MOORLACH UPDATE — OC Register — February 25, 2010

While the politicos in Washington, D.C., were holding their health care summit at the Blair House today, in Orange County I was attending the 19th Annual Health Care Forecast Conference, presented by the Center for Health Care Management & Policy, of the Paul Merage School of Business, at the University of California, Irvine.  Consequently, I’m getting today’s Update out later in the day.

My CalWatchdog quotes from their February 23 issue made it to today’s OC Register’s second editorial.

Now that you’ve seen my quote on “the entity above us crumbling” twice, allow me to explain.

If you have seen the Disney/Pixar movie, “The Incredibles,” you may know what I mean. 

It’s the last scene with the villain.  He has the baby.  They get back the baby and mom is parachuting both down.  The Harrier jet above explodes.  The jet lands on the family. 

Fortunately, the family is protected because the daughter’s “power” is the ability to create a force shield.  Her force shield saves the day.

If you have not seen this classic, and you don’t mind spoiling the ending (which I already did, sort of, if you’ve read this far), then go to YouTube and watch for yourself (around the 5 minute mark) at

.

The big question is:  “What if Sacramento blows up above us?” 

What happens to counties?  Since this scenario appears to be on the horizon, then “we better start talking about this!”  Because the last time I looked, we don’t have a force shield.

The next question is:  “If Whitman doesn’t pick up on pension reform, then who will?” 

Well, if it turns out to be Jerry Brown, then Whitman will have wasted a considerable amount of her net worth in a failed effort to become our next Governor.  Can you imagine a Democrat hijacking a, until now, mostly Republican-based issue?  And still maintain the public employee union support?  Game over.

Editorial: Arnold, Meg go meek about fixing retirement costs

The Sacramento Bee reported distressing news that Gov. Arnold Schwarzenegger and Meg Whitman, "the leading GOP candidate to replace him," have backed away from supporting a ballot initiative to reduce government employee pension and retiree health costs. The lack of support probably means the badly needed reforms won’t get on the ballot.

Both Republicans know this year’s monumental $20 billion state budget deficit will pale compared to the fiscal train wreck looming from these ever-increasing, unfunded obligations. As Orange County Supervisor John Moorlach puts it, these retiree costs mean California is headed toward "economic meltdown." The annual tab statewide already is $17 billion but will only grow as costs increase, tax revenue stagnates or decrease and if stock market investments continue to tank.

"We better start talking about this," Moorlach told the investigative reporters at Calwatchdog.com. "What are we going to do when the entity (state government) above us crumbles?"

Mr. Schwarzenegger and Ms. Whitman have made considerable political hay denouncing the growing unfunded retirement promises facing governments from city halls to Sacramento. Unfortunately, political considerations may have persuaded them to back off supporting the initiative, which qualified last year to circulate petitions to place it on the ballot.

"The governor felt he’d be a hindrance to us," said a spokeswoman for initiative organizer California Foundation for Fiscal Responsibility. Political consultants suggested to the Bee that Ms. Whitman also decided against supporting the effort. The governor’s office told us he "is focused on getting this reform done through the Legislature," and the Whitman campaign did not return our phone call or e-mail requests for comment.

Why the reluctance to campaign – and raise money – for a potentially popular ballot measure among Republicans? The Bee quoted operatives from both political parties suggesting the Republican leaders fear sparking a backlash among public employee unions that could turn a strong campaign issue into a campaign liability. Gov. Schwarzenegger has experience with the consequences of angering public employee unions. Their opposition defeated his four government reform ballot measures in 2005.

Perhaps Ms. Whitman seeks to avoid mobilizing the same large-scale union opposition to her candidacy by distancing herself from an initiative that would substantially reduce government employee benefits. At best, this timid approach delays fixing the problem, but at worst may miss the best opportunity in decades for voters to bring badly needed reductions to the nation’s most generous public employee benefits. For example, the initiative would have reduced peace officer and firefighter retirement benefits from 3 percent of their annual pay multiplied by years of service, payable as soon as age 50, to 2.3 percent at age 58 for new hires.

Time will tell whether backing off was a wise political tactic. We hope it isn’t a sign that the growth of government employee unions already has become a monster beyond voters’ control. If so, that economic meltdown may be nigh.

FIVE-YEAR LOOK BACKS

February 24

1995

Michael Cicchese of the Tustin Weekly had an interesting front-page article, “Thomas likely in Assembly contest,” in a discussion of possible successors of Mickey Conroy for the Republican nomination in the 71st Assembly District.  Conroy, who invited me to run against Citron, was finishing up his third and final term and considering a run against Supervisor Gaddi Vasquez.  The author allowed me to fawn over Tustin City Councilman Jeff Thomas, which was easy for me to do as Jeff was a big supporter in my race against Citron.  One could say that I am very fond of Jeff and it has been a joy to continue our relationship over these past fifteen years.  It’s fun to reread the concern of the motives in pulling Tustin’s funds out of the Orange County Investment Pool.  The Tustin Investment Policy Statement clearly stated that the city was prohibited from investing in reverse repurchase agreements.  Those facts were presented to the Audit Committee and they decided to follow the policy.

