree Medical Plan
98.6
19.00%
Helicopter Lease Purchase Agreement
3.7
0.71%
Accrued Compensated Absences
16.9
3.30%
Total
$519.60
100.00%
Source: OCFA 2017 Liability Study
*Note: the valuation date for the pension plan is December 31, 2016, instead of June 30, 2017,
consistent with OCERS’ calendar year basis for financial reporting.
As seen in Table 6 above, the two major elements of the four unfunded categories are the
pension plan and the retiree medical plan. The concern over the unfunded liabilities is not new.
In September 2013, the OCFA Board of Directors approved an Expedited Pension UAAL
Payment Plan (2016 Liability Study – OCFA’s Long Term Liabilities, Page 6) which directed
using available funds to accelerate the pay down of the liability. In FY 2015/16, the plan was
modified to contribute even more funds, and in FY 2017/18 the plan was modified again, adding
another source of additional funds.
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OCFA has made additional payments towards its UAAL, as shown in Table 7.
Table 7: OCFA – Additional payments toward UAAL
$ Million
FY 13/14
$5.5
FY 14/15
$21.3
FY 15/16
$15.4
FY 16/17
$13.5
Total
$55.7
Source: OCFA 2017 Liability Study
According to OCFA, during the past four years the OCFA Board of Directors’ support of the
accelerated plan, referred to as the “snowball effect,” has enabled OCFA to make accelerated
payments totaling $55.7 million. This accelerated reduction of the deficit has resulted in interest
savings of $11.5 million as well. OCERS reported that OCFA will achieve 85% funding of the
UAAL by December 31, 2020 and 100% funding by December 31, 2027, assuming all other
actuarial inputs are held constant.
However, Irvine’s possible withdrawal and the resulting potential loss of their SFF portion of
OCFA revenue would eliminate the acceleration of the pay down strategy, and the UAAL would
continue to escalate with little mitigation.
Budget Limitations
The OCFA Adopted Budget for 2017-18 highlights the following points:
1. The General Fund revenue is budgeted at $367 million, and expenditures are budgeted at
$350 million.
2. A one-time adjustment of approximately $5.9 million will be used to pay down the
UAAL.
Property tax represents approximately 66% of the General Fund’s total revenue.
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Property Taxes
Charges for Current Services
(Cash Contracts)
Intergovernmental
Others
Use of Money and Propertyaxes
Figure 3: OCFA Budgeted Revenue by Category FY 2017-18
Source: FY 2017/18 OCFA Adopted Budget
It is apparent in Figure 3 that property taxes comprise a large majority of OCFA revenues.
Because Irvine represents approximately 35% of those property taxes, the potential loss of that
revenue would likely trigger a major reorganization of future OCFA budgets. This could include
cutbacks in personnel and equipment throughout the service areas as well as the likely
elimination of the UAAL pay down plan.
Irvine – Impact if Irvine Withdraws
Irvine’s withdrawal from OCFA would not be without issues and complications for the City.
Although withdrawal may seem like the answer to Irvine’s inequity issues, nothing about this
situation is simple.
SFF Funds
First, if Irvine withdraws from OCFA, its SFF funds do not automatically revert to the City as
some City representatives have indicated. The JPA agreement specifies that “Withdrawal by a
Structural Fire Fund city may be subject to property tax transfer negotiations and such additional
notices as required by applicable law.” The passage of SB 302 in October 2017 makes the
disposition of SFF funds even more complex, with the stipulation that any change to SFF
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property tax allocations now requires the agreement of Orange County Board of Supervisors, the
city councils of a majority of OCFA member cities, and two-thirds vote of the OCFA Board of
Directors.
OCFA Representation
Secondly, if Irvine did submit notice of withdrawal by the June 30, 2018 deadline, the City
would immediately lose its seat on the OCFA Board of Directors, per the JPA guidelines. This
would mean the City would have no OCFA representation for their remaining two years of
membership, while still subject to SFF contributions.
