MOORLACH UPDATE — Voice of San Diego — June 4, 2010

I’m back from 2 days of meetings in Sacramento where I enjoyed the annual California State Association of Counties (CSAC) Legislative Conference.  A couple of my highlights include being introduced on the floor of the Senate (by Sen. Lou Correa) and on the floor of the Assembly (by Assemblyman Chris Norby).  I represent the OC Board of Supervisors on the CSAC Board of Directors and I am serving as the Vice Chairman of its Government Finance and Operations Policy Committee this year.  As you can imagine, the big topic was “The Budget.”

Yesterday’s Voice of San Diego had an interesting piece on a city of Chula Vista ballot measure.  It is similar to the Project Labor Agreement (PLA) ordinance our office recently submitted to the OC Board of Supervisors that passed unanimously.  My Chief of Staff handled the reporter’s call.

It’s great to see a positive trend developing on the PLA front.  Ground must be retaken.

Explainer: How Will Prop G Affect Construction Workers?

It’s a common refrain for opponents of Chula Vista’s Proposition G: Voting "Yes" on the initiative will ban union workers from all public works contracts.

With some variability, that assertion has appeared at election forums and on thousands of mailers to voters, campaign websites, television ads and the ballot argument against Proposition G, which went to registered voters and will appear at the polls to enlighten the uninformed.

The slogan is purposefully straightforward and a rallying cry for labor, but it doesn’t reflect the actual language of the proposed ordinance or the absolute outcome if it’s approved.

So here’s an explanation of why opponents are making that bold speculation and why supporters dismiss it.

Proposition G has made Chula Vista the hotbed of a fierce debate between organized labor and business interests over lucrative public works contracts and project labor agreements.

A project labor agreement generally refers to a pact between a government and labor unions on public works contracts. In exchange for requiring contractors to pay into union benefit plans or hire workers through union hiring halls, labor makes concessions like promising to prevent costly strikes.

Labor groups support the pacts because they guarantee unions will receive some type of reward no matter who government awards the contract to. Without the agreements, contracts go to the lowest bidder and there’s no guarantee that the union will get a piece of the pie.

If approved by voters on Tuesday, Proposition G would prohibit the city of Chula Vista from using project labor agreements for public works projects. Proponents argue that doing this would ensure that construction contractors and workers vying for the city’s money will be treated equally.

But the proposition’s opponents, led by the San Diego-Imperial Counties Labor Council, argue that it would have a much broader and possibly illegal effect on the city’s affairs: It would ban union workers from all public works contracts.

The Labor Council bases that conclusion on its interpretation of a line in the proposed ordinance that says the city can’t pay anything for a contract that "contains a requirement that a contracting party … be required to make payments on behalf of employees to union benefit plans or other trust funds."

The Labor Council argues that the city could broadly interpret that passage to ban paying a contractor that uses city money to pay for union workers and their benefits. Since every union’s collective bargaining agreement requires contractors to pay into a benefits plan, the ordinance could indirectly undermine those agreements and ban contractors from using union workers, Proposition G opponents say.

"When the City hires a union company, they are funding (in part) the union contract," said Lorena Gonzalez, secretary-treasurer of the Labor Council, in an e-mail. "This is prohibited by the ordinance."

Proposition G’s supporters, amassed around the San Diego chapter of the Associated Builders and Contractors, call the Labor Council’s assertion absurd. That’s neither the intent of the ordinance nor how anyone would interpret it, they argue.

To start, the ordinance explicitly says, "nothing in this [ordinance] shall be construed as prohibiting private parties covered by this provision from entering into individual collective bargaining relationships." That means the ordinance won’t stop a contractor from signing a collective bargaining agreement, and presumably, follow through on that agreement and pay for union workers and their benefits on any projects, public or private.

There’s also no precedent to justify the Labor Council’s concern.

It’s speculating what could happen without pointing to examples of what has happened elsewhere. Ordinances that ban project labor agreements are new to California but they haven’t been proven to "ban" union workers altogether. Orange County, for example, passed an ordinance with similar language about union benefits last year.

Orange County public works officials also said they don’t track whether or not projects awarded since the county passed its ordinance have used union workers. The county doesn’t ask bidders for that information, and as far as awarding the contract is concerned, it’s irrelevant whether the contractor uses union or nonunion workers.

"It’s not really information that we seek out," said Rick Francis, chief of staff for Supervisor John Moorlach, who spearheaded Orange County’s ordinance. "But it would have come to the forefront, I imagine, if the union shop was denied."

