MOORLACH UPDATE — Merry Christmas! — December 24-27, 2009

The Log seems to be dribbling articles from their December issue on to the internet.  Of all the publications in the county, The Log is probably the most interested in our recently released Harbor Patrol report.  Consequently, they provided a much more extensive piece on the details in the report.

I don’t usually do too many announcements.  But, if the opportunity of serving on the Orange County Grand Jury makes sense for you, then go for it!  If you really want to obtain a thorough working knowledge of the County of Orange and you have the time, then this is the vehicle to do it.  Let me give you a personal warning.  It will take you four months to get used to the job.  Another four months to do your research.  And then the final four months to do your writing.  And the year will be over before you know it and then we get another crew of fresh faces.  The information is provided after The Log article.

I’m also including the LOOK BACKS for today and the next three days in order to take a breather. 

Have a wonderful and very Merry Christmas!

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Report Investigates Funding Options for OC Harbor Patrol

By: Ambrosia Sarabia

SANTA ANA — A report attempting to end the heated debate over who should cover the cost of operating Orange County’s harbor patrol services determined that harbors are regional assets and should continue to be funded by the county. The 13-page memorandum analyzed various elements, including potential cost-saving plans to replace experienced Sheriff’s Department officers with lower-salaried employees or park rangers.

A shrinking budget led the Orange County Board of Supervisors to examine other alternatives to fund the Orange County Sheriff’s Harbor Patrol, which is paid for through county parks and tidelands funds.

The agency that is responsible for patrolling three harbors (Newport Beach, Sunset Beach/Huntington and Dana Point) is projected to cost $11.4 million this fiscal year — a 22 percent increase from fiscal year 2004-2005 ($9.4 million). This growth in cost is partly due to increased retirement costs, the study said.

Several local politicians have suggested the cost is too high, and that harbor cities should be exclusively responsible for funding harbor patrol activities, instead of requiring inland cities in the county to pay as well. Orange County Supervisor Chris Norby has raised this topic many times at board meetings.

Under a May 1975 resolution, the county is responsible for reimbursing the Orange County Sheriff’s Department for the costs of patrolling the three harbors. Harbor Patrol activities are funded by OC Parks (55 percent), and through Newport Beach and Dana Point Tidelands Funds (45 percent).

Some officials contend that the increasing Harbor Patrol costs may negatively affect the ability of OC Parks to maintain its inland park system or adequately fund new capital projects.

A work group established by Supervisor John Moorlach’s office tasked its members — consisting of officials from the Sheriff’s Department, OC Parks, the county CEO’s office and OC Dana Point Harbor — to address a series of questions on governance and finance issues.

The document, “Analysis of Harbor Patrol Governance and Finance Issues,” addressed a series of questions including: what portion of harbor patrol activities should be performed by the Orange County Sheriff’s Department (OCSD); how should harbor patrol activities be funded; how should the agency be staffed; and are harbors local facilities or county regional facilities.

The work group considered requiring cities that benefit from harbor patrol services to contribute toward the cost. However, the county cannot compel cities to pay for the harbor patrol, the report stated.

“The county has approached the cities, and the cities have essentially said they are not interested in paying for something that they have been getting free for a long period of time — and that it is a regional asset they already pay for in terms of their property tax and the taxes they pay on their boats and fuel,” said Harbormaster Lt. Mark Long.

But asking cities to take over services not required to be provided by the Harbor Patrol (which include required Homeland Security operations) won’t make a significant difference in cost savings, since the Sheriff’s Department will need the same resources to perform the services mandated by the state.

A proposal to create a new and less costly classification of “Marine Service Officer” was rejected by the sheriff, who cited scheduling, labor and administrative issues.

“Why is it that the boating community has to accept a lower-trained lower classification of employee?” asked Lt. Long. “They pay their property taxes. It’s what they have come to expect after all these years — and, quite frankly, it does not appear that the boating community doesn’t appreciate being singled out for the implementation of a lower classification of employee.”

As an alternative, both OC Dana Point Harbor and OC Parks recommend park rangers operate the patrol boats, replacing 11 deputy sheriffs while continuing to employ a deputy sheriff to man the fireboat. The cost savings associated with that move would be approximately $783,607 annually.