If Thomas, 39, decides to enter the race, he will have the support of John Moorlach, who spoke out last year about the investment strategies of former County Treasurer Bob Citron during his unsuccessful election bid.  Moorlach said he has had conversations with Thomas urging him to run for assembly.

“I want him to run.  He’s the kind of leader we need up there,” Moorlach said.  “If he decides to do it I’m 100 percent behind him.  I really hope he announces soon.  I think the biggest hurdle is that he has a young family, but I think his wife is supportive.”

Moorlach’s support for Thomas is no surprise.  Thomas worked on Moorlach’s treasurer campaign last year.  He also took some heat for his role in Tustin withdrawing its $4 million from the county pool, 10 months before it collapsed.  Thomas was accused of initiating the move and getting it out in the media to make Citron look bad and, in turn, aiding Moorlach’s campaign.  Tustin City Treasurer Ron Nault and Audit Committee members Dan O’Connell and George Jeffries, however, were also in on the decision to escape, and were not aware of Thomas’ association with Moorlach.

“In my mind he has proven himself,” Moorlach said.  “He took a lot of lumps and abuse, but he patiently waited and told anyone who would listen what was going on.  Leadership is doing something and being willing to speak up when something is wrong.  He could have bolted at anytime, but he stood firm.”

My new therapist, OC Register Columnist Melissa Balmain, decided to attend one of my speaking engagements.  As you can imagine, I was in demand.  The title of her piece was “Bankrupt O.C. loves to lunch with a prophet.”  It’s hard to tell where Melissa is trying to go in this article.  But, one letter in my file, form Carol Wolfert, did not appreciate her “snide and condescending column.”  And then invited Melissa to the Republican Women of Brea, Federated’s brunch the following month.

They begin the hour with tightly crossed legs and even tighter smiles. Soon, though, the women and men are letting decorum slide.

They inch forward in their seats. They gasp. They blurt, "Ooh!" and "Yes!" and "Jeez!"


It’s early afternoon in Buena Park, and 50 members and friends of the Fullerton Chapter of Republican Women, Federated, are meeting for tea. They have munched cheese puffs, sandwich triangles and strawberries. Now, they savor dessert: parfait of prophet.

John Moorlach is speaking.

He is, of course, the accountant who warned us that ex-county Treasurer Bob Citron was gambling with our money – and failed to unseat him.

He is, as member Peggy Brown says when she introduces Moorlach, "one of the most wanted men in Orange County."

Business people want him. Homemakers. Folks of all ages and political shades. Every day, Moorlach turns down two to four speaking requests. He’s booked until July.

Today, as on many days, he stands in a lovely living room, dwarfing his microphone by a good 2 feet. He deftly bounces his listeners from one emotion to the next.

"I had the sense," Moorlach says, "that Citron was treating us all like mushrooms – keeping us all in the dark and feeding us manure!" The audience whoops.

Moorlach confesses how, one evening after the county bond disaster began, "I’m walking through my office and I CANNOT STOP CRYING." The audience sighs.

But Moorlach doesn’t dwell long on the past. Voice booming, bearded chin wagging, he pushes on to present and future.

Moorlach: "All I see is denial" among elected officials. "I see mantras like, `The county will make us whole’ or `give us 100 cents on the dollar.’ … Why should a city like Garden Grove that didn’t go in the pool have to pay triple because a city like Irvine went up Silly Hill?"

Audience: "They shouldn’t!"

Moorlach: "Some of these cities can absorb their losses – they had reserves."

Audience: "That’s right!"

"This topic (bankruptcy) has certainly crossed all borders," Moorlach says, "whether you’re a Republican, a Democrat. … Somehow, we’ve let one Democratic leverage artist take us to our financial knees."

By the time he finishes, some listeners look ready to drop to their flesh-and-bone knees. They clap and clap, and send him off with a beribboned boxed lunch.

One woman, Barbara Marr, implores the rest of the group: "You all need to call your representatives on the Board of Supervisors and tell ’em how you feel about John Moorlach – because I believe there is a movement afoot not to appoint him as treasurer."

Her companions nod fiercely. They will call, they vow. You bet they will.

The tea winds down.

Does anyone worry that – as with Citron – people are placing blind faith in Moorlach? Have we come, after all, to a Changing of the God?

Oh, no, members say.

"We want information!" Millie Rataj exclaims.

