The OC Fair continues to have the reporters circling around and asking questions. There’s nothing really new and I can’t comment anyway. In the meantime, I did receive news that Mary Young’s husband, Ron, is in the hospital. Please keep Ron in your prayers.
District explores purchase of fairgrounds
Board of trustees discussed three-way deal between county, city and college.
By Mona Shadia
The Coast Community College District board of trustees is weighing an option of joining the city of Costa Mesa and the county to purchase the Orange County Fairgrounds if the state goes through with selling the 150-acre property, the college district’s board president said.“We are definitely looking into what the city of Costa Mesa and the county are suggesting, and we want to be part of that,” said Jerry Patterson, the board president. “It’s day one. But we are very interested.” He added: “The fact is, the board of coast community college is very concerned about the possible sale of the Orange County fairgrounds.”Orange Coast College in Costa Mesa, one of the community colleges in the district, has worked with the fairgrounds for years. The college holds its graduation ceremonies at the Orange County Fair & Event Center, otherwise known as the fairgrounds. The college and the center also have an agreement that allows students to use the fairgrounds’ parking lot. It’s not clear how much it would cost the college district to enter into a Joint Powers Agreement with the city and county to purchase the fairgrounds, Patterson said, because the district has only just begun exploring the idea. “If the price is right and there’s a three way split of some sort, it could be doable,” Patterson said. When questioned about prospects for a three-way deal between the county, city and college to purchase the fairgrounds, County Supervisor John Moorlach would not confirm that such talks were underway. But he did say that the county and the city are considering a joint purchase. “We’re a community concerned about the fair and everyone is extending a hand,” Moorlach said. Meanwhile, Kristina Dodge, who chairs both the Fair & Event Center’s board of directors and the board of a foundation — which was recently formed by Dodge and five of the center’s other directors to buy the fairgrounds and preserve it as a fair — announced Thursday that the foundation is ready to place a bid on the property. This comes, however, as the foundation appears to be teetering after four of its six founding board members resigned in recent weeks. “As foundation members, Mary Young and I will stay very connected to sale process and be ready to take any action necessary to keep the foundation’s pledge of preserving the Fair,” Dodge said in an e-mail. Dodge did not return calls seeking answers to more questions. Dodge and Young now are the only two members left after fellow foundation trustees Dale Dykema, David Ellis, Joyce Tucker and Gary Hayakawa resigned. Hayakawa said he no longer felt that people were behind the foundation’s original goal, which was to purchase the fairgrounds and run it as a nonprofit, private entity much like the Los Angeles County Fair in Pomona. In her e-mail, Dodge said the foundation is not opposed to canceling the proposed sale and would support Gov. Arnold Schwarzenegger, whether he goes through with the sale or cancels it. The resignations came widespread public criticism of the foundation by people suspecting its board members’ intentions toward the fairgrounds. They also came after Nicholas Chrisos, the counsel to county Board of Supervisors, sent a letter to the state attorney general’s office asking for an investigation into the activities of the foundation’s board of directors. Chrisos alleged in the letter that these included a violation of open meeting laws, corruption and conflict of interest. Although the attorney general’s office turned down Chrisos’ request, the county district attorney is investigating the activities of the fairgrounds’ board, said Susan Schroeder, public affairs counsel at the D.A.’s office. Chrisos now has instructed the five supervisors to not interact with members of the Orange County Fairgrounds’ board of directors, Supervisor John Moorlach confirmed in a phone interview Thursday. Brooke De Baca, a county spokeswoman, said Thursday that Chrisos could not comment because of attorney-client privilege. “This has been one of the more heart-rending directives that I have received, as many of the Fair Board members are long-time dear friends,” Moorlach said in an e-mail sent out Wednesday. Moorlach wouldn’t say more or explain what was behind the counsel’s directive to the supervisors.
FIVE-YEAR LOOK BACKS
It’s now the second Sunday since the announcement of Orange County’s Investment Pool debacle. Sundays are designed for big articles. This Sunday was no different.
You’ve heard of “15 minutes of fame,” this just kept rolling and rolling. Since some of this information is amazing from an historical standpoint, I’m providing more details where warranted.