Fire Stations
According to OCFA, the eleven fire stations that are located in the City of Irvine belong to
OCFA. Irvine, however, has stated that the fire stations belong to the City. The JPA agreement
specifies that any withdrawing member may negotiate with OCFA for return or repurchase of
any and all stations and equipment serving that member’s jurisdiction. Possible litigation over
this issue could be a very large expenditure for both parties.
Source of Fire and Emergency Services
Withdrawal from OCFA by 2020 would necessitate funding, staffing, and equipping a City of
Irvine Fire Department within two years, or negotiating for an alternative joint venture (JPA)
with surrounding cities that have their own fire departments. As OCFA Division 2 also
encompasses John Wayne Airport and UC Irvine, the City may be put in a position to service
these entities as well. A two-year window for finalizing such negotiations, organization, and
funding would likely not provide adequate time to do so.
Unfunded Pension Liabilities
The question of allocation of OCFA’s long-term, unfunded pension liabilities in the event of a
member withdrawal is not addressed in the JPA agreement. Irvine representatives have stated
that they believe that the City’s withdrawal could be accomplished without incurring any of
OCFA’s pension liabilities. However, it seems unreasonable to assume that Irvine’s share of
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those liabilities, however they may be calculated, would not follow them if they withdraw. This
open question is another possible litigation issue, costly to both parties.
Conclusions
The equity issue within OCFA has been a long-standing one, with multiple attempts made over
the years by OCFA and its members to address it. As a result of the most recent legislation (SB
302), however, any proposed resolution will be even more difficult to reach with the addition of
more parties needed for agreement.
Strategic and Financial Impacts
As previously noted, OCFA’s Division 2, located in the City of Irvine, is situated in the
geographic center of the OCFA service area (Figure 2). Irvine’s withdrawal from OCFA would
disrupt the strategic integrity of a uniform service area with regard to placement of fire stations
as well as distribution of firefighting equipment and personnel. The withdrawal would also have
a negative effect on OCFA’s operating budget, financial stability, response times, and overall
operations. These possible effects make it apparent that it would be in the best interest of OCFA,
the City of Irvine, other member cities, and the County to negotiate a mutually agreeable
solution.
Why Inequity is Inevitable
Inequities are a feature of any representative democratic government. Wealthier communities
send more tax revenue to a central government than less wealthy communities, which is
redistributed for the common good. These revenues are allocated to give all communities the
same basic services as their needs require. A prime example of this is funding for public schools.
In a hypothetical scenario, two homes on the same block may pay significantly different amounts
of property taxes, depending upon the date of sale (defined base year) and the assessed value of
the home. For example, if a home was purchased in 1975 with a sale price of $95,000 and has
not changed hands for the past 43 years, the property taxes would be significantly lower than
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those of a home next door which was purchased in the base year of 2017 with a sale price of
$975,000. Yet these next-door neighbors receive the same public school accessibility.
This is also true of OCFA, whose fire and emergency services are provided equally to the
residents of all member agencies and are not based on the ability to pay. If they were, Irvine
would take the majority of fire services and other smaller and less affluent member cities would
have a lower level of services. The City of Irvine is not attempting to abrogate its civic
responsibilities, but rather is seeking more equitable treatment.
Future Negotiations
Recently there have been informal discussions between the City of Irvine and OCFA regarding
the equity issue. These discussions have not included the County of Orange, which might have
provided an avenue for additional input or options. Instead, OCFA advised the County that any
position they have regarding the equity issue must be presented to the OCFA Board of Directors.
Now, with the recent passage of SB 302, all parties to the discussion, including the County, are
required to approve any proposed solutions to the equity issue – which would necessitate that all
parties participate in any discussions.
If a consensus is not achieved in the short term by June 30, 2018, and no further action is taken
before the next withdrawal notice deadline of June 30, 2028, then the OCFA JPA will
automatically renew on July 1, 2030 – resulting in the same terms and conditions with the same
unresolved issues, possibly leading to the breakup of OCFA.
