Property tax first installment payment is due tomorrow, December 10.
The Orange County Fair saga continues. As this situation has gone sideways, I have been requested by County Counsel to not interact with members of the OC Fair Board. This has been one of the more heart-rending directives that I have received as many of the Fair Board members are long-time and dear friends. The first article is an update on this awkward time.
The second article is more fascinating. The Government Accounting Standards Board has required that defined benefit pension plans be mentioned in the footnotes, but not in the balance sheet. The County’s Comprehensive Annual Financial Statement (CAFR) can be found at http://www.ac.ocgov.com/finstm2008.asp. I’m sure the June 30, 2009 CAFR will be posted soon. If you look at the County’s “Notes to the Basic Financial Statements” (http://www.ac.ocgov.com/2008CAFR/NOTES.pdf) you will find, starting at page 125, Note 19, Retirement Plans. If you can find the actual dollar amount of our unfunded actuarial accrued liability in this footnote, then I’ll buy you lunch. It’s not mentioned on our balance sheet, either. See http://www.ac.ocgov.com/2008CAFR/MAJBS.pdf. If it were, the liability would be $2.5 billion (as of June 30, 2008), and the County’s “Total Fund Balances,” of $2 billion, would be wiped out. What does this mean? Well, a negative “retained earnings” means you have more debts than assets. This means you are a bankruptcy candidate. And this will hit municipalities around the nation like an asteroid (and for coastal municipalities, like a tsunami).
GASB is finally facing reality. The defined benefit pension plan is an obligation of the county. It’s a debt. It should be recorded as one. And if GASB requires it, it will be a “mind-blower.” And long overdue.
Key members leave O.C. Fair foundation
By JENNIFER MUIR and TONY SAAVEDRA
THE ORANGE COUNTY REGISTER
Three members of the Orange County Fair Board are abandoning a nonprofit foundation they formed to buy the fairgrounds — and two believe the rest of their colleagues should disband the group.
The resignations crack a shaky foundation, already accused by Orange County officials of breaking state open meeting and conflict of interest laws.
The opposition to the foundation’s bid – and to the state’s plan to sell the fair in general — has been deep and strong. The city of Costa Mesa and the county of Orange are lobbying to take the fairgrounds off the market, and a state assemblyman is pushing for the governor or the legislature to block the sale.
Meanwhile, the state Attorney General’s Office, which represents the fair board, last week told the panel to find a new lawyer until the sale of the fairgrounds is resolved. State lawyers said it would be a conflict to advise board members who might also bid on the state-owned land.
Two of the board members who resigned said Tuesday that mounting political opposition made it unlikely the foundation would ever be successful in its efforts to buy the fairgrounds. Dale Dykema and Joyce Tucker stepped down from the foundation’s board three weeks ago. A third board member, Gary Hayakawa, also is resigning. The departures leave only three fair board members on the foundation.
Tucker said she didn’t want to fight the city, the county, the district attorney, the legislature and the public.
"It’s kind of like the Vietnam War. What are we fighting for? I heard the voices and said, ‘OK’."
The state legislature in July voted to sell the 1,500 acre fairgrounds to help close the state’s massive budget gap. A week later, some members of the fair board – officially known as the 32nd District Agricultural Association board — formed a nonprofit foundation to buy the fairgrounds and preserve the land’s rich tradition in Orange County.
Two members of the fair board did not join the foundation: Julie Vandermost said she didn’t have enough time to devote, and David Padilla said he wasn’t asked to join and opposed the idea from the beginning.
Members of the Orange County Fair and Event Center Foundation in October hosted a dinner for local officials at the Ritz Restaurant in Newport Beach "to celebrate the fact that we all were guardians of the fair and let’s all work together to preserve it," board chairwoman Kristina Dodge said in an interview last month. Foundation members describe it as a high point – where they felt supported in their efforts.
Orange County Supervisor John Moorlach, who is quick to point out that he paid for his own meal, remembers wishing fair board members well, but also noting there was a lot unknown about the sale of the land.
Then later that month, Orange County’s head counsel Nicholas Chrisos complained to the state Attorney General that the fair board illegally used public money to pay for lobbyists to influence the sale. The move was illegal, Chrisos wrote, because those same people could potentially buy the fairgrounds through the nonprofit foundation, and could financially benefit with free parking and tickets.
The complaint is now being investigated by the Orange County District Attorney’s office.
About that time, Dykema said, Moorlach stopped returning his calls.
Moorlach said he didn’t return Dykema’s phone calls because county lawyers advised him against further contact with fair board members. He wouldn’t say why, but he became emotional when he learned that his actions contributed to Dykema’s resignation.
"I mean no ill will toward Dale at all," Moorlach said. "I was just told to stop communicating with the foundation."
