MOORLACH UPDATE — LOOK BACKS & OCBJ — December 22, 2009

The OCBJ’s last issue, dated December 14, had the following sidebar in their “2010 Preview – New Year Outlook – Government” section(Sometimes your search engines don’t find articles on the very day they are released—but the OCBJ does have an annual issue that covers two weeks during the Christmas holidays.)

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PERSON TO WATCH:  WAYNE QUINT

Few can instill more fear in politicians than Wayne Quint, president of the 1,800-member Association of Orange County Deputy Sheriffs.

But with local governments in the red and public employee benefit costs soaring, his union’s ability to steer public policy and tap voter goodwill will be tested in the new year.

“Gains we’ve made are on the line,” Quint said. “2010 is a watershed year.”

The union is operating under an expired contract and talks are moving glacially; the county supervisors are seeking freezes and givebacks. The prospect of layoffs looms with Sheriff Sandra Hutchens facing an estimated $70 million deficit. Control of jail jobs is at stake, with Hutchens wanting to replace a third of roughly 1,000 deputy guards with cheaper workers.

Statewide and even national attention is focused on the supervisors’ lawsuit challenging “retroactive” pension benefits granted to deputies in 2001.

And Quint will be deciding which candidates to support—and which to hammer next year. Will the union back the appointed incumbent or a challenger for sheriff? Will it find a union-friendly candidate in the race for the seat being vacated by Supervisor Chris Norby? And will it spend heavily again in a bid to unseat its Teflon critic, Supervisor John Moorlach? As of June, the union had $1 million in its campaign coffers.

Rick Reiff

FIVE-YEAR LOOK BACKS

December 22

1994

The LA Times jumped in with an “Orange County Perspective” as their lead editorial and opined on “Just Pick the Best Candidate.”  It was probably the editorial board’s way of apologizing for their endorsement of Citron, or rationalizing why they did.  All the same, the word “coronation” came up a number of times subsequent to this reference.  I was happy to serve the County of Orange, but it would mean a pay cut and forgoing an opportunity to build more equity in my practice, so I didn’t have to “coronated,” thank you very much.

                The Board of Supervisors in Orange County faces a crucial challenge.  It must appoint someone to fill the vacancy in the treasurer’s office until the next regularly scheduled election, in 1996.

John M. W. Moorlach, the CPA who challenged Citron in last spring’s election, has said he wants the job.  He has a strong claim in view of the concerns he raised.  Though he lacks investment experience, a resume gap that stuck out last spring, a good case can be made that he should be given the chance to show what he can do.

Before there is a coronation, however, the county should be open to filling the vacancy with a top-tier professional money manager.  Moorlach certainly should be considered first among candidates.

Let’s be clear, however, about exactly what sort of Paul Revere he was, at least for the bulk of the campaign.  In recent weeks, Moorlach has been hailed by supporters as a prophet of impending calamity who was ignored.  A letter he sent to the Board of Supervisors, just days before the voting, has gotten attention.  Much of his campaign, however, centered on more modest claims.  He raised questions about his comfort level with investment strategies that by his acknowledgment reaped the county generous benefits.  He knew, and everybody who looked at this understood at the time, that the investment tools of the incumbent were being viewed widely by experts as risky but not inherently reckless.

What is now clear in hindsight is that everything depended on how the fund was managed as interest rates continued to rise in 1994.  Only a prophet or mind reader could have known in the spring that Citron, with a long record of accomplishment, would essentially drive the fund off the cliff.  After the election, and even into the summer, he still borrowed unwisely to cover a bet from which he refused to retreat.  And nobody in county government called him on it.

Even so, Moorlach’s contribution was considerable.  He drew attention to the risk in assuming that the treasurer would make sound judgments when the going got rough.  That was no small insight into investing or into human nature.  His campaign promise, “I will conservatively invest the county’s portfolio,” now looks better than ever.  If no clearly superior candidate turns up, give him the job.

The Daily Pilot had nearly a full page of Letters to the Editor under the title “Mad As Hell – Readers fed up with everyone involved in county’s bankruptcy fiasco.”  Here’s a sampling:

Face it, Fred Martin!  You and others like you have been caught with your pants down having publicly touted support for Bob Citron.  Please spare us the slimy excuse.  “I wrote strongly against Moorlach, not for the message he was trying to send, but for the way he was doing it.”  John was forced to the financial media because they were the only ones willing to understand and report, without your obvious liberal bias, his platform.