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FINDINGS
In accordance with California Penal Code §933 and §933.05, the 2017-2018 Grand Jury requires
responses from each agency affected by the findings presented in this section. The responses are
to be submitted to the Presiding Judge of the Superior Court of California, County of Orange.
Based on its investigation titled “Orange County Fire Authority – Financial Flames on the
Horizon?” the 2017-2018 Orange County Grand Jury has arrived at seven principal findings, as
follows:
F1. The 1995 OCFA JPA agreement, requiring that all SFF funds be allocated to OCFA, did
not anticipate the disproportionate property values and growth in the City of Irvine,
resulting in the current inequity issue.
F2. The imminent deadline of June 30, 2018, for members to notify OCFA of intent to
withdraw leaves insufficient time to finalize a mutually agreeable plan to resolve the
inequity issue.
F3. The bilateral discussions between Irvine and OCFA, without the County’s involvement,
have not resolved the inequity concerns and cannot resolve them without joint
discussions and mutual agreement among all principal parties.
F4. The disagreement between Irvine and the County regarding the application of Tax Equity
Allocation (TEA) funds complicates the resolution of the inequity issue.
F5. In the event of a Structural Fire Fund (SFF) member’s withdrawal from OCFA, the JPA
agreement does not clearly address the disposition of that member’s SFF contributions,
which may result in litigation.
F6. In the event of Irvine’s withdrawal from OCFA, the conflicting positions between the
City and OCFA regarding ownership of fire stations and equipment located in Irvine may
result in litigation.
F7. In the event of a member’s withdrawal from OCFA, the JPA agreement does not define
the disposition of that member’s share of OCFA’s unfunded liabilities, which may result
in litigation.
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RECOMMENDATIONS
In accordance with California Penal Code §933 and §933.05, the 2017-2018 Grand Jury requires
(or, as noted, requests) responses from each agency affected by the recommendations presented
in this section. The responses are to be submitted to the Presiding Judge of the Superior Court of
California, County of Orange.
Based on its investigation titled “Orange County Fire Authority – Financial Flames on the
Horizon?” the 2017-2018 Orange County Grand Jury makes the following six recommendations:
R1. Starting immediately, all three parties (the City of Irvine, OCFA, and the County of
Orange) should be included in all discussions addressing Irvine’s SFF inequity issue to
reach a mutually satisfactory interim agreement to avoid Irvine’s withdrawal from
OCFA. (F1, F2, F3, F4)
R2. Prior to June 30, 2018, the City of Irvine should adopt a contingency plan to ensure
uninterrupted fire and emergency services in the event of the City’s intended withdrawal
from OCFA. (F2, F6)
R3. By June 1, 2018, OCFA and the County of Orange should provisionally define the
disposition of a member’s SFF contributions in the event of that member’s withdrawal.
(F5)
R4. By June 1, 2018, OCFA and the City of Irvine should resolve ownership of the Division 2
fire stations and associated equipment located in the City of Irvine. (F6)
R5. By June 1, 2018, OCFA should provisionally define the disposition of a member’s share
of OCFA unfunded liabilities in the event of that member’s withdrawal. (F7)
R6. All parties should commit to revisiting the JPA agreement with the goal of resolving
outstanding issues prior to the 2030 expiration of the JPA. (F1, F5, F6, F7)
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RESPONSES
The following excerpts from the California Penal Code provide the requirements for public
agencies to respond to the findings and recommendations of this Grand Jury report:
§933(c)
No later than 90 days after the grand jury submits a final report on the operations of any public
agency subject to its reviewing authority, the governing body of the public agency shall comment
to the presiding judge of the superior court on the findings and recommendations pertaining to
matters under the control of the governing body and every elected county officer or agency head
for which the grand jury has responsibility pursuant to Section 914.1 shall comment within 60
days to the presiding judge of the superior court, with an information copy sent to the board of
supervisors, on the findings and recommendations pertaining to matters under the control of that
county officer or agency head or any agency or agencies which that officer or agency head
supervises or controls. In any city and county, the mayor shall also comment on the findings and
recommendations. All of these comments and reports shall forthwith be submitted to the
presiding judge of the superior court who impaneled the grand jury. A copy of all responses to
grand jury reports shall be placed on file with the clerk of the public agency and the office of the
county clerk, or the mayor when applicable, and shall remain on file in those offices. . . .
