MOORLACH UPDATE — Pete Weitzner –December 12, 2017

It’s been some time since I’ve been featured in an Orange County Business Journal page three editor’s column (see MOORLACH UPDATE — Taxportation Chronicles — June 4, 2016). Rick Reiff dominated this space for a couple of decades, followed ably by Jerry Sullivan. Now, old friend and former Orange County Newschannel anchor during the OC bankruptcy, Pete Weitzner, has received the nod. Great choice.

He interviewed me on live television 23 years ago, shortly after a friend had printed up “Don’t Blame Me, I Voted For Moorlach” bumper stickers. I placed one in front of me so it could be seen on the air. And, Pete still remembers my pulling that stunt.

He has a little fun with my December 6th UPDATE in the beginning of his column below (see MOORLACH UPDATE — 23rd Anniversary of Chapter 9 — December 6, 2017).

Flute Bug Skips Another Generation of McLarands

By Pete Weitzner

Needle Point: Wednesday, Dec. 6, I was commended to read two books (in one year?) … “Reinventing the Administrative State” and “Financial Management Theory in the Public Sector,” –both apparently preach the same sermon: “When Money Talks, the Truth is Silent.”

My reading sponsor was Sen. John Moorlach. Dec. 6, 1994 is OC’s Day of Infamy—the day we filed a record $2B bankruptcy.

Moorlach was a Costa Mesa CPA in ’93 … talked into running vs. a 6-time incumbent making boatloads of ‘free money’ for the county.

Moorlach called the shot… screamed that Bob Citron’s bond portfolio was too leveraged. Few believed.

Dem. Citron beat Repub. Moorlach in heavily GOP OC, 61-39.

Lots happened since. More on The Oracle of Costa Mesa’s new crusade soon—as Paul Hughes wrote, P. 1: “Too much good stuff.”

McLarand Dynasty … There’s a lot Carl McLarand built that you know. Santa Monica—The Water Project, OC —many of Irvine Co.’s best-known bldgs, China—oh, about 20M SF of product … 44 years of talent and toughness, an architect can build a portfolio.

Carl McLarand didn’t design what he did this week, handing the reigns of MVE + Partners, Inc. to his son Matt.

“Matt went to USC for architecture…a surprise to me,” Carl said. “I was still trying to make the business work.”

When I heard that Matt McLarand was succeeding his legendary dad, it struck me—the McLarands are the exception to what was once routine.

“Interesting how people respond to being from a family of wealth or success, Matt reflected. “Some don’t follow in the business or in business. Doesn’t mean it’s wrong or right.”

Carl did the genetic thing for Matt with talent but bred something else into his son as a live foal.

“Dad instilled in me … whatever you do, you’re gonna have to work really hard. Pick something you’re passionate about.”

Turns out Matt’s done what Carl wanted to do—follow his dad … a great flutist.

Then Carl’s dad told him he practiced 17 to 18 hours a day … as the old joke goes, ‘Let me see those drawings again …’

Once Matt joined Team McLarand, he showed well.

“Tech skills … leadership, Carl said. And now I’m here to back him up.”

Not here, here … Carl likes Hawaii.

Besides, Carl gave Matt one more thing. A backlog of business …

G.O. on the GO … Grocery Outlet’s also a family biz—70 yrs…run by the third generation of Reads. G.O. owns 1 store, flagship in Berkeley, rest—nearing 300—run and co-owned by owner-operators … often grocery and retail vets—like Joel Collar and Paul Ah Sing, co-owners of Grocery Outlet JPB-Go LLC, the newest GO in Lake Forest as of Thursday.

“We knew nothing about CA, Collar said, “went to Disneyland when I was 8. We looked at a map. It was gorgeous—nice and wholesome.”

The Portland transplants promise a “shiny beautiful store with low affordable prices—fresh groceries sourced locally.”

G.O. Corp. is known as an ‘extreme discount market, using its corporate buying power to provide bargains called treasure hunts. “Power bars, four for a dollar,” says Layla Kasha, marketing VP.

G.O. is making a push into OC—some ground-up, many taking over old Fresh & Easy locales … Fountain Valley, Fullerton and Placentia next up …

Buy-in between $100-200K. I asked new G.O.-partner Joel for his biggest fear.

“Not making Lake Forest proud. I want them to know the owners.”

More on G.O. soon … too much good stuff …

Inspiration Point … I don’t have time to read tomes on fiscal mismanagement … I did have five mins last Friday to learn about Ashley McNamara Blalock, a CHOC child life specialist. The short film is called “Patched.” The Insider commends it.

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MOORLACH UPDATE — 23rd Anniversary of Chapter 9 — December 6, 2017

It’s December 6th, the 23rd anniversary of the County’s official filing for Chapter 9 bankruptcy protection. Today I have two books, Reinventing the Administrative State and Financial Management Theory in the Public Sector. Orange County has become a classic case study and is still taught in college classes today. In fact, just a few months ago, one of my college-age nephews was quite surprised to hear his uncle’s name mentioned in a lecture.

December 6 is not a happy anniversary. But, it is a lesson for voters to be vigilant. They need to elect individuals that will represent them, not the public employee unions and not vendors who will make a large profit on transactions with government.

We are commemorating this occasion today with an Open House at my District office at 4 p.m. this afternoon (see MOORLACH UPDATE — Homeless Persons’ Memorial Day — December 4, 2017).

BONUS: For a quick personal account of the 1994 OC bankruptcy in a podcast, please go to

Reinventing the Administrative State

by Michael E. Norris

University Press of America


The author seems to take on the “reinventing government” movement, espoused in a best-selling book of the same name by David Osborne and Ted Gaebler. They called for “competitive, decentralized, results-oriented government that would use market principles to meet the needs of ‘customers’ rather than those of the bureaucracy.”

Anyone who served in Orange County management following the bankruptcy filing will recognize the buzz words of “decentralizing” and “results-oriented government” (affectionately known as ROG).

In Chapter 6, “Bureaucratic Barriers,” the 1994 bankruptcy filing is addressed in an almost cursory manner as the opening paragraph for the subtitle “The Orange County Dilemma.”

The difficulties and paradoxes in regulatory reinvention are illustrated well by the case of the failure of the Orange County public investment program administered by Robert Citron. Despite his reputation as a successful public sector entrepreneur, Citron, operating in a public administration environment influenced heavily by Osborne and Gaebler’s notion of relaxed legal and regulatory constraints, was left holding the bag on December 6, 1994, when the county–one of the nation’s wealthiest–declared insolvency under Chapter 9 of the U.S. Bankruptcy Code. Its $20 billion investment pool, representing more than 180 county and municipal agencies, had experienced $1.7 billion in unrealized losses due to the fund’s heavy reliance on investments called “derivative securities” that fell in value as interest rates rose in 1994. Informed of these losses, concerned creditors then liquidated $11 billion in collateral on loans they had made to the county so that it could finance its investment program, which had gone well beyond the traditional mix of relatively safe instruments that are usually purchased by public investment managers such as state and county treasurers as a matter of law, if not prudence. Citron had been re-elected in June 1994, six months before the crisis, after a campaign in which his opponent, certified public accountant John Moorlach, had criticized the county investments’ vulnerability to fluctuating interest rates.

