Look Backs

INVITATION

Please come to our Third Annual Christmas Open House on December 16th, from 3 to 5 p.m.

10 Civic Center Plaza

333 West Santa Ana Boulevard

Fifth Floor, Second District

(Park in the lot off of Ross Street)

To RSVP, please call Margaret Chang at 714-834-3220

FIVE-YEAR LOOK BACKS

December 7

1994

The Bond Buyer has a noon deadline, as it is printed on East Coast time.  Michael Utley and Brad Altman had one of the front-page headlines, “Glare Is on Orange County Pool As Rumors Fly, Options Studied.”  

A combination of grim news and rumors swirled around Orange County’s investment pool yesterday.

The specter of a Chapter 9 municipal bankruptcy filing was raised by U.S. Rep. Christopher Cox, who represents parts of the California county.  The Republican told reporters he heard the report from a county lobbyist.

In another development, John Moorlach, a certified public accountant who ran against Citron last spring, said yesterday he expects to be offered the job later this month when supervisors must appoint a new treasurer-tax collector.

“Right now, it’s rehabilitation time, and I’m ready to serve,” said Moorlach, a Republican from Costa Mesa.  “I got 40% of the vote against an incumbent, so I would think, even if they didn’t want me, it would just be courteous to put me in the mix.”

Moorlach said whether he is offered the job or not, he will continue to pursue changes in the laws that have contributed to Orange County’s financial mess.

Jacqueline M. Doherty of Dow Jones News did a profile in “Loser For Orange County Treasurer Post Warned Of Risks.”

John Moorlach might have lost a battle in Orange County, but he still hopes to win the war.

“My campaign brought these issues to light,” said Moorlach last night, prior to news that the county would file bankruptcy.  “I was treated like a jerk . . . This vindication has been very satisfying.”

Moorlach says that he and a panel of professionals could put together a reorganization plan in two weeks.  He declined to give specifics on how he would remedy the fund’s current problems.

The Orange County Board of Supervisors, which would make such a decision, hasn’t contacted Moorlach for his services, he says.  But everyone else, especially news organizations, have asked for his explanations and views on the matter.

“I have been on the phone for six days straight,” said Moorlach, who is an accountant and hasn’t been able to do any billable work.  “My clients are going to kill me.”

Moorlach, 38, has been a partner for 10 years at Balser, Horowitz, Frank and Wakeling, which he describes as a “nice, solid, quiet” Costa Mesa, Calif., accounting firm founded in 1937.  A general practitioner, Moorlach has worked with everyone from nonprofit organizations to corporations to mom and pop clients.

David J. Lynch of USA TODAY did a piece on “Orange County culprit:  Borrowing – Blame leverage, not derivatives.”

John Moorlach . . . warned against the interest-rate bet during . . . [the] campaign.  “I’m not saying I told you so,” he says.  “This is a major, major catastrophe.”

But the big headline for the day was found in the Daily Pilot with Evan Henerson’s “Bankruptcy brings further uncertainty – County’s filing leaves local leaders concerned about investments.” 

As county officials announced their intent to file Chapter 9 bankruptcy Tuesday, officials from the cities of Newport Beach and Costa Mesa hastened to assure residents that administrators are concerned buy not panicked.

The $3 million [in the Orange County Investment Pool] represents a small percentage of the city’s $50 million portfolio, [Costa Mesa Mayor Joe] Erickson said that Costa Mesa will have no difficulty “weathering” any problems experienced by the county.

“The city will be running as it normally runs,” Erickson said.

“We have a diversified portfolio and we’ll be able to maintain day-to-day operation with no problems whatsoever.  Costa Mesa is in good fiscal condition.”

Erickson credited Costa Mesa accountant John Moorlach with giving the city sound fiscal advice and recommending the city withdraw funds from the pool.

The Chapter 9 filing will allow the county to reorganize in order to be able to meet its debts while protecting itself from liens or lawsuit, a county spokeswoman said.

Word of the bankruptcy appears to have first leaked out in Washington, D.C., where Congressman Christopher Cox (R – Newport Beach) and other representatives received a message from county representative Jim McConnell.  The message, according to Cox, read:  “Urgent:  Orange County may declare bankruptcy by 1:30 today” and asked Cox to contact the Securities and Exchange Commission in order to freeze county assets.

1999

The LA Times weighed in on the toll road fiasco.  Meg James, who did a fantastic job on this story, wrote a piece with Megan Garvey titled “Toll Road Transfer Deal Bothers State Treasurer—But he didn’t try to block the sale of the 91 Express Lanes to Irvine group.  Other experts question pact’s ethics.”

Despite his reservations, [State Treasurer Phil] Angelides said he would not block the project’s bond sale, scheduled for Thursday.  Such a move would come only if the treasurer believed the deal was illegal or not favorable in current market conditions, his chief deputy said.

However, Orange County Treasurer John M. W. Moorlach said he called Angelides on Monday and asked him why he wasn’t doing anything more to question the sale.  Moorlach said he told Angelides, “If you didn’t feel comfortable, you should have tabled it or voted no.”

The sellers (the public-private partnership that built the lanes), Moorlach said, “found a loophole to get out of the deal they made and found a way to make a nice profit too.”

“Their own official statement gives the impression that this is a contrived transaction,” Moorlach said.  “It may not be illegal, but it certainly is unethical.”