In the report, OC Dana Point Harbor also suggested passing sheriff’s department costs along to boaters, to raise revenue. According to the report, the sheriff’s department could explain the public safety benefits and necessity of the harbor patrol and charge harbor slip tenants a fee for the service. Launch ramp users could also pay a fee to help cover the cost of the agency. Income would go directly into the sheriff’s budget.

Implementing cost-recovery fees for special events that require harbor patrol assistance was also recommended.

Arguments that the harbors are local and not regional were not supported by the study, which discovered that 60 percent of those who had contact with the Harbor Patrol in 2008 were from cities outside the county’s coastal area. Of 2,169 recorded contacts in 2008, 1,195 (55 percent) were with residents of non-harbor Orange County cities.

In accordance with the findings, harbor patrol activities will remain a county function.

“I think as long as a portion of the Harbor Patrol is funded by OC Parks, then the debate will never be put to rest,” Lt. Long said. “We are constantly in competition for parks monies.”

The item will be added to the supervisors’ agenda in January.

Orange County Superior Court Urgently Seeks Applicants to Serve on the 2010-2011 Grand Jury

If you would like to make a difference by performing an oversight function into the operation of county government, apply to serve on the 2010-2011 Orange County Grand Jury. The number of applications received is less than 50 percent of the 208 total applications submitted last year, and the January 8, 2010 application deadline is quickly approaching.

The work of the Grand Jury has a significant impact on the lives of Orange County residents. Grand Jurors review and evaluate government agencies, schools, and special districts within Orange County. Past reports have focused on timely issues such as the condition and management of Orange County jails, planning for statewide water shortages, and the health of the County’s finances.

Grand jurors attend tours and briefings to increase their knowledge of the workings of various county agencies and to help them evaluate and assess potential problems in our county. Annual visits include the sheriff’s forensics laboratory and jails, John Wayne Airport, Orange County harbors and beaches, and the San Onofre Nuclear Power Generating Station.

A grand juror must be 18 years of age or older, a United States citizen, and an Orange County resident for a least one year. Before being nominated, each qualifying applicant is interviewed by a panel of Superior Court judges. Background investigations are conducted by the Orange County Sheriff’s Department.

Download an application from the Internet at www.ocgrandjury.org, or call the Grand Jury Hotline at (714) 834-6747.  Applications are also available at the Jury Commissioner’s Office located in the Central Justice Center, 700 Civic Center Drive West in Santa Ana during regular business hours.

FIVE-YEAR LOOK BACKS

1994

December 24

The bankruptcy activity did not stop for the Christmas holidays.

On Christmas Eve the OC Register continued their “O.C. Financial Crisis” News page and did another “Orange County Voices” section.  There was one short, and sweet, comment that stood out.

                “Moorlach for county treasurer.”

                John Jaeger

                Irvine

December 25

Christmas Day was a Sunday in 1994.  Accordingly, there were more in-depth articles served up for consumption.

Rob Wells of the Associated Press went after Merrill Lynch in “Merrill Stumbles In Orange County – Role In Calamity Under Scrutiny.”  It was in The Seattle Times.

                Merrill Lynch & Co., which navigated Wall Street’s “decade of greed” unscratched by a major scandal, has run aground in Orange County.

                Merrill’s dilemma can be viewed two ways.  One is that Merrill simply took orders from Citron, once regarded as one of the nation’s savviest public finance officers.  The other is that Merrill and one of its California salesmen, Michael Stamenson, concocted the investment scheme that failed.

                Warning signs flashed earlier this year that all was not right with the Orange County investment fund, a pool of money from 186 school districts, cities and other local agencies.

                John Moorlach, Citron’s opponent in the spring election, accurately predicted the fund’s demise.  His comments were widely reported.

                “By May 31, I estimated it was down by $1.3 billion,” Moorlach said in a recent interview.  “And I was conservative.”

Rob Wells also wrote “Salesman Is Key In County’s Debacle,” which also appeared in The Seattle Times.