Financial Management Theory in the Public Sector

Edited by Aman Khan and W. Bartley Hildreth



This book is a collection of eleven white papers. The second chapter, titled “Information Asymmetry in Public Investment Management,” is cowritten by Brian K. Collins and Aman Khan. And I found the entire chapter online! See

This is a thorough treatise on the Orange County Chapter 9 Bankruptcy and a good read for today, the 23rd anniversary of the filing.

Under the subheading “Moral Hazard in the Collective Choice Arena,” the three moral hazards are discussed. The second moral hazard starts on page 36 and ends on page 37. Since you have access to these pages, I’ll provide the following two paragraphs:

Baldassare (1998) suggests that the 1994 election was a referendum on the investment policies that Bob Citron had followed for nearly two decades. Those policies had been extraordinarily successful for two decades, but at an inordinate risk to the public fisc. In the 1994 election, John Moorlach mounted a fierce campaign that specifically highlighted the impending losses of OCIP and risk exposure of Citron’s management. Moorlach’s claims did not resonate with the public or press because they were attributed to partisan sniping, but some Wall Street firms stopped lending to Citron, and some cities began to withdraw their deposits.

Some local governments even complained that the election rhetoric hurt their credit ratings, which showed the credibility of Moorlach’s claims. Just before the election, Moorlach even wrote to the Board of Supervisors about Citron’s policies, but the board dismissed the letter as a publicity stunt in a losing election effort. Citron won the election with 61 percent of the vote, but OCIP would collapse soon after the election ended. The reality was that Moorlach was correct in his assessments, and he was eventually appointed county treasurer after Citron resigned.

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MOORLACH UPDATE — Financial Risk Management — December 5, 2017

Sticking with the December 6th anniversary theme, today’s book is Financial Risk Management: A Simple Introduction by K. H. Erickson, 2014. It’s an exciting little text on investment risk management techniques that are near and dear to my heart, as I enjoyed managing a significant portfolio for nearly 12 years. But, this is an amazing body of work as it provides an analysis focused exclusively on the 1994 Orange County Investment Pool implosion.

Maybe the best way to explain this book is to provide you with its Introduction:

Individuals, businesses, corporations, and governments are always searching for profitable investment opportunities which can offer an increased return. But the potential for a greater return will typically go hand in hand with greater risk, and there’s a danger than an investment strategy can backfire and end up costing more than it creates. Risk can come in many forms and while much risk can be avoided with well researched investments, or eliminated with a diversified portfolio, a degree of unavoidable market risk will always remain and therefore effective financial risk management is a central part of any investment strategy.

One of the most significant elements of market risk is interest rate risk, as changing yield rates can reduce the value of an asset or portfolio, and interest rate risk is a focus of this book. The field of financial risk management is explored in depth using theory, formulas, calculations, and examples, and then applied to the case study of the 1994 Orange County, California bankruptcy to examine whether the financial failure could have been avoided. Basic prior knowledge of derivatives and econometrics is assumed and used in the analysis.

Financial risk management involves first determining the risk exposure of an investment or portfolio, and this is explored using leverage, duration, modified duration, convexity, effective duration and effective convexity. Value at risk (VaR) is the next focus, and the three main variance-covariance, historical simulation, and Monte Carlo methods are explained and compared, along with the related square root of time rule. Detailed steps to calculate the variance-covariance, historical simulation, and Monte Carlo value at risk in Excel are provided. An exponentially weighted moving average (EWMA) is then introduced to predict factor change, interest rate or return volatility, and simple steps to calculate the EWMA and backtest the data for reliability in Excel are presented.

An extended empirical case study for Orange County’s bankruptcy in 1994 takes up the remainder of the book. First the history of how the situation came to pass is explained, with Orange County’s balance sheet, leverage, duration, effective duration, and modified duration examined to determine the extent of the county’s risk exposure, and assess whether the bankruptcy was inevitable or if alternatives were available. This discussion is then built upon with detailed value at risk and EWMA analysis as the potential for risk management is debated. The final section looks into theoretical hedging strategies for Orange County, examining a range of financial derivatives and how they may be used to hedge interest rate risk.

I hope that whets your appetite. It sure did mine. This short book covers all of what was introduced above. Let me provide Chapter 5.1, “Background to Orange County Failure,” and the author’s conclusion in Chapter 6.1, “Value at Risk for Orange County,” which may surprise you. As a bonus, I’ll also provide a segment of Chapter 7, “Hedging Strategies for Orange County,” as that was my focus the second half of 1994, if only someone from the County’s management team had called for my advice (as my efforts to contact them were rebuffed).

Background to Orange County Failure

The 1994 bankruptcy of Orange County, California is an interesting real life case study with which to further investigate financial risk management. In December of 1994 Orange County filed for bankruptcy and ultimately reported a loss of $1.64 billion, at the time the largest municipal failure in US history. Although it has since been exceed in scale in the US by the municipal failures of Jefferson County, Alabama in 2011 and Detroit, Michigan in 2013, the Orange County case retains significant interest due to the cause of the bankruptcy, which was taking risky positions in financial markets without a risk management strategy which covered against interest rate risk.

Robert Citron, long-time treasurer and tax collector of Orange County in 1994, was in a desperate position after local government’s tax allocations were cut by the state, and he needed a way to raise income for the county without raising taxes which would alienate the local electorate. Citron embarked on a risky strategy to raise income by borrowing heavily to invest in bond securities which would gain value if interest rates fell, as US interest rates had been following a general downward trend (The Public Policy Institute of California, 1998). This strategy also took advantage of natural uneven bond convexity, noted earlier, where increases in yields reduce price and value less than an equivalent yield decrease raises price.

The chosen investment portfolio for the Orange County Investment Pool (OCIP) mostly consisted of fixed income securities and structured notes, with additional funds obtained with the issuing of reverse repurchase agreements, a debt where a security is bought with the agreement to sell it on later for a higher price. This reverse repurchase agreements debt ensured a highly leveraged and risky position for Orange County’s books.

An examination of empirical evidence on historical portfolio performance explains Citron’s choice of assets. Asness (1996) notes that a levered portfolio of stocks and bonds outperformed an unlevered portfolio of 100% equities over the years 1926-1993. Overall a levered portfolio offered higher total returns than the unlevered comparison, with the same long-term consistency, and comparable standard deviation and worst case scenario outcomes. Based on this information Bob Citron’s choice of investment appeared wise, and it was successful at first as US interest rates fell steadily over the years 1989-93 to see the portfolio rise in value.