The county has since asked Gov. Arnold Schwarzenegger to block the sale in an effort to preserve the land. If the sale continues, the county is discussing the possibility of partnering with the city of Costa Mesa to buy it, Moorlach said.
While Moorlach won’t say what changed between the foundation and the county, Dykema thinks he knows.
"There are some special interests involved here that don’t want to see any change," Dykema said, referring to groups that run the equestrian center and the swap meet. "They were able to rouse up the troops and create problems for the politicians, so the politicians backed off and we were left by ourselves."
Still, he thinks the foundation’s efforts are now "futile" and it should dissolve to stop the acrimony. Board Chairwoman Kristina Dodge was not available to comment.
Tucker said she’s waiting for Dodge to put out a formal release announcing whether the foundation will continue – something that is supposed to happen this week.
"It’s really sad," Tucker said. "Our efforts were never for anything other than to save the fair and make it better."
Local governments may have to report billions in extra debt
Tony Saavedra, Register investigative reporter
A federal board that sets accounting standards for local governments is leaning toward requiring that cities and counties report their pension debts in a way that could damage their ability to obtain credit.
Staff for the Governmental Accounting Standards Board is eyeing a plan to make municipalities report their pensions’ unfunded liabilities on their balance sheets — which are used by lenders to determine an agency’s financial health. Currently, the unfunded liabilities are listed as footnotes.
The change, already required of private financial firms, would add millions of dollars – in some cases billions – in reported debt to cities and counties.
For the city of Orange, that would mean about $60 million.
For the county of Orange, that would mean about $2.5 billion.
“What you’re doing is taking the hay out of the loft and putting it on the floor where everybody can see it,” said Orange County Supervisor John Moorlach, an outspoken pension reformer. “If GASB issues that (decree), it’s going to be a mind-blower.”
Marcia Fritz, a Sacramento accountant who works with the national board, said the staff is supporting a plan requiring that unfunded liabilities — the debt a municipality would face if forced to immediately pay off its pension — be listed on the balance sheet.
It would mean that the liability is a bona fide debt, Fritz said. Retirement plans have likened unfunded liabilities to mortgages that are not due for decades and therefore aren’t as big a debt as they may seem.
Orange County Auditor/Controller David Sundstrom, who sits on the national board, confirmed that the agency is considering the accounting change and hopes to have a draft by July 1.
FIVE-YEAR LOOK BACKS
The pace continued. National publications continued on this story. We were in USA TODAY again, with another piece by Richard Price and Gale Holland on Citron, titled “Money, luck ran dry for Orange County treasurer.”
John Moorlach . . . says Citron was in office too long. “He might have gotten a little overconfident.” Because Citron was so successful – to the benefit of other governments investing in his fund – few questioned him.
So solid was his reputation that state Sen. Marian Bergeson, a Newport Beach Republican, withdrew her support of Moorlach’s candidacy because he criticized Citron, the county’s only elected Democrat.
“I didn’t want to send out any negative signals,” she says. “When a county is heavily into the investment market, the last thing you want to do is suggest there’s something wrong. I guess we should have listened.”
The Wall Street Journal featured the OC in their “Review & Outlook” editorial column, titled “The Turbocharged Treasurer.” After trying to explain Citron the piece dealt with the portfolio and then I’ll jump to their conclusion.
The second thing to realize is that derivatives didn’t tank Orange County. Though this episode is being treated as another indictment of the scariest financial bogy since “junk” bonds, such instruments have only a supporting role. As of August, derivatives constituted barely a fourth of the leveraged part of the county’s investment portfolio, according to John Moorlach, the man who ran against Mr. Citron.
So now that they’ve become a household word, what have Orange Countians taught us? Be circumspect about any curtailment of financial freedom, but be adamant about making the units and pieces of your governments live within their means. Properly overseeing the managers of public money never hurts, either.
Michael Utley of The Bond Buyer addressed a remedy in “California Legislation would Prohibit Investment Practices Used in Orange County.”
A California assemblyman [Republican Assemblyman Curtis Pringle] plans to introduce legislation next month that would outlaw the kinds of high-risk investing tools that have gutted the Orange County investment pool and triggered an ongoing bankruptcy crisis.
Pringle wants all governments in the state to follow the same conservative investment guidelines set up by the Local Agency Investment Fund, a branch of the state treasurer’s office that was established years ago as an alternative to county funds.
Citron helped draft legislation giving counties more freedom to borrow, for the purpose of investing in high-yield securities.
Citron then used the new law to leverage the county’s $7.8 billion investment pool, eventually inflating its value to more than $20 billion.
But when interest rates skyrocketed this year, the fund’s value plummeted 20% to last week’s $18.5 billion level.