"I would like to hear more of what he has to say," agrees Cherrie Needham.

Soon, though, their voices are lost in the general burble.

"Wasn’t he great?"

"Fabulous!

"I feel like there’s hope."

"Oh, God, yes."

2005

S. J. Cahn of the Daily Pilot wrote another one of his “Politics Aside” columns that did not come even close to reality.  His piece, “A letter-perfect measure campaign,” speculated on something that never occurred.  But, speculating on the outcome of potential races is something we’re all doing right now.

The story behind the Tobacco Settlement Revenues issue is that the Association of Orange County Deputy Sheriffs (AOCDS) was very supportive of Measure G and my efforts to get it passed.  It turned out that this Measure G ally would be my biggest financial opponent in the 2006 race for Supervisor.

Ironically, the first thing I told you in this e-mail is that I attended the UCI Health Care Conference.

All to say, Cahn’s speculation was all for not and missed the mark by a mile.  Of course, in retrospect, had Measure G been successful we would probably have our bankruptcy debt paid off by now and may have had enough reserves to prevent some of the layoffs we’ve made in recent months.

Therefore, AOCDS may have been more accurate on the necessity of Measure G than the pundits, who swooned over Measure H, may have realized.  (More on this subject in the LOOK BACKS later in the year.)  But, I once told you that the real-life story of the OC is filled with ironies of this nature.

Remember how Sesame Street used to be sponsored by different letters or numbers? (Maybe it still is, but my "sunny days" are long behind me.)

Well, based on some conversations I’ve had in the past weeks, our next supervisor race just may end up following that TV show’s lead.

The letters sponsoring that race? G and H.  What in the world do I mean? Hold on. Try to remember back to 2000, but after we’d miraculously made it through the whole Y2K fear.

That fall’s election, now just more than four years ago, included the competing Measures G and H.

Measure H (you may remember it as "H is for Health") was written by healthcare activists and it proscribed that 80% of money the county received from the settlement of nationwide tobacco lawsuits would pay for healthcare and anti-smoking efforts. County supervisors weren’t too happy with that idea and pitched Measure G ("G is for Government"), which would have put 40% of those funds into paying down the county’s bankruptcy debt and 42% for health care, with the remaining 18% for jails.

In the end, about 65% of voters backed Measure H’s vision of how to spend what’s turned out to be around $28 million a year.

But it didn’t end there. County supervisors sued over the constitutionality of the measure and might have appealed when they lost that suit, only Newport-Mesa’s supervisor, Jim Silva, decided several months after the voter approval to let the issue die.

How might that be important in 2006?

Well, John Moorlach, Costa Mesa resident, county treasurer and supervisor candidate, wrote Measure G. And while his proposal was less aggressive in its use of the money for the debt than the supervisors’ original stance, that still puts him on the G (as in government) side of the debate.

And it was a plenty bitter debate, the repercussions of which helped Supervisor Chris Norby defeat Cynthia Coad in 2002.

The question is, will members of the health-care coalition that fought so hard for Measure H decide to fight against Moorlach in 2006?

The tentative word I’m hearing is: "yeah." And the likelihood is probably increased by the fact that Moorlach will be facing Huntington Beach-based Assemblyman Tom Harman, who’s a relatively moderate Republican and one who a healthcare coalition just might get behind. (Huntington Beach also historically has been the power center of this district, with Silva — like Harman — a former Surf City mayor.)

That coalition could bring a fair amount of money to the table, as could members of the moderate New Majority, which has backed Harman in the past. (The New Majority in its handful of years in existence has focused on statewide races and not local ones, however. Whether they will continue to back Harman is a question.)

It’s too early to tell what kind of money we’ll be talking about in this race. Moorlach has an active committee for his run, but no money yet. Harman has about $100,000 in his Assembly committee.

A possible third candidate, former Newport Beach-based Assemblywoman Marilyn Brewer, has just less than $45,000 in an old committee she could put to her cause, if she chooses to run.

Those numbers, of course, will change mightily by November 2006.

The other question is whether voters will remember the issue, and will they still care much about it? And will their opinions change if it’s brought front and center by pro-Measure H forces?

Those are the questions we run elections to answer.

February 25 

2000

Oh, happy day!  The LA Times and the OC Register reported that our bankruptcy czar, Tom Hayes, was distributing settlement checks to the participants in the Orange County Investment Pool at the time of the bankruptcy filing.  David Reyes and David Haldane of the LA Times provided the news in “Check It Out:  $829 Million Pays Bankruptcy Settlements,” portions of which are below.  The OC Register provided a “Bankruptcy Chronology” which mentioned me in the “Spring 1994” section.

Former state Treasurer Thomas W. Hayes spent most of Thursday at an Irvine hotel writing checks.

