MOORLACH UPDATE — OC Weekly — August 6, 2010

I’m mentioned at the conclusion of an article about Steven Greenhut and his newest book, “Plunder:  How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation,” (see MOORLACH UPDATE — PLUNDER — April 20, 2010) in this week’s OC Weekly.  I’m quoted from my OC Register Sunday Commentary section submission, “Time for the next step in pension reform,” (see MOORLACH UPDATE — Rollbacks — July 30, 2010).

As a side note, it’s cute to be called “Chicken Little” once again by an antagonist (see MOORLACH UPDATE — LOOK BACKS — American Journalism Review — March 1, 2010).  Consequently, my license plate reads “SKY FELL.”  Here is a portion of that Update as a reminder:

Following the election Moorlach’s allegations were all but forgotten until September, when Knap chastised him on the front page of the business section: "O.C.’s Sky Didn’t Fall." In the piece Knap pointed to stories in the financial press that had described Citron’s investment strategies as dangerous. In Derivatives Week a bond expert called it, "a scandal waiting to happen. On Wall Street, we call this..the death spiral." But now, with the campaign over, Knap wrote, "interest rates are leveling out and to tweak a line from Mark Twain, reports of Bob Citron’s death spiral appear to have been greatly exaggerated."

The usually affable Moorlach stiffens at the mention of the article. "Knap calls me up and says, ‘Everything’s fine, nothing blew up, how do you feel about it?’ I said, ‘Excuse me, you expect interest rates to level out? Just wait.’ "On September 15 Moorlach sent a scathing letter to R. David Threshie, the Register’s publisher, with copies to Editor Katz and Knap.

It asked: "Why would you allow a political reporter who has a minimal grasp on business issues to editorialize in the lead article in the business section? ‘Interest rates are leveling out?’ Oh yeah? They went up that very day in a significant way, up to 7.7 percent for the 30-year bond… These issues aren’t going to go away. We’re talking about a serious chunk of change in taxpayers’ dollars. The article would have been more aptly entitled: ‘O.C.’s Sky Didn’t Fall, Yet.’ " No one from the Register responded, he says.

Have a great weekend!

Death and Taxes

[Moxley Confidential] While the public wasn’t listening to Steven Greenhut, the certainties of life changed


The November 2009 publishing of Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation sparked a backlash against author Steven Greenhut. While the book won spirited praise, critics on called it an “unethical portrayal of government service and union representation,” “standard bull,” a “scapegoat theory” and “extreme libertarian drivel.” One commenter opined that Greenhut “is obviously destined for a 5150 facility, [where hopefully] those evil government employees running the asylum treat him better than he has them!” In Orange County, the folks at TheLiberalOC blog coined the phrase “Greenhut gas.”

Whether or not you’re a Greenhut fan, the events of this summer in Southern California have made his long-held concerns the centerpiece of a growing national debate. The questions we face are startling:

• Should the city manager of Bell, a 2.6-square-mile city in Los Angeles County, make $800,000 per year and be guaranteed 12 percent annual raises in the midst of a terrible economy and high private unemployment?

• Should Orange County’s convicted felon ex-sheriff continue to collect at least $217,000 in pension every year until death?

• Should police officers in OC be allowed to retire at the age of 50 and collect 90 percent of their top salary (plus regular cost-of-living raises) for the rest of their lives?

• Should cops and other government retirees be allowed to continue to double-dip—retire from one agency, collect full pension benefits, and then join another government agency to collect another salary and pension?

• Should the public accept that eight in 10 California Highway Patrol officers claim a “disabling injury” to take early retirement perks that include shielding half of their retirement from taxes?

• Should a public pension-investment lobbyist collect “consulting fees” as high as $53 million for a single transaction?

• Should taxpayers have been forced to give a retired OC sanitation-district employee $244,359 in annual pension pay?

• Is it right that Orange County citizens are on the hook to pay more than $3.7 billion in unfunded retirement benefits for county workers? Or that California taxpayers are strapped with a half-trillion-dollar liability for state-government employee pensions?

For Greenhut—who last year left his position as senior editorial writer for The Orange County Register to become director of the Pacific Research Institute’s Journalism Center in Sacramento—the answer to each of the preceding questions is a resounding no.

“The public increasingly understands the level of plundering that has gone on, as public employees have used their union power to gain an unsustainable level of pay and especially benefits,” he says. “People are starting to understand that this is an issue of fairness. It’s not fair to create a society in which those who are supposed to serve the public get to live much better than the rest of us.”