“Citron bought the rope that he hung himself with,” said John Moorlach, a Costa Mesa accountant who ran unsuccessfully against Citron for the treasurer post last spring.
“I remember him bragging during the campaign, ‘I wrote the law, I’m getting the best returns in the state,’” Moorlach said.
Moorlach is also advising Assemblyman Pringle on the bill to outlaw the use of risky investment strategies by public agencies.
But while he has Pringle’s ear, Moorlach is concerned that the bill may go too far.
“He just has to be careful that he doesn’t swing the sword and knock everything out,” Moorlach said. “If we were to get really tough, we could say just about everything is a derivative. I mean, we’re still having trouble defining exactly what a derivative is.”
The OC Register carried the impacts of the bankruptcy filing in “Insecure cities , schools – County faces grim reality – Wall Street bankers start selling off securities posted as collateral.” The remedy of filing for bankruptcy protection to avoid having to answer collateral calls failed. In this piece, city leaders were coming to grips, including long-time friend Wally Linn.
Neither La Palma or Laguna Niguel received checks due for withdrawals approved last week, before the bankruptcy filing. La Palma sought $500,00 and Laguna Niguel $600,000. “Personally, I don’t expect the disbursement to be received,” Mayor Wally Linn said. La Palma had been making small withdrawals since the spring. “I felt the things he (Citron) was doing were risky in such a volatile market,” said Linn, who supported John Moorlach in his challenge to Citron.
Bill Lobdell, Editor for the Daily Pilot paid me a visit and did a lengthy front-page column with three photos showing me in three different posses, but definitely showing some wear. The story was titled “’It’s tough being a prophet’ – John Moorlach warned that the county was at risk because of its investment policies. Now he’s looking for solutions.” Bill knew me as a friend and as a regular columnist. It was quiet a session. If I could find the piece on the internet, I would print it in full. Here are a few selected segments:
John Moorlach was right.
During his campaign this spring against incumbent Treasurer-Tax Collector Bob Citron, Moorlach predicted – with uncanny accuracy – the fall of the high-flying Orange County investment fund.
But with the news of the county’s $1.5 billion loss and subsequent bankruptcy, Moorlach was suddenly turned into the hero who may have been able to avert this financial tragedy if given the chance.
He’s spent most of his waking hours during the past week in interviews with everyone from the Wall Street Journal to NBC News. Between phone calls and satellite feeds, Moorlach, 38, sat down . . . to talk about the Orange County Crash of ’94.
What’s your life been like this past week?
It’s like Fantasyland. I’m happy that I’ve been vindicated, I’m sad that our county is bankrupt, and I’m angry that people weren’t listening.
Did you ever waver?
No, I never wavered.
Never had a moment of doubt?
Never. I thought I was crazy a few times, but I had too many guys telling me they saw the same thing. I told one reporter today, it’s sort of like Field of Dreams. I feel like Kevin Costner. I’m seeing all this stuff but no one else is seeing it. I’m going, “What is going on here? This is basic finance 101! This is real basic.” It’s so basic, in fact, the country’s going nuts now over it.
You don’t know who is being considered for the treasurer’s job?
I don’t know. Remember, these are five elected officials, i.e. politicians (who will make the decision). I have to trust that they’re going to do what’s best for the county.
If they don’t appoint me, then that’s fine too. I have a great practice, I’m really happy here. Stepping into this job would be a major workout project.
What would you do?
We need to know what our rights, remedies and responsibilities are. We need to review our resources and see what needs to be prioritized. We need to develop a strategy and see what needs to be rationed, what needs to be cut, what needs to be postponed, deferred.
It needs to be organized, fair, feasible, it has to make sense.
It’s got to be ready within two weeks, and we’ve got to get going. We’ve got to communicate, we need to get out front, work with the media, work with the voters, not hide behind closed doors but totally and constantly communicating, be willing to answer all the questions and keep moving, not take authorship of anything, be open to suggestions from staff and from the community and do the best we can to resolve this situation.
There’s no painless solutions at this time?
No painless solution. The only thing we can do is take all the pain up front and go from there. The past is the past, there’s no time for gnashing your teeth. We’ve just got to get going, the future is ahead of us, and the future starts today.
Would you have done [this] anyway if you had been elected?
Yeah. I would have tried to have done it the day after I was elected, even though I wouldn’t have been installed for seven months. I would have demanded immediately that we pull in a team and get this thing resolved right away, because it should have been done technically Oct. 15, 1993. Citron should have disengaged at that time, and he kept waiting for rates to slowly come back down, and our economy is heating up too much.
When you were running against Citron, why didn’t the message get out?