The San Jose Mercury News did an expose on the City of Mountain View’s involvement in the pool. I was not in a charitable mood when their reporter, Barry Witt, constructed “A Lesson Lost On Mtn. View Nothing Shook Faith In Orange County.”
One of the more awkward moments a few weeks later was going to my first Sesquicentennial Foundation Board meeting in Sacramento as one of three founding members, only to have one of the other two members, Art Takahara, serving as a City Councilman from the City of Mountain View. Yes, we became quick friends and still stay in touch.
Mountain View Investment Officer Kathleen Faravelli told those who questioned her city’s stake in Orange County’s investment pool not to worry. Citron “was in no way using reverse repurchase agreements the same way San Jose was [a $60 million loss just ten years prior],” she wrote in a June 23 memo. Citron was an expert, and the escalating warnings about him in the press “were politically motivated.”
Faravelli’s memo came to light last week, when Mountain View became one of dozens of California cities with millions at risk as Orange County filed for bankruptcy. Read through the filter of hindsight, it underscores one of the most astonishing aspects of this financial debacle.
Despite [San Jose’s] experience – and despite the ample negative publicity that Citron received for months before his empire disintegrated – dozens of public agencies either dismissed the warning signs or overlooked them. In doing so, they imperiled the financial health of communities that thought they were investing in the safe, municipal equivalent of a money market fund.
Read Faravelli’s memo over the phone on Friday, Moorlach – the Citron critic – described it as “a career embarrassment” for her and said “she failed in her fiduciary obligation to Mountain View.”
The front-page article headline by Dan Weikel and Matt Lait in the LA Times read “Even Supervisors Aren’t Sure They’re Up to Task—None have market expertise. All face question of whether they’re capable of leading county out of crisis.” In a sidebar, “Spotlight on the Supervisors,” Supervisor-elect Marian Bergeson’s brief resume included this sentence:
Last summer, she backed John M. W. Moorlach’s bid to unseat Treasurer-Tax Collector Robert L. Citron, but then switched sides.
The LA Times fell over itself with multiple full-page articles with the heading “Blindsided.” (Huh?) A page-and-one-half was dedicated to individuals opining on “What Now? Experts on finance and government provide prescriptions for change and lessons for the future.” The first voice to speak was Dana Reed, and he hit it out of the park.
Dana Reed, Former Orange County transportation commissioner and a supervisorial candidate:
Orange County voters in June had a chance to reject Citron’s risky investment policies – but didn’t, Reed notes. “The fact of the matter is that this very specific problem and situation was the subject of the campaign in June, [John J. W.] Moorlach (sic) versus Citron. The voters can’t say, ‘I had nothing to do with this.’ This was presented to them and it was a very black-and-white issue: Do you want a higher interest rate that is risky? Or do you want a more conservative, more traditional management of the public funds? And relatively few people chose the latter.
Another LA Times multi-page feature was titled “What Happened to the Money? Tales of incredulity and shock, of ignored warnings and misplaced trust as the saga of a financial catastrophe unfolds.” It was a history of the year. It starts with “Spring 1994 – The Wolf Begins to Howl” and starts with me, followed by Sandra Genis and Cecilia Age. Then it jumps to Nov. 10, Dec. 2 and Dec. 6. It was written by J. Michael Kennedy and Maria La Ganga. I’m not sure I’d refer to myself as a wolf, but watch dog works fine for me.
Voices from the past now look so prescient, and none was more forceful than accountant John Moorlach, Citron’s Republican opponent in the last election. In discussing his losing campaign, Moorlach now talks like a man who has been vindicated. He described in detail how Citron first stalled, then grudgingly gave him a copy of the county’s investment portfolio in May.
Moorlach: “I finally got his portfolio in readable condition on May 2, a month before the election. I shopped it around to bond brokers around the country. They took all kinds of evening hours to pore over it. They were just flipping out. He’d increased his leverage from $4 billion in March of 1993 to $12 billion in March of 1994. He not only bet that rates would go down, he bet really big.”
On May 31, Moorlach, who was destined to lose his election by a large margin the following week, sent an eight-page letter to Thomas Riley, chairman of the County Board of Supervisors. What was dismissed by the supervisors then now seems to have been exactly on the mark.