February 1994 saw the beginning of a series of sharp rises in US interest rates as the Federal Reserve looked to tighten credit to reduce the threat of inflation and prevent the US economy from overheating. The constant maturity treasury rate rose from 3.45% in February 1994 to 7.14% in December 1994 (from 3.61% a year before in December 1993). These yield rises caused Orange County’s portfolio to plummet in value, and some predicted Citron would lead the county to bankruptcy. John Moorlach was one dissenting voice and he ran for public office against Citron in the June 1994 Orange County Treasurer local election, opposing the reckless investments Citron had made with billions of dollars of public money. But Bob Citron won the public vote and remained in control of the Orange County Investment Pool for the rest of 1994.

In an attempt to reclaim funds lost from rising interest rates and secure the high returns required for his county Bob Citron went on to borrow further, doubling down on the investment strategy of betting on falling interest rates and a yield trend reversal. But the reversal didn’t come in time and when Citron couldn’t keep up with the margin payments on the debt funds borrowed in the repo market, due to low returns from a bad investment strategy, the game was up. Orange County was unable to sell portfolio assets seen by other investors as too risky, and when creditors moved in to seize assets as collateral in December 1994 the county declared bankruptcy.

Value at Risk for Orange County — Conclusion

Putting all of the analysis together it seems that all three of the value at risk methods, variance covariance, historical simulation, and Monte Carlo simulation, have their weaknesses. None can be used to accurately predict what actually happened to Orange County in 1994, leaving little confidence that they would be able to predict what would happen in the future to allow risk management. And the square root of time rule which allows monthly interest rate changes to be aggregated for longer value at risk periods appears unusable for Orange County, as interest rates appear to exhibit stationary characteristics which violate the rule’s key assumptions. This is another obstacle preventing successful long-run financial risk management. It seems that the value at risk measure wouldn’t have helped Orange County much in the 1994 period where they faced financial problems, and other tools are there required.

Hedging Strategies for Orange County

Orange County could have invested their resources into hedging interest rate risk in late 1993 or early 1994, before the damaging yield rises removed the option. But although methods were available at that time to hedge interest rate risk and offset possible financial loss with opposite and equivalent investment positions, as Orange County ultimately required in 1994, investment of resources in such tools would by definition take resources away from those assets which generated profits in the event that interest rates fall.

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MOORLACH UPDATE — Homeless Persons’ Memorial Day — December 4, 2017

Over the weekend, someone asked me when I was having my annual Christmas Open House. It looks like I haven’t been making the announcement clearly enough, so the invitation flyer is the first graphic below.

On December 6th, the 23rd anniversary of Orange County filing for Chapter 9 bankruptcy, we’re hosting an open house at my District Office. I know December calendars are nuts, but if you can fit it in, it would be great to have you. And, you’ll probably see a lot of old friends.

I’ll also be providing more information on the historic event that changed the course of my life in the next UPDATE or two (see MOORLACH UPDATE — Scandals, Corruption, and Reform — December 1, 2017).

The second date to be concerned about is December 21. It is the winter solstice, the shortest day of the year; making it also the longest night of the year. Which means that those who are homeless and out on the streets will experience the longest night of darkness and cold. Consequently, it is an appropriate day to recognize those homeless who have passed away. Nearly 200 homeless individuals passed away in 2016.

To better explain what is occurring, I copied the following from this website,

The National Coalition for the Homeless, the National Consumer Advisory Board and the National Health Care for the Homeless Council encourage communities to host public events on or near December 21 remembering your neighbors who have died homeless in the past year. National Homeless Persons’ Memorial Day takes place each year on the longest night of the year, December 21st.

I advocated for a memorial site for those homeless individuals who passed away while on our streets when I was a County Supervisor and Chair of the Commission to End Homelessness. Regretfully, I did not get this completed during my final term. However, the Board did establish a memorial site for crime victims.

Sunday’s Daily Pilot, in the second piece below, provides the details of a service that I will be participating in and, of course, you are invited to attend if your calendar permits.


The “Rock Memorial” at a homeless encampment along the Santa Ana River Trail in
Anaheim on Nov. 29. Homeless Persons’ Memorial Day will be held Dec. 21. (Kevin
Chang / Staff Photographer)

Orange County’s dead
homeless commemorated

Ben BrazilBen BrazilContact Reporter

Over and over again, he witnessed the slow decay before the light left their eyes.

Their deaths manifold, but always in the quiet shadows of Orange County.

There will be memorials and an art show at three different venues.

A military tribute will be held for deceased homeless veterans at Civic Center Plaza County Hall of Administration in Santa Ana. Houchen said the event is the first time deceased homeless veterans will be honored in the county.

There will be a color guard, possibly a 21-gun salute and state Sens. Josh Newman (D-Fullerton) and John Moorlach (R-Costa Mesa) are scheduled to speak.

The deceased homeless will then be honored during a ceremony at the Anaheim Cemetery. The keynote speaker will be state Assemblywoman Sharon Quirk-Silva (D-Fullerton).

Houchen said he’s planning a visual aspect to the homeless memorial to help people grasp the magnitude of the 200-plus deaths. Last year, he fastened gravestone-shaped cards with the names of the dead onto a fence.

This year’s event will likely be more sophisticated considering the evolution of the memorial ceremony.

Houchen first came across the national event while studying in the law library next to the Civic Center encampment.

“I thought, ‘What a wonderful way to pay tribute and raise community awareness,’” Houchen said.

He and his group of friends gathered at the Civic Center in 2013 for the first time memorializing the comrades they’d lost that year.

Since that time, Houchen has sought to improve the memorial.

“It gives people that have so much a moment to think about people that have so little,” Houchen said.

An art show will also be featured as part of the memorial at the Melisa Finds Gallery in Santa Ana. Minister and artist Joshua Correa, 36, was commissioned by Houchen to organize the art show.

Correa said the exhibition will feature three types of artwork: Commemorations of the homeless who died, works from professional artists exploring homelessness and art by homeless people.

Correa, community engagement director at Well of Life Church in Placentia, has been teaching art classes at the Bridges at Kraemer Place homeless shelter in Anaheim for about a month. The artwork gleaned from those classes will be used in the memorial exhibit.

Houchen escaped homelessness in 2015 after about four years on the street. Now living a modest life with his wife in an apartment, he can’t help but feel some shame for his rescue.

“I suffer from survivor’s guilt,” Houchen said. “I was fortunate to get into permanent supportive housing. At the same time, I had friends — their images pressed in my mind. These guys, they needed a place just as bad if not more than me. I am the lucky one.

“If they’d been given the same opportunity, I can’t help but think some of those 200 folks would have lived.”

The images of the deceased homeless that Houchen has known over the years hold true in his mind. This year was no different; others he once knew passed on.

He’ll remember them, but how will the community receive their deaths?

Houchen hopes the memorial will provide the county’s residents with a sense of the suffering and loss of life endured by homeless people. In accomplishing that feat, their quiet suffering won’t be futile.