James B. Kelleher and Jenifer B. McKim of the OC Register continue with “Rift over 91 sale heats up – The O.C. treasurer asks the state to delay the tollway deal.  Riverside County could try to block it today.”

Orange County Treasurer John Moorlach intensified his attack on the impending sale of the 91 Express Lanes on Monday, urging the state treasurer to “intercede and stop the train wreck.”

The $274 million in state-backed bonds that would pay for the tollway feel too much like the risky investments that drove Orange County into bankruptcy five years ago, Moorlach said.

Moorlach, a number-crunching Cassandra whose warnings of impending fiscal trouble were ignored in the months leading up to the county’s bankruptcy, urged [State Treasurer Phil] Angelides to postpone the sale, which he said would benefit Wall Street bond underwriters but hurt local toll payers.

“That’s why Orange County went bankrupt,” he said.  “I see aggressive projections.  I see low debt payments now, with a modified ballooning at the tail end, which anticipates increased usership that probably won’t appear.

“So you’ll have to refinance and set up a similar structure, with low payments in the front end and high payments in the back end.  You wind up pushing the debt way out into the future, perhaps indefinitely.  If that occurs a number of times, these toll lanes will never be free.”

The financing will cost more than $1 billion in interest over 30 years, critics say—every penny of it paid for by commuters.

Moorlach said that if the current owners want out, the state should simply return the money they invested in the project, take control of the road and drop the toll.

“Why don’t they just pay these guys who want out what they paid to build it, take the cones down and open it up?” Moorlach asked.  “Let’s show some vision here.”

Today, the Riverside County Board of Supervisors will vote on a plan to halt the sale through legal action and by urgently requesting [Governor] Davis and the Legislature to delay the sale pending an independent appraisal of the sale price.

The current owner, California Private Transportation Corp. (CPTC), says a change in corporate focus prompted it to find an escape route.  CPTC is a joint venture of Level 3 Communications, Cofiroute Corp. and Granite Construction Inc.

CPTC expects to sell the enterprise for $225 million, including an estimated $90 million profit.  The rest of the $274 million bond sale is expected to cover closing costs and create a reserve.

Jonathan Lansner of the OC Register weighed in on the subject with “Toll-road bailout a gamble.” 

Five years ago, Orange County gambled with its investment pool and lost.  This week, one local toll road’s proving that few lessons from 1994 were learned.

Welcome to the 91 Express Lanes toll-road bailout.

This is the deal where the builders spent $1 million to whip up a not-for-profit entity that plans to buy them out with $275 million in municipal bonds from a state agency.

Plus, as if that weren’t enough, one of the sellers is part of a five-year, $19 million toll-road management contract.

Surprisingly, this deal draws muted response from local government leaders.

So what the citizenry is stuck with, unless something derails this week’s bond sale, is a big bet that the express lanes can consistently grow usage – and thus revenue – for the next three decades.

Think of it this way:  Commuters will pay exorbitant tolls for 30 years so the builders comfortably exit their bum investment and traders get fat yields on the toll-road muni bonds.

The odd timing of this mess, coinciding with the five-year anniversary of the O.C. bankruptcy, certainly flames some old emotions.

How can it be that O.C. Treasurer John Moorlach, whose warnings about the investment pool went unheeded, is almost the lone elected skeptic in this town?

“It’s déjà vu all over again,” Moorlach barks.

2004

Teri Sforza of the OC Register dealt with the question “Did O.C. really learn its lesson?  Ten years after bankruptcy, some experts bemoan lack of reforms.” 

What lessons were learned from the $1.64 billion debacle?

It depends on whom you ask.

“Little got changed and less got learned,” said Mark Petracca, a UC Irvine political science professor who followed the bankruptcy closely.  “The thing that troubles me most is that we had a golden opportunity t rethink how county government should be structured and operated, and we blew it.”

But longtime good-government activist Bill Mitchell does see some silver linings.

“I can only think of four good things:  One is John Moorlach as our county treasurer.  He was right (about the volatility of Citron’s investments), and we’ve added a really outstanding leader.

“Two, term limits (for supervisors).  Three, (former CEO) Jan Mittermeier brought strategic planning and tighter financial controls to the county.  “And four, (former supervisor and now Assemblyman) Todd Spitzer.”

Under Moorlach, the office has an oversight board to keep an eye on investments.  It invests much more conservatively.  Trades and the cash value of investments can be viewed on the Internet, as opposed to the secrecy that reigned in Citron’s time.

These days, Moorlach – whose warnings about Citron went unheeded – warns about the county’s pension fund.

Debt for retiree benefits has more than doubled.  Reserves are expected to run out in 2006.  The ballooning costs pose the latest, greatest risk to the county’s fiscal health, he says.

The lead Letter to the Editor provided a nice title to the column:  “Bankruptcy’s benefit:  It gave us Moorlach.”  Here are the final two paragraphs to a very kind five paragraph submittal.  Thank you, Jim Bieber!!

The one silver lining to the county bankruptcy was the opportunity for the public to get to know Moorlach:  an honest and intelligent person who fights for taxpayers – not county bureaucrats.

Moorlach has proved himself before, during and after the bankruptcy.  His certain election to supervisor will provide another lesson to future politicians:  sometimes good guys finish first.

Jim Bieber

San Clemente

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