Cheri Ketner

Newport Beach

The refusal of the Board of Supervisors to appoint John Moorlach to a key role in salvaging the fiscal mess we now face is deeply disturbing.  It suggests that Mr. Moorlach committed the most appalling sin in politics:  he was emphatically right when all the mandarins in power were catastrophically wrong.

I hope the day is near when his kind of scrutiny will be put to the service of presiding over the care of the taxpayers’ money.

David H. Wallace

Newport Beach

With the likes of . . . Marian Bergeson who managed to slide into the cushy permanent paid retirement of the social circuit.

She was so busy accepting kudos she didn’t have time to take a basic “Finance 101” course before siding with the ignorant in withdrawing her endorsement of John Moorlach.

Better to protect her withered flank and join the “good old boys” than to accept the challenge of being right but alone.

Charles R. Thompson

Newport Beach

The LA Times front-page story was “3 on O.C. Board Indicate Raabe Is on Way Out” and it was written by Tracy Weber.

                County supervisors said Wednesday that they could not ignore reports that [Matthew] Raabe continued to aggressively reassure other governmental investors—even as the fund lurched toward collapse in October – of the investment pool’s ability to cover any potential losses.

                Supervisors [Roger R.] Stanton and William G. Steiner said Wednesday that they favor installing as interim treasurer Thomas E. Daxon, the former Oklahoma auditor who was brought in Dec. 12 as a special consultant to the treasurer’s office.

                City and county treasurers and finance directors say Raabe’s attitude about the investment fund strategies was one of “don’t try this at home, kids.  Leave it to the professionals.”

                Raabe really seemed to click into high gear, they said, after Citron’s hotly contested election campaign this year, when opponent John M. W. Moorlach said the value of the pool had already dropped from $7.5 billion to $6.3 billion.

                “There was a sense of urgency,” Newport-Mesa’s [Edward H.] Decker remembered.  “He wanted to make sure he delivered the party line and we rolled over our $47 million.”

The previous June, Raabe had helped sell Newport-Mesa and three other school districts on joining forces to issue $200 million in one-year bonds to raise cash to increase their investments in the fund, and to offer an identical $200-million issue the following year for the same purpose.  A letter to each of the districts assured them:  “You will not . . . have risk of any market loss.”

When the first bonds were about to be redeemed, and Raabe was selling them on the second issue, Newport-Mesa officials began raising questions about the safety of their investment.  Raabe made the same promise orally, Decker recalled, and pledged to put it in writing as before.  But no such written guarantee ever arrived.

In a meeting with district officials, Raabe “became rather intense,” Decker said.  “I said I didn’t see how he could guarantee us the money.  In order to guarantee us or anyone in the fund, he’d have to take away money from someone else . . . At the time, I think he knew the fund was in trouble.”

Later that day the Board of Supervisors approved a motion that appointed “Thomas E. Daxon as the Interim Treasurer-Tax Collector for a period not to exceed 120 days at the same rate of pay as the prior Treasurer-Tax Collector.”

1999

Jean O. Pasco of the LA Times wrote “County’s Business Comes Under Scrutiny—Supervisors question contracts, project oversight during debates.  Fiscal responsibility is the common concern.”  You can see how my annual reports got caught in a theme that was occurring during the Board meeting.

                County supervisors on Tuesday raised questions about lax oversight of county business during a series of debates heavily tinged with acrimony over the controversial El Toro airport plan.

Led by Supervisor Todd Spitzer, board members questioned a $271,000 contract for an El Toro public-relations campaign, an audit on the company overseeing use of the closed base and an agreement for redistributing $7.5 million received from lawsuit settlements that followed the county’s 1994 bankruptcy.

The oversight theme continued when Treasurer John M. W. Moorlach presented the annual report of the Treasurer’s Oversight Committee, including the county’s policy for how public  funds can be invested.

Spitzer asked oversight committee chairman Robert Fauteux what parts of the report could be changed without board approval.

Nothing, Fauteux said.  “The buck stops with you.”

“So unlike the other documents,” Spitzer said, “I can rely on this one.”

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