The latest Chapter 9 bankruptcy protection candidate is Harrisburg, the State Capital of Pennsylvania. Along with all of the other issues facing local government, Harrisburg decided to finance an incinerator as a potential revenue producer. Along the way, the project faltered and the debt is still due.
The city council of Harrisburg is evaluating its options. Accordingly, the Patriot-News called to see how Chapter 9 impacted the County of Orange. Some sixteen years later, we are doing fine. With our economic climate, however, more municipality ruling bodies may be engaging in a Chapter 9 discussion.
Bankruptcy, ‘option of last resort,’ might not hurt Harrisburg
Bankruptcy might be the last resort for Harrisburg, but it might not be the worst thing that could happen to the capital city.
At least that’s the experience of officials in two cases on opposite coasts. Westfall Twp. in Pike County and Orange County, Calif., both filed for Chapter 9 bankruptcy protection and both municipalities are still standing after going through the process.
Officials in both areas had Herculean financial problems to overcome.
In Westfall Twp.’s case, it was a $20 million civil verdict that the small community of 2,400 people could not possibly pay — as it equaled about $8,300 per resident.
In Orange County’s case, it involved a series of bad investments.
Lawyers and academics can offer their best educated guesses on what it means for a municipality to go through Chapter 9 bankruptcy, but few can offer first-hand knowledge.
Nationwide, less than 500 municipalities have sought bankruptcy protection from the courts since the laws allowed it following the Great Depression.
Harrisburg residents are on the hook for about $6,100 each as the city faces bond payments on the incinerator’s $288 million debt. Officials are looking at various ways the city can pay off its monumental debt.
Mayor Linda Thompson has been adamant that she wants to look at options other than bankruptcy. She said again Wednesday that bankruptcy “should be the option of last resort.”
Some City Council members appear willing to entertain bankruptcy as an option. At Tuesday’s City Council meeting, Councilman Brad Koplinski said he is not ready to endorse filing for bankruptcy. But he said the council should hire a bankruptcy attorney to get an understanding of the option.
Earlier this week, Gov. Ed Rendell agreed to speed payments of $3.6 million to the city to help make a general obligation bond payment due Wednesday, and to help the city pay its employees.No regrets
Westfall, a small township of 2,400 people in Pike County, filed for Chapter 9 bankruptcy protection last year after it was slapped with a $20 million civil judgment that far outstripped its annual $1 million budget.
The judgment resulted from a lengthy legal battle with developer David Katz, who filed a lawsuit after the township’s supervisors refused to let him build on more than 700 acres he owns in the area.
Westfall Twp. is one of four Pennsylvania municipalities that has filed for Chapter 9 protection. It is the only Pennsylvania municipality to use the bankruptcy code successfully.
Lester J. Buchanan, vice chairman of Westfall Twp.’s board of supervisors, said the municipality’s situation is a little different than Harrisburg’s financial woes.
“Our bankruptcy was based solely on a lawsuit,” said Lester Buchanan, vice chairman of Westfall Twp.’s board of supervisors. “The township was way more than solvent as far as everything else was concerned.”
The lawsuit and the verdict that brought Westfall to the bankruptcy courts had been hanging over the township’s head for 18 years, Buchanan said. The township supervisors were united in the need to resolve the case through the bankruptcy courts.
“We were at the point where we were going to have to pay up and there was no way we could do that,” he said. “We couldn’t raise enough taxes.”
Residents of the township also seemed to understand that it had to take place.
“We had very little opposition to the bankruptcy,” Buchanan said.
After the township filed for bankruptcy, the developer began negotiating with the township. The bankruptcy enabled the township to get the amount lowered from $20 million to $6 million.
The township also has 20 years to pay off the $6 million verdict.
Westfall cut its budget and raised what’s been dubbed the “Katz tax,” which, on average, costs Westfall Twp. residents an extra $200 a year in property taxes.
Buchanan said the township doesn’t regret filing for bankruptcy. “I don’t know where we would be if we had not. There was no way we could pay this,” he said.