§933.05
(a) For purposes of subdivision (b) of Section 933, as to each grand jury finding, the responding
person or entity shall indicate one of the following:
(1) The respondent agrees with the finding.
(2) The respondent disagrees wholly or partially with the finding, in which case the
response shall specify the portion of the finding that is disputed and shall include an
explanation of the reasons therefor.
(b) For purposes of subdivision (b) of Section 933, as to each grand jury recommendation, the
responding person or entity shall report one of the following actions:
(1) The recommendation has been implemented, with a summary regarding the
implemented action.
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(2) The recommendation has not yet been implemented, but will be implemented in the
future, with a timeframe for implementation.
(3) The recommendation requires further analysis, with an explanation and the scope and
parameters of an analysis or study, and a timeframe for the matter to be prepared for
discussion by the officer or head of the agency or department being investigated or
reviewed, including the governing body of the public agency when applicable. This
timeframe shall not exceed six months from the date of publication of the grand jury
report.
(4) The recommendation will not be implemented because it is not warranted or is not
reasonable, with an explanation therefor.
(c) However, if a finding or recommendation of the Grand Jury addresses budgetary or
personnel matters of a county agency or department headed by an elected officer, both the
agency or department head and the board of supervisors shall respond if requested by the grand
jury, but the response of the board of supervisors shall address only those budgetary or
personnel matters over which it has some decision-making authority. The response of the
elected agency or department head shall address all aspects of the findings or recommendations
affecting his or her agency or department.
Comments to the Presiding Judge of the Superior Court in compliance with Penal Code §933(c)
are required or requested from:
Responses Required:
Findings:
Orange County Board of Supervisors: Findings: F1, F2, F3, F4, F5, F7
City of Irvine, City Council: Findings: F1, F2, F3, F4, F5, F6, F7
Orange County Fire Authority Board of Directors: Findings: F1, F2, F3, F5, F6, F7
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Recommendations:
Orange County Board of Supervisors: Recommendations: R1, R3, R6
City of Irvine, City Council: Recommendations: R1, R2, R4, R6
Orange County Fire Authority Board of Directors: Recommendations: R1, R3, R4, R5, R6
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REFERENCES
Documents
1. Amended Orange County Fire Authority Joint Powers Authority Agreement,
September 23, 1999
2. First Amendment to Amended Joint Powers Authority Agreement Orange County Fire
Authority, July 1, 2010
3. Second Amendment to Amended Orange County Fire Authority Joint Powers
Agreement, December 9, 2013
4. Third Amendment to Amended Joint Powers Authority Agreement Orange County Fire
Authority, October 2, 2015
5. Court of Appeal of the State of California Fourth Appellate District Division Three,
Orange County Fire Authority et al. v. County of Orange, G050687, Opinion, March
15, 2016
6. California State Senate Bill 302, Chapter 807, October 14, 2017
7. City of Irvine, FY 2016-17 Adopted Budget, 72
8. City of Irvine, Budget Revenues General Fund 2013-14 to 2017-18
9. Orange County Fire Authority, 2016 Statistical Annual Report
10. Orange County Fire Authority Agenda Staff Report, 2016 Long Term Liability Study
& Expedited Pension Payment Plan, November 17, 2016
11. Orange County Fire Authority Agenda Staff Report, 2017 Long Term Liability Study
& Accelerated Pension Paydown Plan, October 26, 2017
12. Orange County Fire Authority, OCFA 2017 Liability Study-OCFA’s Long Term
Liabilities, 6,12
13. Orange County Fire Authority, Agenda Staff Report FY2014/15 Mid-year Financial
Report
14. Final Equity Share Calculation Simplified Option 2A-One Region Updated FY
2010/2011 Taxes, 3 FY Average Use, AV, POP, December 11, 2017
15. Orange County Fire Authority, Land and Buildings in the City of Irvine, April 2013
ORANGE COUNTY FIRE AUTHORITY – FINANCIAL FLAMES ON THE HORIZON?