The message did get out. It got out well in certain forms. It got out well in the Wall Street Journal, for example. Unfortunately, the majority of the residents of Orange County do not read the Wall Street Journal . . . The East Coast, when this thing broke, when the dam broke, the reporters were laughing their heads off. How could Orange County be this stupid? They couldn’t figure it out.
Now it’s a little different. Now I’ve got too many reporters climbing all over the place. I’d like to take a nap or go out of town or go to the beach.
When we look back on this 10 or 20 years, how badly will this tarnish Tom Riley’s and Harriett Wieder’s tenure on the board?
We will still be talking about this 10 to 20 years from now.
The OC Register’s Letters to the Editor section was titled “Who’s To Blame For O.C. Bankruptcy?” Here is a portion of one letter writer’s comments:
Robert Citron resigned. Other elected officials also should resign. For openers, all the Orange County supervisors should resign. They failed to investigate John Moorlach’s allegations in the June election. If the supervisors don’t supervise, what do they do?
But, the most emotional interview I had was with OC Register columnist Melissa Balmain. She wrote an amazing piece, titled “Soul-searching: Do media deserve portion of blame?,” that resulted from a late night telephone interview on December 6. “Mr. Moorlach, it seems to me that the media blew it.” “Ms. Balmain, are you serious?” And off the discussion went. I finally had a therapy session. I needed to fax her some documents. As I was standing over the fax machine I can remember doing the “Tevye the Milkman” (Fiddler on the Roof) shtick with God. I was talking out loud. “Lord, I really did try to tell them . . . and now we’ve filed for Chapter 9 bankruptcy!” And I started to ball. I have never cried like that before or after. But, it was the best therapy. It was truly a gift from God. I needed to let it all out. Consequently, I’m a man who is no longer afraid of crying. Melissa Balmain and I would actually do dinner the next evening at my favorite Mexican restaurant, Chiappes, across the street from my office. I can still remember complaining that the Register never once came over and took my photo during the campaign! And still hadn’t. What a goofy news outlet.
“I will say a MAJOR portion of the blame goes to the media,” he roared.
On local television, the treasurer’s race got less coverage than some races affecting only a city or two. “I asked (one television editor), ‘How come you’re not covering this?’” he said. “And they said: ‘Numbers. It wasn’t something we could videotape . . . It’s not a drive-by shooting or a fire.’” True, Moorlach said. But isn’t it the role of journalists to make things interesting?
In print, the race received more play. Yet both major local papers . . . never figured out that Moorlach was right.
Moorlach said he suspects laziness on our part. He suspects political bias.
But the editors of both papers told me they tried hard to be fair and thorough.
Still, did we really dig deeply enough?
We could . . . have taken Moorlach’s claims more to heart.
So why didn’t we?
“We screwed up,” said Register Managing Editor Ken Brusic.
The treasurer’s race was just one of many dust specks – a cloud of stories – swirling around all of us at the time, he said.
Even if the media had spent enough time to back up Moorlach’s claims, of course, he still might have lost the race. If he’d won, he might have flopped and left the county as bankrupt as Citron did.
We’ll never know. What we do know is being roared at hurts.
And – if we’re lucky – it’ll do us some good.
Jubilation! Check out this headline in the LA Times: “91 Toll Lanes’ Sale Is Halted Amid Outcry – Mounting opposition and the threat of litigation force indefinite postponement of $274-million bond deal that would have transferred road to O.C. nonprofit group.” Meg James and Megan Garvey shared the good news.
Orange County Treasurer John M. W. Moorlach, an outspoken critic of the deal, was jubilant over the indefinite delay of the bond sale.
“We stopped the train in its tracks,” Moorlach said. “The cram-down has been prevented. Now we’ll have the chance to give this transaction the scrutiny it deserves.”
James B. Kelleher of the OC Register had this headline: “Express Lanes projections rang an alarm – The project’s success hinges on numbers provided by a consulting firm with ties to the seller.”
Numbers the firm worked up for the Transportation Corridor Agencies on the San Joaquin Hills (73) Toll Road were “over-inflated,” said Moorlach.
OC Register Business Columnist Jonathan Lansner shared his frustrations in “Public trust in toll-road deal is iffy.”
“Trust me” didn’t work.
The deal collapsed—oh, I mean “was postponed”—because the dealmakers wanted everybody in this town to believe that it was a good deal BECAUSE THEY SAID SO.
“You can’t fire those you do not control . . . hardy-har-har,” O.C. Treasurer John Moorlach joked late Wednesday. “Hey, it’s an arm’s-length transaction, right?”
To close, remember that tomorrow your property tax installment is due. The LA Times reminded taxpayers in “Tax Deadline Nears.”
Last-minute taxpayers also have the option of mailing their taxes up until 11 p.m. Friday [December 10], said John M. W. Moorlach, the county treasurer-tax collector.
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