                Besides former Orange County treasurer Robert Citron, one of the main figures in the county’s financial free fall is a veteran Merrill Lynch & Co. salesman named Michael Stamenson.

                Stamenson, by many accounts, is a skilled and aggressive salesman who lives in this wealthy San Francisco bedroom community [of Moraga], where million-dollar homes and BMWs encroach on the cattle ranches and pickup trucks.

                “Stamenson made a big name for himself by going to all of these treasurer conventions,” recalled John Moorlach, an accountant who rang the warning bell about the risky Orange County fund in his election campaign earlier this year against Citron.

                The 53-year-old Merrill broker was known as “quite eloquent, quite smooth,” said Moorlach.

But, the big Christmas present was having a profile on the front-page of the LA Times.  It was a piece written by Rebecca Trounson, titled “O.C. Crisis Transforms Doomsayer to Prescient—John M. W. Moorlach’s stock is soaring on the strength of how right he was about fiscal debacle.”  Rebecca followed me around town for awhile and prepared this piece.  The Rotary Club luncheon she attended was my own club, the former Costa Mesa Rotary.  They had watched me very intimately that entire year.  And I could provide details that they knew from my previous weekly accounts. 

One theme that Trounson repeats, and has surfaced in a number of other accounts in this year’s Look Backs, is that I went New York to wage my campaign.  This is not true.  I never personally contacted anyone in New York.  Nor did I give permission to anyone on my campaign staff to do so.  “New York” did contact me.  I can give you former The Bond Buyer reporter Brad Altman’s telephone number, and you can ask him yourself.  The easiest place for those who missed this big time, and should have known better, would criticize what they perceived were my campaign tactics.  Sadly, they provided no better remedies and were, in fact, part of a sad cover up.  History will decide which was worse.

The article has a few other minor things that were inaccurate.  I even wrote Martin Baron, the editor that totally missed this story during the campaign, and his written response provided no satisfaction.  Here is the entire piece.  Merry Christmas.

            He doesn’t seem like a prophet of doom, especially not when he’s wearing his Mickey Mouse "Leader of the Club" tie–as he was on his birthday last week–and driving his gull-winged Bricklin to a triumphal speech at the local Rotary Club.

In fact, John M. W. Moorlach seems almost giddy as he steps to the podium to remind his appreciative audience that he warned them during the spring that Orange County’s treasurer was taking enormous risks with the public’s money.

"I couldn’t believe how right I was," Moorlach says, hunching toward the microphone and reflecting on an interview he gave just before the county declared bankruptcy Dec. 6.

What’s more, he said, after rereading an eight-page, doomsday letter he sent to County Board of Supervisors Chairman Thomas F. Riley on May 31, he realized that his dire prediction about the county’s future "wasn’t just kind of close. It looked like I wrote it yesterday!"

Nearly three weeks after Orange County’s extraordinary plunge into bankruptcy, Moorlach’s personal and political stock is soaring on the strength of how right he was. He is pondering his suddenly bright future as a candidate for office and fielding nearly nonstop phone calls from reporters, friends and admirers across the country.

Should Moorlach run for the state Senate seat being vacated next month by Marian Bergeson? Or should he hope that the Board of Supervisors will decide next spring to replace disgraced former Treasurer Robert L. Citron with Moorlach, who predicted Orange County’s financial collapse?

Although Thomas L. Daxon, a former Oklahoma finance director, was appointed last week to an interim, four-month term as treasurer, Moorlach, 39, makes no secret that he still wants the job–but with conditions.

"I want to be part of the rehabilitation plan, but I want to play a key role," he said. "If it’s just a little role, I’ve got a better life. I don’t need that."

*

Heady times, indeed, for a certified public accountant and Republican Party activist who was so little known in February that almost no one showed up when he announced his challenge to longtime incumbent Citron–and who lost the June election to Citron by a 61%-39% margin.

During the campaign, Moorlach was first dismissed by Citron and his allies, then accused of sparking baseless fears among the county’s investors. Prominent Republicans such as Bergeson withdrew their support. Finally, Moorlach was ridiculed by Citron as Chicken Little, witlessly foretelling disaster.