The letter: “Every prudent investor chooses safety of principal as the top priority. Next comes the need for liquidity. The last priority is achieving yields. It’s time to get back to basics. Mr. Citron has these priorities inversed. He has focused primarily on yields. He has poor liquidity. He has put our principal at risk. He is willing to make highly leveraged, highly speculative and highly aggressive investments. I am very uncomfortable with that and you should be, too.”
As it turned out, few heeded Moorlach’s warning. He did, however, help convince the city of Costa Mesa, where he lives, to pull most of its funds from the county investment pool.
The LA Times also did a profile on incoming Supervisor Jim Silva in “For Supervisor-Elect Silva, Ultimate Test in Economics Awaits.”
Silva, a Republican and a six-year Huntington Beach city councilman, said he cast his ballot for Moorlach in part, because he didn’t like what he knew about Citron’s investment strategies, which for years had brought in high yields.
LA Times Columnist Peter H. King did a profile on me, titled “He Tried to Tell Them So.” I was able to locate this column so I’m providing it in full.
COSTA MESA — Nine months ago, on the first Monday in February, a young Orange County accountant with political ambitions summoned the press to his storefront office. John Moorlach had decided to run for county treasurer. He wanted to open his candidacy outdoors, awash in the morning sunshine. Unfortunately, a hard rain forced the festivities inside. It didn’t matter much. Only one reporter bothered to show up.
Undaunted, Moorlach waded into his script. The tall, bearded 38-year-old told a bit about himself, about his Orange County upbringing, his family, his credentials as a Republican volunteer, his career as a CPA. Then he turned to what would become his central campaign issue–the investment practices of his opponent, longtime incumbent Robert L. Citron.
Moorlach quoted from a newspaper article that had reported that Orange County earned bigger returns on its investments than anywhere else in the land. While this was, on its face, swell news, it also raised–in Moorlach’s view anyway–some serious questions.
“How can this be?” he asked. “You can only achieve the highest interest rates in the nation by taking the highest risks in the nation. Should our reserve funds be in high risk investments? . . . It’s dangerous to rely on the old cliche that ‘if it isn’t broken, don’t fix it.’ How do we know it isn’t broken? Who is keeping the incumbent accountable? What if he is running his investments beyond the motor’s red line month after month? Who is to say we are not headed for problems?”
Excellent questions, it turned out. Excellent questions.
As the campaign progressed, Moorlach tightened his focus on Citron’s investment policies. The more he learned, the less he liked. Citron had bet the county pot on low interest rates, and instead interest rates were upward bound. Moorlach obtained a copy of the portfolio and passed it around to half a dozen outside experts. They reported back that the county was headed for a cliff.
“They told me,” Moorlach would recall, ” ‘Don’t win. You don’t want this job.’
“I said, ‘I don’t?’
“They said, ‘No, not unless you want to be the one who rides this thing down to the bottom.’ “
Still, he persisted. It was a complicated case to make. He introduced Rotary and Kiwanis clubs to such investment esoterica as derivatives and inverse floaters and reverse repurchase agreements. He wrote the Board of Supervisors, warning it to rein in Citron or “expect the worse.” He delivered bundles of documents to newspaper editors, scribbled on chalkboards, and searched without success for a way to break through, for a slogan, a sound bite.
“The best I did was at a big Republican dinner in Dana Point. They gave me 10 seconds to speak. I got up and said, “We have got to take down Citron, before Citron takes down Orange County.’ Afterward, I was told that I needed to change my message, to tone it down. But I said, ‘It’s true. It is going to happen.’ “
The prophet of doom was treated as prophets of doom have been treated across history. They crushed him. Throughout the campaign, Moorlach was ridiculed as a punk, a know-nothing, a Chicken Little. “The sky is not falling,” Citron would coo at every opportunity–and who wouldn’t want to believe it? In the end, Citron waltzed to reelection. Moorlach slouched back to his CPA practice–and waited for the sky to fall.
Moorlach had promised, if elected, to unwind the portfolio on Day 1, absorbing a billion-dollar loss, but avoiding the meltdown that is now in full fury. He believes Orange County is headed for 10, 20 years of misery. “I’m not gloating,” he said, “I’ve got kids to put through school, too.”