It’s also unlikely that Chula Vista, or any government for that matter, would openly implement the ordinance as the Labor Council has interpreted it, because the city could be risking a costly discrimination lawsuit.

As for Chula Vista’s city attorney, whose impartial analysis has been cited by both opponents of Proposition G and its supporters, well, the office didn’t return phone messages seeking further comment on the dispute.

The impartial analysis explained the impact of Proposition G like this:

While the Measure does not prevent private parties from entering into collective bargaining agreements with labor organizations, it does prohibit the City from imposing a collective bargaining agreement through the way it issues construction bids or signs contracts with public works construction contractors.

Again, it’s unclear from that language whether the city would be prohibited from paying a contractor that then uses city money to pay for union workers and their benefits.

But what do you think? Is the Labor Council’s concern justified, absurd or somewhere in between? Let me know what you think by sending an e-mail to keegan.kyle@voiceofsandiego.org or by commenting on this post. Depending on reader response, I’ll follow up with another blog post summarizing the reactions.

— KEEGAN KYLE

 

FIVE-YEAR LOOK BACKS

June 2

1995

The front-page, top-of-the-fold headline for The Bond Buyer was “Moorlach Says Pool Control Should Revert to County.”  As Treasurer, one of the fun initial efforts that I enjoyed was shifting the management of the County’s investment pools away from Salomon Brothers Asset Management and back into the hands of the County Treasurer’s investment staff.  Paying five basis points to Salomon was very expensive.  Once the Treasurer’s office gained partial control, our investment team actively pursued the best bids available yields and our resulting yields were five to fifteen basis points higher than that of Salomon Brothers.  Once we took over the job, we saved the county up to $3.6 million per year.  You can bet Salomon fought hard to hang on to the account.  Here is an edited version of the article by Michael Utley.

                Orange County treasurer-tax collector John Moorlach is seeking to remove Salomon Brothers Inc. as manager of the county investment pool so the treasurer’s position as custodian of the $3.4 billion fund.

                In a report to the Orange County Treasury Oversight Committee, Moorlach said Wednesday that the treasurer’s office can perform just as well as the highly paid Wall Street investment firm, which has been running the pool since the county declared bankruptcy in December.

                “I think we’ll do as well as Salomon, and we might even surprise some people,” said Moorlach.  “Right now, we are the only county in the state with an outside manager.”

                Following Moorlach’s report, members of the Oversight Committee declined to make a decision either way until they have a chance to question Salomon executives.  A meeting has been scheduled for Wednesday.

                Some committee members supported the idea, while others worried that the negative perception of the Orange County treasurer’s office would hinder its ability to do business on Wall Street.

                Salomon has already proven it can run the pool successfully, some committee members argued, and they say the firm’s fee – about $150,000 a month – is justified.

                Moorlach agreed that Salomon has done an “outstanding” job, but he said the firm’s guidance is no longer needed.

                “When do you take the training wheels off and let the kid ride his bike?” Moorlach asked rhetorically.  “When does the perceived paranoia about the treasurer’s office go away?”

                If the treasurer’s office were to take control of the pool, it would be managed on a day-to-day basis by assistant county treasurer Daniel Hempel and county investment officer Judy Jacobson.

                Moorlach, who would supervise the pool activities, said the treasurer’s office is now charging pool participants 12.5 basis points, even though it doesn’t run the pool.  That fee is on top of Salomon’s five basis points, he said.

                The treasurer’s fee supports the county staff positions needed to operate the pool in-house, Moorlach said, but the job is done by Salomon, and thus unnecessarily increasing the cost.

                Citron, the former treasurer, had charged pool participants six basis points.  But that fee has been criticized as a tactic used by Citron to keep investors from fleeing the risky fund.

                Citron pleaded guilty last month to six felony counts of defrauding investors and misappropriating public funds.  He is free on bail, awaiting the outcome of a criminal probe into the county’s financial crisis.

                Moorlach said he hopes to gain at least partial control of the pool by July 1 and full control by the end of the year.

June 3

2000

In the OC Register, the influence of lobbyists on the OC Board of Supervisors was the topic of Chris Reed’s “County board could have new contract headache – Politics:  Anaheim mayor, ex-supervisor are among those who hope to sway a potential $300 million deal.”  Consequently, I’ve tried my best to encourage lobbyists to make sure their clients obtain the highest scores from the review panels.  Here are selected portions of the article.