Such talk infuriates TheLiberalOC’s Dan Chmielewski. In June, he cited a George Skelton Los Angeles Times column that blamed California’s financial woes not on employee unions, but on a “lack of discipline on both spending and tax cutting in the past,” “an outdated and unreliable tax system too susceptible to economic booms and busts” and “a dysfunctional state budgeting process.” Skelton also noted public-employee pensions are a small portion, about 11 percent, of California’s annual budget woes.

Concluded Chmielewski, “This sort of blows the premise of Greenhut’s book out of the water, doesn’t it?”

Absolutely not, says Greenhut.

“[The state-employee pension fund] engages in a process called smoothing, or spreading out the debt as far into the future as possible to mask the problem and avoid reforms,” he says. “Chmielewski’s argument is the equivalent of a consumer running up tens of thousands of dollars of credit-card debt, and then pretending there’s no problem because he can afford the monthly minimum payment.”

But Greenhut is quick to avoid making the debate over pension reform a left-versus-right battle. He believes the issue should bring together conservatives worried about mounting government debt with progressives. In his view, the protective stance Chmielewski and his liberal allies are taking on pensions is ultimately disastrous for progressive social goals aimed at low-income citizens, children, the elderly living in poverty and the homeless.

“Municipalities are faced with cuts in public services as benefits for retirees obliterate public services,” Greenhut says.

Orange County Republican Supervisor John Moorlach supports Greenhut’s contention. In a Sunday guest editorial in the Register, Moorlach wrote that people who think rising unfunded pension liabilities “aren’t taking municipalities to their knees” have stuck “their heads in the sand.”

“The voters have seen public sector greed (thank you, city of Bell), and they have had enough,” wrote Moorlach, who says it’s time for a voter referendum against “Rolls-Royce” public pension plans. (TheLiberalOC calls the supervisor “Chicken Little Moorlach . . . who has no problem making facts up.”)


August 8


Michael Utley of The Bond Buyer covered another historic event of the post-bankruptcy fallout with “Head Supervisor Decides to Resign, Defends Board’s ‘Critical Decisions.’”  As you watch news reports about the city of Bell and observe scenes of full council chambers with frustrated citizens, it gives you a sense of the mood here in the OC in the months following the County’s December 6th Chapter 9 bankruptcy protection filing.  Here is an abbreviated version of the article.

                Gaddy Vasquez, the embattled chairman of the Orange County Board of Supervisors, submitted his resignation yesterday, but continued to defend the board’s role in the nation’s largest municipal bankruptcy.

                Once considered a potential Republican candidate for governor or even president, Vasquez said in three-page statement that he will step down on Sept. 22 in an effort to “serve the best interests of my family and the county.”

                He has been the target of at least one recall effort and numerous other public lashings for the board’s failure to head off a fiscal crisis brought on by risky investments.

                . . . County officials said yesterday they were not surprised by Vasquez’s decision.

                “I’d have to say I think it’s the right decision,” said county Treasurer John Moorlach, who warned Vasquez and other county leaders of the impending financial crisis months before the December collapse of the county’s $7.4 billion investment pool.

                “I don’t want to sound harsh, but this is something that the public has been wanting to see for a long time,” said Moorlach.

                “The constant barrage of negativism has finally taken its toll,” said Supervisor William Steiner.


On this day, the Board of Supervisors would be meeting and I would be addressing them with the request to put a competing measure on the ballot.  It’s always nice to have an editorial appear on the day of the issue being discussed.  The OC Register was kind enough to print my editorial submission as “The Orange Grove” guest column, titled “Better than Measure H – Alternative bllot measure would help retire bankruptcy debt.”  It set the table for the public discussion, both at the Board meeting and in the months to follow.  At the time I informed my staff that “my heart is in reducing our bankruptcy related debt as quickly as possible . . . let’s hope that we can utilize a portion of the tobacco settlement litigation proceeds to do it.”   After reading my piece, you’ll see that my motives were pure and the approach was balanced.  I just had to campaign against forces that wanted it all.

Today the Orange County Board of Supervisors will have 950 million reasons to put an alternative tobacco-settlement agreement measure on the November ballot. Let me explain and give you just a few.

As a result of the tobacco-lawsuit resolution in 1998, the county of Orange has a unique revenue source of $30 million to $38 million per year from the tobacco industry. There is no restriction on how the funds can be spent. The Orange County Medical Association quarterbacked a negotiation process with the county to share the revenues in a 60/40 manner. Unfortunately, the board of supervisors failed to reach a compromise settlement. The association then submitted the signatures that they had acquired to put Measure H on the ballot.