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16. Orange County Fire Authority, Allocations to Structural Fire Fund Entitlement Fund
FY 2010/11 – FY 2016/17
17. Orange County Fire Authority, FY2017/18 OCFA Adopted Budget, 78
18. Orange County Auditor-Controller Property Tax Section, Tax Equity Allocation
Explanation, January 2, 2018
19. Orange County Fire Authority, 2016 Statistical Annual Report
Websites
1. Shimura, Tomoya, Orange County Register, Irvine takes step to leave Orange County
Fire Authority, January 26, 2017, accessed November 20, 2017
http://www.ocregister.com/2017/01/26/irvine-takes-step-to-leave-orange-county-fire-
authority/
2. Irvine City Council, Regular Meeting Minutes, January 24, 2017, accessed September 22,
2017
http://irvine.granicus.com/DocumentViewer.php?file=irvine_87813b06aefeaae26b516d6
59b370a54.pdf&view=1
3. California Revenue and Tax Code, Section 99.02
https://www.boe.ca.gov/lawguides/property/archive/2011/rt/99-02.html
4. Orange County Assessor, Roll Detail by City, accessed January 19, 2018
https://cms.ocgov.com/civicax/filebank/blobdload.aspx?BlobID=66027
https://cms.ocgov.com/civicax/filebank/blobdload.aspx?BlobID=55837
http://www.ocgov.com/civicax/inc/blobfetch.aspx?BlobID=45146
http://www.ocgov.com/civicax/filebank/blobdload.aspx?BlobID=36761
http://www.ocgov.com/civicax/filebank/blobdload.aspx?BlobID=27934
http://www.ocgov.com/civicax/filebank/blobdload.aspx?BlobID=17243
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5. Orange County Fire Authority Service Area, accessed August 8, 2017
http://www.ocfa.org/AboutUs/Departments/Operations.aspx
6. California State Legislature Assembly Hearing of July 12, 2017 re: SB302 As Amended
July 3, 2017
http://alcl.assembly.ca.gov/sites/alcl.assembly.ca.gov/files/SB%20302%20analysis.pdf
7. California Legislative Information, Senate Bill 302, published 10/16/2017
http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB302
8. Orange County Register, Orange County Fire Authority faces financial deficit, pensions
and Irvine threatening to drop it, Mar 15, 2015, accessed Jan 22, 2018
http://www.ocregister.com/2016/03/15/orange-county-fire-authority-faces-financial-
deficit-pensions-and- irvine-threatening-to-drop-it/
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APPENDIX
Appendix 1: OCFA budgeted Structural Fire Fund revenue by member agency
FY 2015/16
FY 2016/17
FY 2017/18
Aliso Viejo
10,097,519
10,671,670
11,242,937
Cypress
4,701,843
4,895,673
5,066,753
Dana Point
11,912,343
12,719,236
13,821,426
Irvine
73,883,489
79,010,274
86,025,009
La Palma
$1,483,090
$1,541,453
$1,598,276
Laguna Hills
6,452,428
6,710,687
6,949,145
Laguna Niguel
14,677,182
15,258,914
16,070,368
Laguna Woods
3,064,476
3,243,437
3,450,009
Lake Forest
13,270,443
14,366,062
15,434,382
Los Alamitos
1,820,245
1,889,483
1,990,701
Mission Viejo
15,688,165
16,316,300
16,997,261
Rancho Santa Margarita
9,306,628
9,594,218
10,133,553
San Juan Capistrano
6,969,386
7,341,421
7,749,858
Unincorporated
28,288,451
29,862,289
31,911,074
Villa Park
1,626,437
1,704,792
1,787,383
Yorba Linda
10,439,907
10,905,026
11,432,809
Total
$213,682,033
$226,030,935
$241,660,944
Irvine's Percentage of
Total SFF Revenue
34.58%
34.96%
35.60%
Source: OCFA