“We are honoring their memories, and by remembering them by name, we kind of make it that their suffering and lives aren’t in vain,” Houchen said. “We are telling the public about this serious crisis. I think that’s what they would want.”

Homeless Persons’ Memorial Day schedule:

10 a.m. Dec. 21: Military tribute for deceased homeless veterans at Civic Center Plaza County Hall of Administration, Building # 10, 333 W. Santa Ana Blvd.

3:30 p.m.: Memorial for the deceased homeless of the county at the Anaheim Cemetery at 1400 E. Sycamore St.

6 p.m.: Homeless art show at Melisa Finds Gallery at 201 N. Main St., Santa Ana

For more information, visit


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MOORLACH UPDATE — Scandals, Corruption, and Reform — December 1, 2017

I can still remember when my name first appeared in a newspaper. It was a big deal. I still get that same sense of awe when I’m mentioned. So, doing the UPDATEs was a natural offshoot. Especially when mentions became frequent and my Treasurer-Tax Collector staff asked me to keep them current, as taxpayers were asking questions about the articles.

An even bigger sense of awe occurs when I’m mentioned in a book (see MOORLACH UPDATE — Book Inclusions — October 1, 2015) Obviously, I try to purchase the book. And, I’ve built quite a collection, as I’ve been mentioned in more than 50 of them! More on this in a future UPDATE.

As you can guess, the biggest reason for being included in so many books is because of my efforts to warn the County of Orange nearly a quarter-century ago that the incumbent Treasurer-Tax Collector was investing like a financial maniac.

The then Orange County Board of Supervisors and County Administrative Officer didn’t understand my message. Consequently, the County filed for Chapter 9 bankruptcy protection, the largest such filing in U.S. history at the time. The date of filing was December 6, 1994. The 23rd anniversary is coming up next week.

Over the Thanksgiving weekend, I had an opportunity to purchase a few more books. Let me introduce you to another book mention. Business Scandals, Corruption, and Reform: An Encyclopedia, Volume Two, M-Z is by Gary Giroux. It was published in 2013, but I just found a somewhat reasonably priced used edition. It’s done in a similar style to Joe Mysak’s Encyclopedia of Municipal Bonds (see MOORLACH UPDATE — Encyclopedia of Municipal Bonds).

Volume Two starts with the letter "M." Can you guess the first entry? It’s "Madoff, Bernard L." The "O" section only has two entries: "Off-Balance-Sheet Items" and "Orange County Bankruptcy."

Ironically, I believe that "off-balance-sheet items" will be the next municipal debacle. The Government Accounting Standards Board has finally required all of the defined benefit pension plan unfunded actuarial accrued liabilities to be on the balance sheet. It still needs to force unfunded retiree medical liabilities to be reported in full. But, the next shoe to drop will be the inclusion of operating leases on the balance sheet. Stay tuned.

To reflect on the 23rd anniversary of the Orange County Bankruptcy, here is how Gary Giroux describes it:

Orange County, California, home of Disneyland, declared bankruptcy on December 6, 1994, the biggest local government to file for bankruptcy up to that time, after massive losses of $1.7 billion in complex derivative investments. Merrill Lynch and other investment banks targeted state and local governments for complex derivative agreements. These high-risk instruments seemed poor investments to conservative governments subject to regulatory constraints. Bonuses on high commissions proved too big an incentive to bond salespeople and the banks camouflaged the risks and high costs from the buyers (after being sued, Merrill claimed it warned the Orange County treasurer repeatedly of the risks involved). Government buyers–and ultimate losers–included San Jose, California, the state of West Virginia, Wisconsin Investment Board, San Diego and San Bernardino Counties, and the California Public Employees Retirement System, among others. The biggest loser one was Orange County, which paid Merrill Lynch some $100 million in fees.

In addition to unsophisticated municipalities, insurance companies, mutual funds, and hedge funds made similar investments on short-term rates, at the time about 3 percent, while long-term rates were roughly 8 percent. The strategy was to borrow short term and invest long term. The economy was booming, and Federal Reserve (Fed) chairman Alan Greenspan raised the federal funds rate from 3 percent to 3.25 percent in February 1994, the first hike in five years, to fight inflation. The Fed continued to raise rates, up to 5.5 percent by year-end. Other short-term rates followed. Greenspan explained the strategy of a "soft landing" for the economy, but organizations that used complex derivatives speculating on maintaining low risk, and few financial experts predicted the brutal swings in the value of these instruments when short-term rates rose.

Democrat Robert Citron, longtime treasurer of Orange County, made big profits on derivative trades using more and more leverage (borrowing up to $13 billion to add to Orange County’s $7 billion investment pool). The strategy was to borrow short term using repurchase agreements and invest in longer-term high yield securities. The complex, high-risk derivatives paid off as long as short-term interest rates stayed low. Included in Orange County’s portfolio were "inverse floater structured notes," with very high interest rates, less some floating rate such as LIBOR (London interbank interest rate). So the structure might be 12 percent interest less the LIBOR rate. A "trigger note" paid a short-term high rate of interest as long as interest rates stayed below a specific cutoff. If interest rates rose above that trigger, the note extended in maturity at what became a low rate of interest, when interest rates were rising (Partnoy 1997, chapter 8).

One interesting episode was the last reelection of Citron, in 1994. His opponent was certified public accountant (CPA) John Moorlach, warning about the high risks of Citron’s investment strategy and questioning Citron about investment specifics. He predicted a loss over $1 billion (which proved too conservative). Citron was reelected; apparently, voters were as little concerned about risks as Citron.

When interest rates rose in 1994, Orange County’s investments collapsed, losing some $1.7 billion. Unable to roll over its debt, the government declared bankrupt. Citron bought the complex securities mainly from Merrill Lynch (plus smaller investments from Morgan Stanley), probably with little understanding about their risks. Citron pled guilty to filing false and misleading financial statements and other felonies. He received probation. Orange County sued Merrill, and the company ultimately paid $400 million to settle the case.

See also Black-Scholes Model; Black Swans; Derivatives; Gibson Greetings Derivatives Losses, Nicholas W.; Greenspan, Alan; Procter & Gamble Derivatives Losses


Partnoy, Frank. FIASCO: Blood in the Water on Wall Street. New York: Norton 1997

Partnoy, Frank. Infectious Greed: How Deceit and Risk Corrupted the Financial Markets. New York: Holt, 2003

BONUS: Speaking of December 6th, you are cordially invited to our Annual Christmas Open House, from 4:00 p.m. to 6:00 p.m. at 940 South Coast Drive, Costa Mesa, Suite 185. Also see MOORLACH UPDATE — Happy Thanksgiving— November 22, 2017.

To RSVP, contact Deborah Sandoval at Deborah.Sandoval or 714-662-0550. Dress is Christmas casual, which means if you wear a Reyn Spooner Christmas shirt, you’ll be provided with extra refreshments.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach.