All last week he stayed at his office late into the night, restudying the portfolio, preparing a salvation strategy should the county ever solicit his help. Journalists called constantly from around the world, wanting to know why his warnings had not been heeded. He did not seem to have a good answer. Here is one he might consider.
Moorlach’s political passage drives straight to the heart of what’s wrong with modern campaigning. Symbolism and sound bites beat substance every time. A campaign built on themes of competence, or policy, or anything at all complicated is a campaign born dead. Better to give ’em school prayer or abortion or tough talk about hoodlums.
Look at it this way. If Moorlach had revealed that Citron employed illegal immigrants, or chased skirts in the ’60s, he might have won. Instead, all he brought to the dance was a bleak, complicated–and absolutely accurate–forecast of a coming fiscal crisis, and who has time for that kind of garbage?
And, in the LA Times Letters to the Times section, a letter writer who was a star during the campaign was back. The headline was “Where Was the Oversight? There’s Ample Blame for O.C. Bankruptcy.” Thank you, Ms. O’Neil!
This might have been avoided if voters would have taken John Moorlach seriously when he ran against Citron in the June elections. Moorlach exposed this problem and predicted the disaster. Why didn’t the voters take Moorlach more seriously?
We trusted The Times! When The Times endorsed Mr. Citron, so did its readers. I think you owe the citizens of Orange County an apology.
The Sun, out of San Bernardino County, printed the Associated Press story titled “Former O.C. treasurer did it his way to bitter end.”
Having gambled successfully for 15 years on declining interest rates, Citron grew conceited and unable to adjust when rates began their upward spiral in October 1993, Moorlach said.
“A bull market doesn’t mean you have brains. He made the assumption . . . that interest rates would continue to decline.”
“Ill-Fated Fund’s Manager: Mr. Main St., Not Wall St.,” by David Margolick, was the top front-page story for The New York Times profiling Citron, with a photo. Since The New York Times archives their stories and you can access them, I’m providing the entire article.
SANTA ANA, Calif., Dec. 10— The Santa Ana Elks Club is not the sort of place where financial moguls, whose decisions can shake far-off Wall Street to its foundations, usually dine. The decor is heavy on Formica, Naugahyde and Styrofoam. On the tables, the only centerpieces are Keno coupons and bottles of Heinz Ketchup and McIlhenny’s Tabasco sauce. The fare is cheap — unlimited soup and salad for $4.50 — and basic.
But three times each week until the last few days, between moving around billions of dollars belonging to a dizzying array of cities, authorities and administrative districts throughout Orange County, Robert L. Citron came here like clockwork. It was but one routine in a life of them; hopping in the Chrysler he bought every 18 months or so since 1940, he arrived at 10 past 12 and left at 10 to 1, off to juggle billions more. Always, he picked up his own check.
By workday, Mr. Citron, for 24 years the treasurer of Orange County, was a sophisticated, aggressive and daring investor. The high returns he earned made him not only a legend in financial circles nationwide but a hero to local politicians desperate to do more with less. His fiscal alchemy spared them from politically suicidal tax increases and gave them a few extra police officers to patrol the streets or teachers to teach school.
But by nights and weekends and lunchtimes, Mr. Citron, who was forced to resign a week ago after the disclosure that the Orange County investment fund he managed had lost more than $1.5 billion, was quiet, even introverted. Every year, tens of thousands of local residents might have made out their property tax checks to “Robert L. ‘Bob’ Citron,” and every four years they voted for him, the only Democratic ballots many in this famously conservative bastion ever cast. But few would have recognized him on the street.
Away from the world of high finance, of “reverse repurchase agreements” and “derivatives,” Mr. Citron led a life that was cautious and conventional, almost corny. He kept all of his own money in savings accounts and tax free funds. Until he began winning awards for his acumen, he bought his clothes at C&R, California’s version of Moe Ginsburg or N.B.O.; he was the type to wear, along with white patent leather shoes and belts, red polyester pants and a green blazer at Christmas, pastels at Easter, and orange and black on Halloween.
The county clerk, Gary Granville, recalled seeing Mr. Citron, who earned $104,353 a year, decked out in red, white and blue one Fourth of July. “I said to him, ‘Gee, I’ll put a fuse in your head and see if you explode,’ ” Mr. Granville recalled in an interview.