To be proved right so quickly after such a resounding defeat feels pretty good now, even as Moorlach expresses sadness about the impact of the financial debacle on the citizens of Orange County.

"There is a God," he told his fellow Rotarians during his nearly hour long speech last week. "To be vindicated within six months is pretty amazing to me. But this is not the way I wanted it."

Local Republican politicos are almost gushing about the opportunity that awaits him.

"I think (Moorlach) is the most sparkling star in the Orange County Republican galaxy at the moment," said Tom Fuentes, the local Republican chairman.

Even those who have occasionally opposed Moorlach before concede that the biggest municipal bankruptcy in history has jump-started his political career.

"Being right on something like this has a tendency to put you in a good political position," said Costa Mesa City Councilwoman Mary Hornbuckle, who supported Moorlach’s campaign but has often quarreled with him on issues affecting the city where they both live.

Bergeson and Jim Silva, the two supervisors-elect who will take their seats next month, have joined Supervisor William G. Steiner in saying they would support Moorlach’s appointment to the treasurer’s job. Riley, who is retiring from the board next week, declined to comment on the issue Saturday, noting that he was unlikely to be in office when the decision is made. Other supervisors could not be reached for comment.

The financial crisis has so burnished Moorlach’s reputation that many who once opposed him decline to criticize him, at least publicly.

Frequent Moorlach critic Peer Swan, the Irvine Ranch Water District chairman credited with forcing revelations about the fund’s $2-billion loss, declined to be quoted. In May, Swan castigated Moorlach’s campaign tactics, comparing his behavior to "a guy who runs into a theater and yells ‘Fire!’ "

Hornbuckle also begged off, pleading the Christmas spirit. Moorlach, she said, is "thoughtful, he studies the issues, and he’s an honest man. I won’t say that he’s humble, but I won’t get more critical at the moment, not over the Christmas holidays."

Another critic said Moorlach’s problem in the election was not his message, but his method. If Moorlach had taken his careful research of Citron’s portfolio, marshaled his political support and quietly approached each supervisor with his concerns, they might have listened, he said.

"Instead, the thrust of the campaign was to go to New York and cause concern among some of the financial press to lower the credit rating of the county and try to force a change," he said.

Fearful that the political attacks might cost the county money, its Republican leadership closed ranks around the veteran treasurer, who was then the county’s only Democratic elected official.

Not surprisingly, Moorlach’s friends and political allies are easier to find, and more open, than his critics.

"He’s probably one of the most honest, well-grounded people I know," said Jeff Thomas, a Tustin City Councilman and close friend. "He has a real good sense of himself. He’s a very spiritual kind of guy. . . . I’d walk over nails for the guy."

"He has done just an outstanding job for the whole community," said Karl Kemp, general manager of the Mesa Consolidated Water District.

Moorlach, whose full name is Johannes Meindert Willem Moorlach, was born Dec. 21, 1955, in Groningen, the Netherlands. When he was 4, his family moved to the United States, living first in Cypress and then in Buena Park.

Even before he graduated from Cal State Long Beach in 1977, where he earned a degree in business administration, Moorlach began working for an accounting firm. He joined his current firm–Balser, Horowitz, Frank & Wakeling–in 1978, and is now a vice president.

He is a workaholic, according to his wife, Trina, whom he met at a Bible study when they were both 23. Although Moorlach’s days since the crisis began have sometimes stretched to 20 hours, it does not seem much different than usual, Trina Moorlach says.

"He’s always come home for dinner and gone back to the office or to meetings," she said. "For me, this is like a regular routine still."

*

In what little spare time he has, Moorlach, a history buff, enjoys photographing bronze historical markers, camping, hiking and tinkering with his beloved, pumpkin-colored Bricklin, whose license plate reads "DULL CPA."

For many years, he has also been active in local politics. A conservative Republican, Moorlach holds two posts with the Orange County GOP: assistant treasurer and chairman of the party’s precinct advisory committee, a job that makes him head of its volunteer effort.

For all Moorlach’s current political cachet, at least one political consultant says it may be difficult for him to move into any job but county treasurer–the post Moorlach says he really wants.