MOORLACH UPDATE — Earning a Living — November 30, 2017

It’s nice to receive an early Christmas present with a kind mention of a bill, SB 247, I attempted to run through the Legislature this year, which failed to get out of the Senate’s Business, Professions and Economic Development Committee (see I hope to work on a similar, but less ambitious, bill next year.

This is not the first time someone has taken the time to acknowledge this effort (see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017).

The piece below is in the OC Register and the writer of this unsolicited Christmas gift comes with an impressive curriculum vitae (see

BONUS: You are cordially invited to our Annual Christmas Open House on December 6th, from 4:00 p.m. to 6:00 p.m. at 940 South Coast Drive, Costa Mesa, Suite 185. Also see MOORLACH UPDATE — Happy Thanksgiving— November 22, 2017.

To RSVP, contact Deborah Sandoval at Deborah.Sandoval or 714-662-0550. Dress is Christmas casual, which means if you wear a Reyn Spooner Christmas shirt, you’ll be provided with extra refreshments.

DOUBLE BONUS: I’m doing a weekly podcast on various topics, for a listen to the building collection, go to


Too many earning a license when they could be earning a living

By JENNIFER MCDONALD | Orange County Register

California makes it harder for lower-income workers to get a job than any other state in the nation. Thanks to occupational licensing laws, one out of every five California workers needs a government permission slip to earn a living.

According to a new report from the Institute for Justice, California’s heavy-handed occupational licensing laws guard entry into jobs that offer upward mobility to those of modest means. These jobs include everything from landscape contractors to shampooers to animal trainers. California licenses 76 of the 102 lower-income occupations studied in the report — more than every state but Louisiana and Washington. The Golden State also has some of the heaviest burdens in the country for workers to become licensed, requiring, on average, $486 in fees, more than two years of education and experience, and two exams. In other words, California’s licensing laws force people to waste their time and money earning a license when they could be earning a living.

Research provides little to no evidence that licensing does what it is supposed to do: raise the quality of services and protect consumers. For example, a tree trimmer needs four years of experience before they can get a license to start their own tree-trimming business in California. Only six other states license that occupation, and California’s experience requirement is more than double the average required by other states. That tree trimmers are unlicensed by the majority of states suggests they can safely practice without a state license.

Instead, licensing laws often protect those who already have licenses from competition, keeping newcomers out and prices high. By artificially increasing the price of services, licensing acts as a “hidden tax” that costs the average California household $1,133 per year, according to one estimate by the Heritage Foundation.

Moreover, burdensome licensing laws block those with criminal records from finding work, which makes it even harder for otherwise qualified former offenders to reenter society. Earlier this fall, approximately 4,000 state prison inmates helped battle destructive wildfires in Northern California. Despite receiving on-the-job training and literal trial-by-fire, most of those inmates can’t become firefighters after they’ve served their time. In California, firefighters must obtain an emergency medical technician license — a credential convicted felons are typically disqualified from obtaining. Notably, both the Council of Economic Advisors under the Obama Administration and California’s nonpartisan Little Hoover Commission have called for new protections for people with criminal records against licensing boards, since research suggests those barriers to employment can increase the likelihood of reoffending.

The Legislature must take action to repeal harmful occupational licenses and — if absolutely necessary — replace them with less burdensome regulatory alternatives such as voluntary private certification. Earlier this year, state Sen. John Moorlach sponsored a bill that would have repealed licenses for locksmiths, upholsterers, makeup artists, barbers and hearing aid dispensers, eased licensing requirements for tree trimmers and landscapers, and banned municipalities from enacting new licenses or licensing fees. Unfortunately, thanks to the influence of entrenched licensed interests in Sacramento, the bill never even made it to the floor of the senate for a vote.

But reform is absolutely necessary. Occupational licensing creates needless roadblocks for people hoping to break into new occupations, change careers, or build new businesses. The Legislature should repeal unnecessary licenses, rein in anticompetitive licensing boards and regulations, and curtail license denials based on irrelevant or long-past criminal records.

Earlier this year, Mississippi created a commission that will ensure licensing boards use the least restrictive regulation necessary to protect consumers and promote competition. Kentucky adopted a law that prohibits licensing boards from automatically denying licensing applicants due to their criminal history, instead requiring boards to prove a direct relationship between a past conviction and a particular license. California should follow in these states’ footsteps and adopt meaningful occupational licensing reform.

Jennifer McDonald is a research analyst at the Institute for Justice and co-author of License to Work: A National Study of Burdens from Occupational Licensing (2nd edition).

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MOORLACH UPDATE — Critical Federal Tax Reform — November 28, 2017

Nearly a decade ago, when I served on the Orange County Board of Supervisors, we successfully negotiated offering a lower defined benefit pension plan retirement formula for new hires. Governor Brown replicated this strategy a few years later with his Public Employee Pension Reform Act (PEPRA).

We also negotiated a provision that would allow current employees to adopt the lower formula. The reason an employee would make this decision was due to the reduction in the employee’s portion of the contribution to the pension. It would reduce their payroll check withholdings, thus increasing their net take home pay.

We had a number of Orange County employees that wanted to do this because paying for child care and housing costs was a higher priority. And a reasonable pension, with a portability component, was preferred over the gold-plated plan that was mandated.

Unfortunately, this creative solution was halted by the discovery of Internal Revenue Service (IRS) Revenue Ruling (Rev. Rul.) 2006-43. This faulty ruling denied cities the ability to offer an alternative retirement plan, whether it was a defined contribution or hybrid plan, without realizing the pre-tax benefits that employers and employees have with their defined benefit contributions.

Allow me to provide you with some history on this administrative tax promulgation roadblock, as removing this hurdle can make a major change in the finances of this nation (in reverse date order).

1. When looking back on what I accomplished as a Supervisor (see MOORLACH UPDATE — Supervisor Bartlett — December 3, 2014). :

• 2009 – Negotiated new tier for current hires, only to be stymied by I.R.S. Rev. Rul. 2006-43

2. Included as Goal #3 in my 2014 goallist:

MOORLACH UPDATE — 2014 Bucket List — October 3, 2014

3. A piece by Steve Malanga in The Wall Street Journal, giving this concern national attention:

MOORLACH UPDATE — The Wall Street Journal — December 7, 2013

Two key paragraphs:

For more than three years the IRS has failed to clarify a rule on changes to public pension systems that would allow municipalities to shift workers into new, less-expensive plans without losing any tax advantages they had under the old plan.


The Orange County Employees Association accepted the new plan to let workers choose more take-home pay now, but there was an unexpected glitch. Local government contributions into a defined-benefit pension aren’t counted as part of an employee’s taxable wages. However, officials discovered that thanks to a murky ruling a few years earlier, the IRS might decide that a portion of the employees’ pension contributions are taxable if a worker moves into a plan such as the one offered by Orange County. Such a ruling would remove a key tax-savings for the employee and probably cause most workers to avoid the new plan.