Mr. Citron rarely ventures outside the quadrilateral framed by his ranch-style house in Santa Ana, the Elks club, his office and the football stadium at the University of Southern California, where he spent four years, but from which he never graduated. For all his calls to Wall Street, he has been to New York only four times; he had never been east of Tucson before 1980, and apart from an occasional trip to Mexico, has never been outside the United States.
“Bob was in a position where, if he wanted to go to the Bahamas for two weeks, all he had to do was mention it and somebody would have picked up a ticket for him,” said Fred Prendergast of Irvine, a regular at Mr. Citron’s table at the Elks, and one of many there who say Mr. Citron has been betrayed by fair-weather politicians. “Bob never went to the Bahamas. He never went anywhere.”
Mr. Citron’s passions include turquoise jewelry, upholstering his own furniture and W. C. Fields; his father was Fields’s doctor in Riverside County, Calif., the one who almost weaned him off liquor once. As members of a group called “The Bank Dicks,” Mr. Citron and his wife picketed the nearby Knott’s Berry Farm and persuaded it to erect a wax statue of the comedian. These pastimes pale, however, when compared with his love for U.S.C., where he took classes in the 1940’s and played clarinet in the marching band before, he said, financial problems forced him to drop out.
The license plate on Mr. Citron’s car is LOV USC; and, until it broke, the horn was programmed to play the school’s fight song. The welcome mat at his home here, behind a parched lawn and well-trimmed palm trees, features the U.S.C. Trojan, but few are welcome there these days.
When a visitor appeared there on Friday, Mr. Citron’s wife of 39 years opened the door a crack. Rubbing the door knob nervously, her eyes watering, Terry Citron spoke of the brutality of the press and how it was too bad that Orange County’s collapse had not surfaced during a more active phase of the O. J. Simpson trial, when attentions would have been elsewhere. She said her husband had retained a lawyer, who had told him to say nothing for now.
“No one shares the county’s pain more than Mr. Citron,” said the lawyer, David W. Wiechert of Costa Mesa. “That pain has been amplified by the disheartening lack of support Mr. Citron has received from various public officials and portions of the press.”
Virtually overnight, Mr. Citron has seen his reputation shattered, and has become the butt of bad puns about citrons — French for lemons — in Orange County. But Mr. Citron’s friends defend him as a pillar of rectitude. Of the billions he handled, they said, none ever stuck to his fingers. They also speak of his almost monklike devotion to his work. Though he will turn 70 next April, few were surprised earlier this year when he sought another term as treasurer; what else, they thought, would he have done with his time?
Some say Mr. Citron, a man with no children, savored being a savior. Though shy, he was never too shy to tout his accomplishments, particularly before the Orange County Board of Supervisors. And he loved being touted in return. “He lived off the praise,” said John M. W. Moorlach, an accountant in Costa Mesa, who ran against Mr. Citron this spring, his first contested election since 1970. “This was the source of his strokes in life. He felt he was doing everyone a big favor.”
Mr. Citron’s friends say that just as he lived for adulation, he was sensitive, even hypersensitive, to criticism. When he was opposed for re-election last spring, he described the experience as “gut wrenching.” With many Republicans fearful of jeopardizing the county’s finances, Mr. Citron won handily. But this potent combination of ego and insecurity, officials say, may have pressed him to outperform himself, clouded his judgment and led to his fall.
“Bob Citron is absolutely four-square honest,” said Robert Thomas, a former chief administrative officer of Orange County. “But Bob’s been so successful for the past 15 years that he started believing he was infallible, believing his own press clippings.”
Mr. Citron survived politically in Orange County, whose airport is named after John Wayne, in the only way Democrats can: by being extremely successful and quiet. He had a kind of non-aggression pact with local Republicans.
In his early days on the job, the Supervisors faulted Mr. Citron for his poetry. “Citron says: ‘Taxes paid on time never draw fines,’ his envelopes once stated. But dollars spoke louder than doggerel, and even Republican Supervisors backed him during the last election.