Because Moorlach has said he does not relish a move to Sacramento or Washington, and he lives in Costa Mesa, which has a new county supervisor in Silva, consultant Harvey Englander believes Moorlach has fewer immediate political choices than his backers claim.

"Moorlach is in a position where he’s got a golden opportunity, but really no opportunity other than becoming the treasurer," Englander said. "It’s sort of like playing Monopoly and he’s got a get out of jail card, but he never lands in jail."

Still, it might be difficult to discount the prescience of Moorlach’s warnings, particularly those laid out in the clear, forthright letter he wrote to Riley six months before the bond crisis erupted.

His major concern, Moorlach wrote, was "interest rate risk," the likelihood that rates would continue to rise, at odds with Citron’s investment strategy of using the county’s U.S. Treasury bills and bonds as collateral for short-term borrowing at low interest. The borrowed money, in turn, was reinvested in securities that paid a higher rate of return.

December 26

Barry B. Burr, of Pensions & Investments, a national weekly for the institutional pension industry, wrote a very nice column on their Opinion page, titled “Unsung Hero Vindicated In Orange County.”  Here it is in its entirety.

If there is a hero in the Orange County financial debacle, it is John M.W. Moorlach, who sought for months to warn of impending disaster. Mr. Moorlach persisted in his warnings though he was accused of shouting "fire" in a crowded theater and of raising the county’s borrowing costs.

Mr. Moorlach sought for months to warn the people of Orange County against the dangerously risky investment strategy of Robert L. Citron, county treasurer, whose activities cost the county at least $2 billion.

Perhaps Mr. Moorlach’s warnings about potential disaster to the county in Mr. Citron’s risky investment strategy went unheeded because he raised them during his campaign to unseat Mr. Citron – who had never before, in his 24 years in the position, faced an election opponent. Whatever the reason, his was a voice crying in the wilderness, heard perhaps, but unheeded. In fact, Mr. Moorlach became the target of wild attacks by public finance officials, accusing him of harming the county’s then-very good credit standing with investors by his accusations about trouble in Mr. Citron’s $8 billion investment pool.

Last spring, Mr. Moorlach, after obtaining records of the county’s investment pool, revealed it was forced to meet $300 million in collateral calls because rising interest rates reduced the value of the securities in the portfolio, which Mr. Citron leveraged by $12 billion to create a pool totaling $20 billion.

At the time, Matthew R. Raabe, assistant treasurer of Orange County and a key aide to Mr. Citron, confirmed the collateral calls, but dismissed Mr. Moorlach’s concern. A news story in May reported Mr. Raabe saying, "the county investment pool is protected by about $1 billion in liquid assets." In retort, Mr. Moorlach warned county officials were ignoring the risks: " ‘If rates continue to soar, couldn’t the size of the calls top $1 billion?’ Moorlach asked rhetorically in the story. ‘My problem is, why aren’t people making a connection here? I have not been screaming fire in a theater. I have a legitimate concern.’"

Before Mr. Citron went on to a seventh term by winning the election in a June landslide, Mr. Moorlach, again studying the financial reports he was able to obtain, warned the county’s pool already had sustained a $1.2 billion loss. His estimate was prescient. Earlier this month, Mr. Citron acknowledged the pool had a $1.5 billion loss, which now is more than $2 billion.

But Mr. Moorlach was ignored.

In May, Orange County Sanitary District officials blamed Mr. Moorlach for roiling the financial markets with irresponsible charges about Orange County’s investment pool. Peer Swan, the district’s fiscal policy chairman, said the district was forced to pay $12,000 more to issue $30.2 million in commercial paper because of Mr. Moorlach’s criticism.

Mr. Moorlach’s charges, Mr. Swan was quoted as saying May 5, "are like the guy who runs into a theater and yells, ‘Fire’. … It would have been real easy to create a stampede."

Even many fellow Republicans, especially those on the county’s board of supervisors, dismissed Mr. Moorlach’s concerns.

Just after Mr. Citron won re-election in June, Mr. Raabe was quoted as bragging how the vote "validates our investment strategy." Six months later when Mr. Citron resigned, Mr. Raabe continued as one of the officials overseeing the portfolio. Yet, he should have quit, too.