4. A set up discussion:

MOORLACH UPDATE — Nineteenth Anniversary — December 6, 2013

5. My treatise on the subject:

MOORLACH UPDATE — San Diego U-T — October 13, 2013

6. The national politics involved with my focus on repealing this Rev. Rul.:

MOORLACH UPDATE — H.R. 205 — August 28, 2013

7. Why I stressed this tax code modification many years ago:

MOORLACH UPDATE — Fighting/Leading — July 1, 2013

8. A SD Union-Tribune editorial:

MOORLACH UPDATE — IRS — April 10, 2012

Bottom line? I personally informed the Chair of the House Ways and Means Committee, which is a very big deal for this Certified Public Accountant. Therefore, the Republicans in D.C. are aware of the situation and need to act. My editorial submission in the Voice of OC, the first piece below, provides the recipe for thorough tax reform.

The Laguna Beach Independent announces my upcoming speaking engagement for this Thursday evening in the second piece below.

BONUS: You are cordially invited to our Annual Christmas Open House on December 6th, from 4:00 p.m. to 6:00 p.m. at 940 South Coast Drive, Costa Mesa, Suite 185. Also see MOORLACH UPDATE — Happy Thanksgiving— November 22, 2017.

To RSVP, contact Deborah Sandoval at Deborah.Sandoval or 714-662-0550. Dress is Christmas casual, which means if you wear a Reyn Spooner Christmas shirt, you’ll be provided with extra refreshments.

Moorlach: A Crucial Pension Reform Congress Must Enact

By John Moorlach

Regardless of what else is done, here’s the missing piece Congress and President Trump must add to the tax reform they’re working on: public-employee pension reform. What good is it if you get $500 in tax cuts from the federal government if your state and local taxes rise $1,000 to pay for burgeoning pensions for government workers?

The key: Revoke IRS Revenue Ruling 2006-43. It prevents allowing public employees the option of reducing defined benefit pension benefits in exchange for better pay. Dumping the rule would help not only taxpayers, but the public employees themselves.

I’m the only CPA in the Legislature of the largest state, so please let me explain the situation for our representatives in Washington. In 2009, the County of Orange negotiated a strategy that allowed county employees, at their choice, to move from a traditional defined benefit retirement plan to a hybrid, comprising a lower defined benefit formula, combined with an employer-matching, 401(k) plan of 2 percent of wages.

This reform also would have meant approximately a 7 percent increase in net pay for county employees electing to do so, with no added cost to taxpayers. That especially would have helped struggling young families. And it would have eased the underfunded pension crises now facing the county.

Unfortunately, the intentions of the county and its bargaining units were halted by this revenue ruling. Consequently, in 2013, a bipartisan reform to amend the Internal Revenue Code, through House Resolution 205, was pursued. It was co-sponsored by two local House members, both since retired, Rep. Loretta Sanchez, D-Santa Ana, and Rep. John Campbell, R-Irvine.

According to the congressional summary, it would have permitted “the treatment of certain employer contributions made to public retirement plans as picked up by an employing unit regardless of whether” the plan was a traditional one, or had been converted to a new, hybrid plan for county employees electing to do so. Unfortunately, H.R. 205 died in the House Ways and Means Committee.

All the same, in late 2013 I traveled to Washington to unclog this unnecessary and expensive roadblock. On Dec. 4, Sanchez arranged a meeting with the then-chairman of the House Ways and Means Committee, Rep. Dave Camp, R-Mich. The meeting included Nick Berardino, the general manager of the Orange County Employees Association, and Jennifer Muir, his assistant who succeeded him in 2015 when he retired.

Camp’s district was just North of Detroit. The previous day that large city, once called the Paris of the West, saw Judge Steven W. Rhodes declare that its public-employee pensions would not be protected in federal bankruptcy proceedings.

I told Camp that if there was ever a time to be walking in with a solution for this nation’s cities, counties and states, this was it. While in D.C., I also met with the county’s outside legal counsel, who told me the reform was opposed by the AFSCME and SEIU unions, making the real complication the impenetrable prose of Revenue Ruling 2006-43.

Fast forward to 2017, with so many cities and counties in the nation on the brink of insolvency, it’s time to provide a reasonable and fair solution. And with the rising cost of housing, young employees need some relief, as well.

That’s why revoking Revenue Ruling 2006-43 is crucial now. If Republicans are going to make all these changes to the tax code, let’s make sure they address the biggest financial impediment facing our country’s municipalities by including this vital and simple pension solution.

If Congress doesn’t act, by including this obvious tax clarification, then all this hyperbole and debate over tax reform may just end up being a waste of time and energy.

John Moorlach, R-Costa Mesa, represents the 37th District in the California Senate

Opinions expressed in editorials belong to the authors and not Voice of OC.

Voice of OC is interested in hearing different perspectives and voices. If you want to weigh in on this issue or others please contact Voice of OC Involvement Editor Theresa Sears at TSears

Senator Moorlach Speaks to GOP


John Moorlach

State Senator John Moorlach will discuss issues such as the gas tax hike, the state sanctuary movement and pensions as the guest speaker of the Laguna Beach Republicans on Thursday, Nov. 30.

The group meets at Mozambique restaurant 1740 S Coast Hwy, at 5 p.m. to socialize and the meeting gets underway by 6 p.m.

RSVP to highspeed8 as space is limited.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach.

MOORLACH UPDATE — Thankfulness — November 23, 2017

With a recent news report detailing how certain reporters are actually paid (bribed) by groups to publish biased articles, thus validly earning the "fake news" moniker, I am thankful to see the OC Register still providing editorial pieces that speak truth to power with the submission below.

The overriding theme is that certain people do not want you to know the real truth. Up until just a week or two ago, I’m sure Assemblyman Raul Bocanegra did not want you to know about his sexual harassment history in the State Capitol. In fact, his Democrat colleagues also did not want you to know about it, as they supported him over the incumbent Democrat Assemblywoman last year (so much about being the Party that supports women in elected positions). Regretfully, he was elected and is the author of Assembly Bill 1455, the focus of the editorial submission below.

The legislator who "squashed" Civic Openness in Negotiations (COIN) is Democrat State Senator Tony Mendoza, who also does not want to be very transparent, as recent news accounts have shown. Three women have already come forward with serious complaints, as this new "Harvey Weinstein Era" unfolds.

Not wanting transparency is the mandate of public employee unions and their purchased Democratic legislators in Sacramento. I’m not amused. So I have recently added a weekly podcast to my messaging portfolio. See "What Sacramento Doesn’t Want You To Know" a brief monologue where I hold back no punches at

For a recent tutorial on this topic, also see MOORLACH UPDATE — Secretive and Expensive Union Deals — November 3, 2017.

BONUS: You are cordially invited to our Annual Christmas Open House on December 6th, from 4:00 p.m. to 6:00 p.m. at 940 South Coast Drive, Costa Mesa, Suite 185. Also see MOORLACH UPDATE — Happy Thanksgiving— November 22, 2017.