                The Board of Supervisors – already under fire over how it awarded a $2.8 million contract for taxi service at John Wayne Airport in March – is about to plunge into a new contract debate involving far more money and potentially even more headaches.

                Next week, supervisors are expected to receive the formal recommendations of a county committee that evaluated the companies bidding for the county’s newly combined data-processing and telecommunications contract – a deal worth as much as $300 million over 10 years.

While three of the bidders are represented by veteran county lobbyists Randy Smith, Scott Hart and Lyle Overby (a key player in the taxi controversy), three other consultants have some watchdogs worried:  Tom Daly . . . the Anaheim mayor . . .  said this is the first time he has directly lobbied the board . . . Ron Rubino . . . the county finance director in the years leading up to the 1994 bankruptcy . . . William Steiner . . . the former supervisor, who served with four members of the current board . . . said it was also his first time he had lobbied supervisors.

Steiner and Daly both said Friday that their actions are completely legal.  They said that fears of the process being corrupted by lobbyists are exaggerated.

But don’t tell that to the activist who has crusaded for tougher county ethics laws for more than 20 years.

Shirley Grindle expressed disbelief that Daly or any local elected city leader could be lobbying supervisors on behalf of a private firm.  “There ought to be a law against it,” she said.

Treasurer John Moorlach said he, too, is troubled by lawmakers and former officials lobbying the board.  Still, Moorlach said, if there is a cloud over the county bidding process, the board has itself partly to blame – thanks to its handling of the JWA cab contract.

2005

William Selway of Bloomberg News provided the news about the County’s lead underwriter for the bankruptcy debt refinancing (refunding) in “Goldman is Picked to Head Orange County Bankruptcy Debt Job.”  Here are the opening three paragraphs.

                Goldman Sachs Group Inc. was picked by Orange County, California, as the top underwriter for a sale of $600 million of bonds to refinance debt issued by the county after it filed the biggest municipal bankruptcy in U.S. history.

Citigroup Inc., Banc of America Securities LLC, Stone & Youngberg LLC and two other underwriters, which have yet to be picked, will also help manage the sale, said county Treasurer John Moorlach.  Merrill Lynch & Co., which sought to win its first bond business there since selling derivatives that led to the bankruptcy, wasn’t among firms on an approved underwriting pool invited to participate.

“Merrill was not on the pre-approved list,” Moorlach said in a telephone interview late yesterday, after the county’s Public Finance Advisory Committee approved the underwriter group.  Seeking to add Merrill to the list would have delayed the sale, he said.  “It could be done, I’m sure, but we’d then be pushing out this deal.”

The bigger news on this day was carried by The Bond Buyer.  Lynn Hume’s piece was titled “Bush Taps Cox for SEC:  Calif. Congressman Nominated for Chairmanship.”  Congressman Chris Cox was my honorary campaign chair when I ran against Citron.  This relationship gave Cox the stature to address disclosure issues for municipalities.  The Bond Buyer is focused on municipalities and covered the appointment from that angle.  Here are the segments that relate to our 1994 experiences.

President Bush yesterday nominated Rep. Christopher Cox, R-Calif. – a self-described advocate of free enterprise and limited government who pushed for increased municipal bond disclosure in the wake of the Orange County, Calif., financial fiasco in the 1990s – to become chairman of the Securities and Exchange Commission.

It was in the mid-1990s, when Cox was a member of the House Energy and Commerce Committee, that his attention turned to the municipal bond market after Orange County’s use of a risky undisclosed investment strategy led it to file for bankruptcy protection.

Actually, Cox disclosed the pending bankruptcy filing to reporters before the county announced its plans publicly.  According to news reports at that time, Cox had been meeting with reporters on Dec. 6 when he received a message that the county was about to file for bankruptcy.  He relayed that information to the reporters, saying he was “taken aback” by the message.  Cox later said he thought the news had already been made public.

About a week later, Cox told The Bond Buyer that he planned to introduce legislation that would put municipal bond disclosure on a par with disclosure in the corporate market.  He said his concerns about the lack of adequate disclosure requirements for municipal issuers stemmed in part from the fact that John Moorlach, the accountant who had run against Orange County Treasurer Robert Citron, had warned about the county’s investment strategy, but could not obtain any specific information from county officials about it.

Cox had chaired Moorlach’s campaign.  The two had tried to get county and federal officials interested in the allegations but were unable to do so.

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