“There can be no doubt that Orange County owes you a debt of gratitude for the outstanding job you have done in guiding our financial ship through such turbulent times,” Thomas F. Riley, the board’s chairman and a retired Marine Corps general, wrote him in 1993. “There is no other county in California that can boast of having as substantial a reserve fund. Of course, they do not have the good fortune of having a Bob Citron.”
The Santa Ana Elks Club is decked out for Christmas. Three wooden wise men sit against the cyprus trees outside, while the dining room is festooned with Styrofoam snowflakes and plastic evergreens.
Mr. Citron came there Thursday, but, as one friend put it, “he was not the usual Bob.” On Friday he did not come at all.
He was still on the minds of people like Mr. Prendergast, whose compassion for his friend is matched only by his anger at the Orange County supervisors, who he said sang Mr. Citron’s praises when times were good, only to dump him when the flak started flying.
“To go to a man’s home Sunday afternoon, intrude in his personal life, and practically force him to resign, is the most cowardly thing a person could do,” he said bitterly. “All they had to do was wait for eight o’clock in the morning, or seven in Bob’s case, and he’d have been right in his office, where he’s supposed to be. They treated him like an animal.”
Photo: Robert L. Citron. (Charlaine Brown/The Orange County Register)
The OC Register also had a “Special Report” section on the bankruptcy, with the headline “Crisis of Confidence—A gambler was in charge of other people’s money.” And it started with its profile, titled “Citron, seen as frugal, took risks” by Jeff Kramer, Susan Kelleher and Kim Christensen. You thought The New York Times piece on Citron was interesting, the Register went into multiple pages. Of course it covers the campaign.
Here are the opening two paragraphs and the segment covering the campaign:
If the road to hell is paved with good intentions, Robert L. Citron walked it like a man possessed.
He borrowed short, invested long and left behind incalculable economic ruin.
“What you have is a person who was trying to beat the system, and we’re paying the price,” said Larry T. Smith, an investor who supported John Moorlach, Citron’s Republican opponent in the June election.
In April and May, when his Republican challenger, Moorlach, was saying the pool was dangerously leveraged, Citron kept borrowing.
About that time nervous brokerage firms and investors starting calling.
Citron and his staff were reassuring when people like Patty Kong, assistant finance and administrative services director for the city of Mountain View in Santa Clara County, asked about their investments.
“They said they hadn’t changed anything that they were doing before, that it was under control and being managed as it always had been. They said, ‘This is politics.’ They thought it was politically driven, and that seemed to make sense . . . [as they] hammered away at Moorlach.”
“You’re not trying to hurt our credit rating, are you?” Moorlach recalled Schneider asking. “We work really hard, we fly to New York, to maintain our good credit rating.”
A month later, on May 6, Moorlach examined Citron’s investment portfolio.
“I just freaked out,” he said.
Through a public records request, he had gotten the list from Citron and faxed it to half a dozen bond and securities dealers for analysis.
“It was the worst portfolio they’d ever seen,” Moorlach said. “I felt sick. I thought, ‘Great, I’m gonna win, then two years from now, it’s going to blow up.'”
Two weeks later, Moorlach sent a letter to Tom Riley . . . that turned out to be spookily prophetic: The practice of borrowing to buy more bonds and betting that interest rates would not rise was a formula for disaster.
“It is of great concern to me as a citizen of Orange County,” Moorlach wrote, “to see our treasurer wager away our tax dollars on long-term bets. And he’s doing it under the noses of elected officials at the Board of Supervisors and at almost every small district level.”
On June 8, Citron was re-elected handily.
Another segment, titled “We Need Some Fresh Blood,” was a collection of quotes from me. It does not have an author, but it does include a photo of me that the Register finally shot (it was awful and poorly done—I know better now when working with photographers). The quotes on my position of needing to eliminate certain elected positions changed rather quickly as electing new faces, while having its risks, is one of the only ways to bring in fresh blood.
John Moorlach, 38, Costa Mesa, certified public accountant who unsuccessfully challenged Robert Citron in the election earlier this year for county treasurer:
It’s not appropriate for any government agency or municipality to use reverse repurchase agreements. That’s not a formula to be investing with, no matter how sophisticated an investor you think you are. (The law allowing them for governments) should be repealed and removed and burned and buried.