To RSVP, contact Deborah Sandoval at Deborah.Sandoval or 714-662-0550. Dress is Christmas casual, which means if you wear a Reyn Spooner Christmas shirt, you’ll be provided with extra refreshments.


Secret union negotiations aren’t in the best interest of taxpayers

The Capitol building as viewed from the west side in the morning in the city of Sacramento.

By Kerry Jackson

Taxpayers, who fund public employees’ platinum-plated pensions, deserve to know what happens at the bargaining table when their elected representatives negotiate contracts with public-employee unions. What they’d hear would likely alarm them.

But the door is locked. They’re not allowed in.

Consider legislation (Assembly Bill 1455) signed into law this year that hides the records of public-employee contract negotiations even deeper behind closed doors.

Public-sector collective bargaining has been controversial for decades. Franklin Roosevelt once wrote that, “the very nature and purposes of government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with government employee organizations.”

In 1955, George Meany, the first president of the AFL-CIO, conceded in a New York Times Magazine essay that “it is impossible to bargain collectively with the government.”

This should be self-evident.

When private-sector unions bargain, there is opposition across the table. Management has a strong interest in not giving in to union dictates. But when public-sector unions bargain, both sides sit on the same side of the table. Too often, “negotiations” are a surrender to union demands. What’s good for the unions is good for the politicians.

Public-sector unions “carry an incredible amount of clout,” says Republican state Sen. John Moorlach of Orange County. “So, you don’t get a lot of pushback” from the elected officials who should be responsible stewards of taxpayers’ money. Politicians are frequently more interested in the money that government unions lavish on them than they are in protecting taxpayers. Both “sides” also have a common interest in increasing the size and scope of government.

These dynamics, as well as the threat of strikes by government employees whose work, such as law enforcement and firefighting, is essential to public safety, caused the uneasiness once was held about public-employee collective bargaining.

Yet, 25 years after Roosevelt’s letter, and less than a decade after Meany’s warning, federal government workers were granted collective bargaining rights in the early 1960s. Collective bargaining rights for local government workers in California were granted in the 1960s, and for state workers and school employees in the 1970s.

Though their dollars are at stake, taxpayers don’t know what goes on during public-employee union negotiations.Moorlach, though, has witnessed the “nonsensical proposals that are offered to elected officials behind closed doors.” He’s even seen public-sector union representatives “walk in and ask for 10 percent pay raises” while everyone else was sweating through the Great Recession.

Consequently, Moorlach believes “that bargaining unit negotiations” that produce “secretive and expensive union deals” should be open to public scrutiny.

As a county supervisor, Moorlach introduced the Civic Openness in Negotiations ordinance. Naturally, “the statewide public employee unions came in full force and squashed” it, as well as another he introduced this year in the Legislature. That bill could have curbed the reckless spending that the East Bay Times editorial board says “occurs because negotiations between elected officials and the unions that often finance their political campaigns occur behind closed doors.”

Instead of more sunshine, taxpayers got Assembly Bill 1455, which the Times called an “insidious move to block taxpayers from knowing how their money is being bargained away, and what public employees’ raises and benefit enhancements will cost.”

According to the Senate floor analysis of the bill, it exempts from the California Public Records Act any documents related to collective bargaining between local public agencies and their unions. According to the nonprofit advocacy group Californians Aware, which fights for more openness and transparency in government, the bill is a response to an Orange County case involving a request for disclosure of documents on negotiations between the deputy sheriffs union and the county by a blogger. A California Superior Court judge released the documents after finding no authority in state law to withhold them.

While taxpayers are kept in the dark with new laws like Assembly Bill 1455, the state is drowning in public-employee pension debt. Stanford’s California Pension Tracker says the state’s public employees are owed nearly $1 trillion in retirement benefits. At least $300 billion, and as much as $600 billion, of that debt has no funding. When that deficit must be closed, policymakers will turn to taxpayers. They will be obligated by others to increase their “contributions” to public-employee pensions.

That’s too much to demand of a group whose dollars are regularly negotiated out of their wallets in secret.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach.

MOORLACH UPDATE — Happy Thanksgiving! — November 22, 2017

Allow me to wish you a wonderful Thanksgiving weekend with family, friends and great food.

The next few weeks will fly by as we enjoy a busy holiday schedule. May I add to your calendar?

If you reside in the city of Laguna Beach, the OC Register announces next week’s speaking engagement with the Laguna Beach Republicans in the piece below. I’ve had a packed speaking calendar during the recess, as it’s fun to share what’s happening in Sacramento. This past year has been an incredibly memorable one and there’s plenty to talk about. What the supermajority has done to this state is so disappointing. I’m thankful I survived.

P.S. You don’t have to live in Laguna Beach to attend. Come and do some Christmas shopping in this art gallery laden coastal gem. In fact, my featured 2015 artist is Wyland, and one of his pieces is now hanging in the Maddy Lounge, just off of the Senate Chambers. Please visit his studio and congratulate his staff.

If you live in the 37th Senate District, and you know who you are, please visit my District Office for our annual Christmas Open House on December 6th. We will commemorate the 23rd anniversary of the County’s filing for Chapter 9 bankruptcy and the fact that the last installment of the bankruptcy-related bonds were paid off this year! Now, that is something to be truly thankful for. An invitation is provided below.

P.S. You don’t have to be a resident of the 37th Senate District to attend. Since our office is across the street from South Coast Plaza, Crystal Court and MetroPointe, enjoy some of the most amazing Christmas shopping venues in the nation.

OC Register

Thursday, November 16, 2017


Laguna Beach

The Laguna Beach Republicans will hold its monthly meeting on Nov. 30 at Mozambique, 1740 S Coast Highway. Social hour starts at 5 p.m., meeting is at 6 p.m. State Sen. John Moorlach will give an update from Sacramento on topics such as the gas tax hike, sanctuary state movement and the pension situation. RSVP to highspeed8.

Erika I. Ritchie

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach.

MOORLACH UPDATE — CalPERS Exit Strategies — November 18, 2017

The union-majority controlled Board of the California Public Employee Retirement System (CalPERS) still doesn’t get it. And the LA Daily News and OC Register editorial piece below provides the proof.

After reading the piece, you’ll understand why I authored SB 681 this past year (see It is a two-year bill, so expect some action on January 8, 2018, the first meeting of the Senate Public Employment and Retirement Committee for the 2018 Session. Also see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017.

CalPERS is a multi-employer administrator for defined benefit pension plan sponsors. If a plan sponsor wishes to leave, the formula should be very simple. Calculate the contributions that CalPERS actuaries requested and were paid into the system, then determine the net compounded earnings of those funds placed into the plan, and subtract what has been paid out for benefits to retirees. Simple math. Give the remaining balance to the city (plan sponsor) as that city is required to run the retirement plan, which can be done with another vendor or on their own. The city is required to pay the retirement benefits and CalPERS is absolved of anymore responsibilities.