Even after the election, Mr. Moorlach still was warning of the impending disaster. In mid-June, as a report then noted, he said if he had won the race he would have unwound the portfolio and marked it to market. Still everyone ignored him. You want to scream.

December 27

The Daily Pilot had a Letter to the Editor from a friend who just passed away in the past few days, Linda Feffer.  I saw her last at Dr. Jan Vandersloot’s Memorial Service.  Linda was very active in the city of Costa Mesa, enjoying city council meetings, attending historical society events, following the Chamber’s activities.  She was always good for a call every few months just to encourage me.  I will miss her enthusiasm and her concern for her community.  And I’ll miss the old blue Ford she drove around town.  Her letter was titled “Voices:  The Bankruptcy Fallout.”

Linda, your letter was prescient, for on January 2, 1995, the Daily Pilot had me on their cover as “The Newsmaker of the Year.”  The next time you have a chance to visit my office, be sure to see the article prominently displayed on our hall wall. 

I’ll miss you, Linda, lots.

I think it’s wonderful that Joe Erickson came out and said what he said.  We’ve got some wonderful people in this community and thank goodness for John Moorlach for pointing out the things that should and could have been done.  I think he should be included as your ’94 Newsmaker of the Year – he should be at the top.

                I’m really pleased that the water district didn’t invest one dime.

                Linda Feffer

                Costa Mesa

The Daily Pilot also had an editorial submission by Allan Carroll, a Newport Beach resident, titled “Why Not Moorlach?  The incumbents shouldn’t be allowed to fix Orange County.”  It was quite a barn-burner.  Here are the opening paragraph and one near the conclusion:

                Picture this – Exxon gets to overhaul our off-shore drilling regulations, Clinton is commissioned to write the rules for relations with female constituents, and Orange County supervisors are authorized to develop the county’s financial solution.

It seems that John Moorlach is well qualified for this role.  Sure he has an ax to grind.  That’s exactly what is need to counter-balance this situation and keep it honest.  Besides, he has been impressively non-parochial since the truth emerged.  This is much more than these culprits deserve considering the arrogance and disdain with which they treated him and the public.

The LA Times had a cover story titled “Bergeson’s Deregulation Bills Coming Back to Haunt Her,” by Eric Bailey.  I can still remember Marian telling me once that with every reporter call the first question always seemed to be, “Why did you unendorsed Moorlach?”  As this became a large portion of the article, I’m including it in full.

            These are her last days in the state Legislature, but it’s no swan song. Instead, Sen. Marian Bergeson is doing a swan dive straight into Orange County’s stormy political surf.

As the county grapples with its devastating bankruptcy and investment crisis, Bergeson will be assuming a seat on the Board of Supervisors after the New Year. For perhaps the first time in her long career as a public servant, she will be carting along some cumbersome political baggage.

In recent weeks, critics have pointed out that Bergeson carried several bills that were among a string of state measures approved in recent years to deregulate the public investment process, paving the way for Orange County’s troubles.

They have also criticized Bergeson’s decision in May to "unendorse" John M. W. Moorlach, the Republican financial planner and certified public accountant who raised questions about Orange County’s investment practices during his election campaign against county Treasurer-Tax Collector Robert L. Citron, who resigned Dec. 5 after the investment debacle surfaced.

Among Orange County’s increasingly angry electorate, even Bergeson–who has long enjoyed a Teflon reputation–could face some testy days ahead.

"If she had anything to do with this, she should not take office," said Carole Walters, president of the Orange Taxpayers Assn. and one of several residents fomenting a recall effort against the current supervisors. "I think anyone who is behind these bills should step down. They have ripped the taxpayers off."

But many others, particularly those who have worked with Bergeson, say the veteran lawmaker is part of the solution.

"I just don’t think Marian deserves to shoulder a lot of the blame," said Eileen Padberg, an Orange County political consultant. "Her reputation as a legislator who can get things done will override any of the baggage."

Supervisor Thomas F. Riley, whose 5th District seat Bergeson will assume Monday,

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