Measure H would require that all money received be appropriated for health-care services, tobacco-use prevention and public-safety programs and services. The ballot measure before the board on Tuesday will expand this emphasis to include accelerated debt retirement.

The board has already voted to sue on the constitutionality of Measure H. I would anticipate a similar posture on the alternative measure. If the county’s lawsuit fails, then the more successful of the two measures should dictate how the tobacco settlement proceeds will be spent in Orange County.

Both measures appropriate funds in the following areas: 1) health-care services for seniors and persons with disabilities; 2) emergency medical services at emergency rooms, for nonpaying patients; 3) tobacco prevention and control programs; 4) nonprofit community clinics, mobile health clinics, university and hospital-affiliated clinics, so that qualifying children and families receive immunizations, primary specialty and dental health-care services; 5) hospitals within Orange County maintaining basic or comprehensive emergency services or trauma centers to cover the costs of providing charity care; 6) Orange County Sheriff’s Department public safety programs and services, which may include expansion of existing facilities and for programs that provide mental, alcohol and drug abuse treatment programs.

The major difference is the percentages utilized.

The alternate measure provides much more: 1) funding for tobacco-related disease research; 2) funding to the county’s kindergarten through 12th-grade school districts to discourage students from smoking; 3) funding to the sheriff for gang prevention; 4) an allocation toward an early retirement of our $950 million in bankruptcy-related debt; 5) 60 percent of the direct interest savings will be applied toward health care and 40 percent reinvested into additional debt retirement; 6) 50 percent of the direct reduction in principal savings will be reinvested into additional debt retirement; 7) when the debt is fully extinguished, 100 percent of the tobacco settlement revenues will be directed to the six areas listed above; 8) an oversight committee is established to verify spending and provide an annual audit and financial report; 9) the oversight committee may make changes in the percentages directed to health care; 10) the oversight committee will make sure that these funds do not supplant existing county spending; 11) performance measurement standards will be utilized and an annual report detailing how the funds were spent and how they achieved their anticipated outcomes is required.

Taxpayers will see relief in the county’s general budget that can also be appropriated toward medical related needs. In the long run, the savings will be extremely helpful for the financial well being of our county. One example is the trash landfill costs. We charge out-of-county trash haulers a lower fee to dump trash in our landfills. This means more out-of-county trash trucks causing wear and tear on our roads. It means less landfill space. This can be mitigated over time with the debt reduction.

There are even more possibilities. The county could accomplish many of its needed, yet deferred, financial goals. Here is a sample of those: watershed and ocean water monitoring programs; a new juvenile hall facility; assistance for affordable housing programs; improved child welfare services; improved neighborhood centers and more parks; a high-tech crime unit in the district attorney’s office; improvements in the county’s health-care strategic priorities; improved foster-care programs; upgraded computer software to better accommodate electronic commerce and other recent technological advances; and improvements in the probation department’s ability to assist impacted youth and their families.

If the county pursues its existing early-debt retirement plans and combines it with the funding from this alternative ballot measure, we can retire the current $247,455,000 in 1995 Refunding Recovery Bonds, which are scheduled out until 2014, by 2008.

With this unique windfall we could meet all of our needs: debt reduction, medical concerns and additional room in our general budget for areas that have been suffering due to our limited resources.

On Tuesday the board of supervisors will have a chance to put our entire house in better order. The voters of Orange County should have an alternative choice on how to utilize the tobacco settlement proceeds. By putting this measure on the ballot we will be provided such an opportunity.


Rick Reiff’s “OC Insider” column in the Orange County Business Journal had this profound little segment on my future plans that was full of gems.  1.  Supervisor Tom Wilson voted for both of the pension plan enhancements (making him one of the two most expensive county supervisors in our 121 year history—the other is Jim Silva);  2.  I’m still on the county-pension-reform crusade (thank you, Tom); and 3.  In retrospect, one wonders what would have become of the OC Register if it had not closed down its defined benefit pension plan.

OC Treasurer John Moorlach brushes aside Supervisor Tom Wilson and others who suggest his county-pension-reform crusade is motivated by a desire to be elected supervisor.  Moorlach says it’s the other way around—he needs to be a supe to make reforms.  “Running for supervisor is not running for higher office . . . I see it as a step down,” Moorlach said on “Inside OC.”  At $143,000 a year, the treasurer makes $24,000 more than a supe, and doesn’t have to worry about term limits . . . On a related note:  Joining the corporate trend, Irvine-based Freedom Communications is closing its defined-benefits pension plan.  The 7,000 employees at the OC Register and other media properties will keep their vested benefits as of Dec. 31, when a sweetened 401(k) plan kicks in.

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