The terminating agency plan is proof that CalPERS has been committing a form of fraud by undercharging plan sponsors (see MOORLACH UPDATE — What Pension Crisis? — September 27, 2017 ).

To start the process of authoring additional pension reform bills for next year, I recently wrote two letters to two CalPERS Board members. What happened next is mentioned in the piece below and can also be found in MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017.

It’s good to see the media keeping a diligent eye on CalPERS and its suspicious and inappropriate strategies when dealing with its "customers." The CalPERS Board must be realizing that the city of Loyalton’s exit strategy could gain traction. And, like a person that is overly possessive, it can’t seem to let go of something that isn’t even theirs.

BONUS: "The Day the War Hit the Shore" Veterans Day afternoon ceremony last Saturday was an amazing time to informally discuss a tragic and little known event, which occurred in the 37th District back in 1943, with members of the surviving family present. It was held at the clubhouse of Huntington by the Sea, off Newland, just a block from the ocean.

Thanks go to Chris Epting for his outstanding historical scholarship and presentation on this unique summer Sunday afternoon when a P-38 pilot had to eject from his two-engine plane when one of the engines caught fire. The P-38 was headed for the ocean, but the second engine was still operating its propeller, so the unmanned aircraft turned back to shore near PCH and Newland Street. The plane hit a crowded beach and exploded, probably fully fueled, injured 40 Orange Countians and killed four children.

The Barrego and Silva families of Garden Grove, enjoying a picnic on the beach with their families, lost two children each that day and would never be the same.

Daughter Vera Silva did not go to the beach that day. As a 10-year-old, she stayed home to dutifully care for her blind grandmother. For her surviving brothers, who were severely burned, she would be their caretakers, too. They would die at a young age. Her parents would pass away at young ages, too, perhaps due to the tremendous grief.

Vera’s daughter, Maria Young, is a 2016 Daily Pilot Hall of Fame recipient (see When Maria wanted to hold her wedding on the beach, near the spot of the incident, Vera had to explain her reservations and finally shared the family story. It was so painful, she had kept it from Maria for some two decades.

G. Pat Macha was in attendance and provided additional information on the P-38 activity in the area during World War II. His aircraft crash site research can be found at

Chase Wickersham, my appointee to the Orange County Veterans Advisory Council, joined us. He was part of the team that established the Tierney Center for Veteran Services at Goodwill Orange County. Dolf Keller would be very proud of Chase (see MOORLACH UPDATE — Veterans Day — November 10, 2017).

Huntington Beach Mayor Barbara Delgleize also spoke and provided insights as to mounting the commemorative brass plaque in a prominent location, such as the Huntington Beach Library.

Thanks to all who attended, as we enjoyed a "Huell Howser" historical jam session.


Losing your pension?

CalPERS wants to shift blame

to cities

CalPERS headquarters at Lincoln Plaza in Sacramento.

By Steven Greenhut

The nation’s largest state pension fund, the California Public Employees’ Retirement System, still is reeling from bruising publicity it received after it slashed the pensions for workers in the tiny Sierra Nevada town of Loyalton (population 862) and in the now-defunct East San Gabriel Valley Human Services Consortium.

Public employees across California understandably were spooked after reading news stories about the plight of Loyalton’s four retirees after the town exited the retirement system in 2013. And nearly 200 retirees in that San Gabriel consortium are losing as much as 63 percent of their retirement pay because the consortium, known as LA Works, closed its doors and stopped making payments.

But leave it to CalPERS to view that state of affairs as a public-relations matter rather than a CalPERS-created policy problem. At the pension fund’s recent meeting, its board proposed finding a sponsor for a state bill that would require agencies to notify their employees when they intend to exit the pension fund. The goal is to shift the blame to cities and districts that rely on CalPERS to administer their pension benefits.

The proposed legislation shows that CalPERS “would like someone else to deliver the bad news when local governments quit paying their bills and put a retiree’s pension in jeopardy,” reported the Sacramento Bee. CalPERS is capable of keeping pensioners posted, but there’s nothing wrong with giving retirees additional information given the months of uncertainty they endured.

But the CalPERS proposal doesn’t go nearly far enough. Any new law ought to include myriad other disclosures, too. Namely, retirees — and maybe taxpayers, too — ought to be informed about the size of the state’s pension debt and the frighteningly low rate at which CalPERS is funded. They ought to be told why public services are gutted and local taxes keep going up.

But the fund probably wouldn’t be too thrilled about those suggestions, just as it rejected recent efforts by Sen. John Moorlach, R-Costa Mesa, to force it to provide cities with more actuarial calculations. CalPERS said no even though hard-pressed city officials came to a Sacramento hearing to plead with them to provide the data.

Loyalton voted to exit CalPERS because the town couldn’t afford the payments. LA Works exited because it shut its doors in 2014. When they left, CalPERS slammed them with massive bills. Loyalton was assessed a $1.66 million “termination fee” it couldn’t possibly afford given its $1 million annual budget.

Apparently, CalPERS wants retirees to believe that it’s the local agencies’ fault for leaving the fund, without mentioning that it’s the pension fund that put them in their current bind. The issue revolves around some eyes-glaze-over accounting known as the Terminated Agency Pool, but the details say much about how CalPERS operates (hint: for the benefit of union members).

In the private sector, most employees receive 401(k) plans. The employer deducts money, sometimes makes a contribution. The money is invested in a mutual fund. If returns are good, the employee benefits and vice versa. In the public sector, employees receive a “defined benefit.” They are guaranteed a payout based on a formula, regardless of how well the pension fund’s investments may perform. The “unfunded liability” is the difference between what’s promised and the money available to pay for those promises. Taxpayers are on the hook for that shortfall.

The funds invest the dollars and predict a rate of return. Higher returns mask the size of the liabilities and enable governments to ramp up benefit levels — or at least avoid trying to trim them. The fund assumes a hefty rate of return of 7 percent (down from 7.5 percent). But when an agency wants to leave, CalPERS sticks them in a separate fund for terminated agencies, where it only predicts a rate of return of around 2 percent. Local agencies get a bill for the difference.

In other words, the union-controlled fund is bullish when taxpayers’ money is at risk. The fund assumes high rates, which keeps the gravy train chugging along. If there’s a shortfall, they increase cities’ fees or take more money from the state general fund. But when agencies leave, CalPERS no longer has a way to make up for any future losses. So when its own money is on the line, it becomes miserly and assumes a piddling rate of return.

Everything CalPERS does is carefully audited, so it knows how much a local agency has paid into the fund, how much it earned and how much it paid out. CalPERS can calculate a balance and work out a plan with the agency to pay the difference. Instead, CalPERS “negotiates” with these agencies in a way that’s more reflective of negotiations between a mugger and victim. The fund does so because it fears other agencies will head for the exits, too.

Can someone sponsor a bill that discloses those facts to retirees and the public?

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

Also follow me on Facebook & Twitter @SenatorMoorlach.