"It was a good day," said Jeff Niven, deputy treasurer of Irvine, which collected a cool $29.6 million. Niven originally had an appointment at 1:30 p.m. but showed up early, he said, because "I wanted to be able to invest the money over the weekend. I feel relieved. It’s been five years. I feel satisfied that we all had the fortitude to stick it out."

Bret Colson, a spokesman for Anaheim, which got $24.2 million, said the city sent its treasurer over to the hotel for the money, and "she was glad to go. We’re glad to finally be receiving these funds. I’m not sure anyone will ever be completely over the bankruptcy, but getting this money goes a long way toward making us whole."

County Supervisor Jim Silva had mixed feelings, however.

"I’m very pleased to hear that the funds are being distributed," he said, "but this closes the next-to-the-last chapter. The last chapter is paying off that bankruptcy."

County Treasurer-Tax Collector John M.W. Moorlach, who as a private citizen was the first to warn of risky county investments nine months before the bankruptcy, echoed Silva’s concerns. "When you put your hands in the fire you’ll be burned and hopefully won’t be burned again," he said. "I have a real personal desire to see the debt paid off as quickly as possible."

2005

It’s quite amazing how the bankruptcy affected both former Supervisor Silva and myself.  Dana Parsons covered it in his column “Supervisor Sees Past in Merrill’s New Offer.”  It’s an interesting coincidence that these back-to-back February 25 articles would have a Silva theme.  Here is Parson’s column in full.

There are those who would dump on Supervisor Jim Silva for turning a cold shoulder to Merrill Lynch & Co., but I won’t be among them. I wouldn’t blame Silva if hearing the name "Merrill Lynch" sent him screaming from the room and off into the hills, never to be seen again.

Silva’s logic may be flawed. His thoughts may be springing from his gut and not his head. He may be forgetting that as an Orange County supervisor he’s supposed to make financial decisions in the public’s best interests.

Merrill Lynch, the 800-pound grizzly bear from Wall Street, has stuck its meaty paw back into the Orange County kitchen, looking for food. That’s what bears do, even when disguised as bulls. This time, Merrill wants to help the county restructure its debt — for a healthy fee, of course — and accelerate its complete recovery from the historic bankruptcy of 1994.

The chief villain of the bankruptcy was then-Treasurer Robert Citron, who got his investing cues from none other than Merrill Lynch. That the brokerage firm took advantage of our decent-but-overmatched treasurer is the generally accepted version of how the county fell so far so fast.

Maybe you had to be there to recoil at the mention of Merrill Lynch.

Silva was a freshman supervisor who took office the month after the county declared the largest municipal bankruptcy in U.S. history. Suddenly, complicated and difficult decisions piled up on the five supervisors, who tossed and tumbled over them like loose socks in a dryer.

Who could blame Silva for never wanting to hear the name Merrill Lynch again?

Not to bore you with details, but the firm eventually paid more than $420 million to settle civil suits with local agencies and cities that got hosed. And Merrill avoided possible prosecution by paying the district attorney’s office $30 million.

Silva told a Times reporter recently he doesn’t trust Merrill Lynch. He connected the mistrust to the bankruptcy, but for those who say that’s ancient history, Silva could have updated the portfolio.

Last November, four former Merrill executives were convicted in a case stemming from the Enron investigations. The four have yet to be sentenced. In 2003, Merrill Lynch agreed to pay $80 million to settle a federal investigation into the matter.

In 2002, the firm agreed to a $100-million payment to settle a case brought by the New York state attorney general, who alleged that Merrill had misled investors. The firm agreed to revamp certain practices but was not required to admit any guilt.

Even if Silva had purged the bankruptcy from his mind, he’d be justified in being jumpy. So far, Supervisor Tom Wilson — who wasn’t on the board when bankruptcy was declared — is the only colleague to join him in outright rejection of Merrill’s overtures.

Other responsible Orange County officials are willing to listen to the bear — I mean, the bull. Three other supervisors are leaving the door open.

Perhaps most significant, Treasurer John Moorlach, who tried to blow the whistle on Citron’s investing in 1994, says he’ll work with the firm if the right deal is struck.

I’m nowhere near expert enough to know whether Merrill Lynch must be put back in play in Orange County. In a 1995 column, I cited a financial expert who predicted that Merrill Lynch would settle its Orange County problems for hundreds of millions of dollars. Not even that much money, he said, would severely damage the company.

Three years later in 1998, when the $420-million terms were announced, the expert proved a prophet.

Such a deal, when someone can break everything in your house and then ask if he can help you remodel.

Silva clearly has a case of post-traumatic stress syndrome because of Merrill Lynch.

Moorlach, on the other hand, has put it behind him.

He must have a better therapist.

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