Still, bankruptcy is not without its down side, Buchanan said. Harrisburg or any other municipality should go into bankruptcy knowing exactly what to expect.
For starters, as soon as the bankruptcy is filed, vendors cut off the township’s credit. That meant the township had to pay for things like blacktop and other supplies with cash.
“If Harrisburg were to file, they would have a certain amount of outstanding debt frozen immediately,” he said. “Those people won’t get paid until they come out of bankruptcy.”
Westfall had 20 or 30 creditors and the township emerged from bankruptcy in less than a year. The bulk of its vendors came back and were willing to issue the township credit after the bankruptcy case ended.
Another consequence: The state deemed the township distressed and appointed someone to oversee its financial situation.
“The state wants to know how you are going to pay your bills going forward,” Buchanan said. “They will have their nose in your business for the next three or four years. That’s the big thing. You can no longer operate outside your budget.”
Still paying off debt
John Moorlach, a supervisor in Orange County, Calif., also did not see bankruptcy as a death sentence
Orange County filed for bankruptcy in 1994 after it placed $14 billion in unfavorable financial investments.
If it’s possible, the county picked a good time to file for bankruptcy. The country was just coming out of a recession and the economy was picking up. Orange County, with Disneyland and its beaches, was always an attractive destination for tourists and residents.
“We kind of hit Chapter 9 at an opportune time,” Moorlach said. “We didn’t really see the negative.”
The county cut its costs, restructured its debt and sued those that “brought us to the dance,” Moorlach said. In the end, the county did not have to raise taxes to pay off its debt. However, the county is still paying off its debt 16 years later.
The debt associated with Orange County’s bankruptcy should be retired in 2016, Moorlach said. That is actually ahead of schedule.
Most residents, Moorlach said, didn’t even realize that the county had been in bankruptcy. Still, municipalities and counties that file for bankruptcy do receive some notoriety.
“It’s a scarlet letter to some extent,” Moorlach said.
That could be in large part because there have been so few municipalities nationwide that have sought bankruptcy protection.
But in the current economy, Harrisburg has the potential to be one among many because so many municipalities are struggling.
Buchanan said he’s fielded plenty of calls from other municipalities — from New York state to Oregon — that are considering bankruptcy themselves and are hoping to learn from Westfall’s experience.
FIVE-YEAR LOOK BACKS
The Daily Pilot covered the signature gathering efforts in Michael Miller’s article, “Recall picks up support – O.C. treasurer and tax collector backs effort to boot Coast Community College District trustee.” I’m including the entire article below because this spiking nonsense continues to occur. Besides, it has a great closing paragraph.
John Moorlach, the treasurer and tax collector for Orange County, has endorsed the campaign to recall Coast Community College District trustee Armando Ruiz from office.
A longtime advocate for government responsibility in pension plans, Moorlach presented a short statement to the organizers of the Recall Ruiz campaign last week. The group, led by political consultant David Kidd, fellow trustee Jerry Patterson and others, is circulating a petition that seeks to place a recall vote on the November ballot.
"Public officials are supposed to represent the best interests of the public," Moorlach’s statement reads. "So, when an elected representative is caught gaming the public pension system, it’s time to remove them from office. The cost of a recall election is a small price to pay to ensure responsible management of the public trust."
Ruiz, a Coast district trustee since 1984, angered many in the community when he retired from two jobs on the same day last October — one his part-time trustee post, the other a full-time counseling position in the South Orange County Community College District — and, through a loophole in state law that has since been closed, secured a full-time pension for both jobs.
Four days later, Ruiz ran for the board of trustees again as an incumbent and won, leading many in the community to question his honesty. Reportedly, his total pension for both jobs totals more than $100,000, which he receives in addition to his salary as a trustee.
While Moorlach acknowledged that Ruiz’s move was legal, he still criticized it as an exploitation of state funds.
"The reason I support a measure like that is [that there are] too many abuses in pension plans," he said. "Armando makes himself, in Orange County, a poster child for why voters need to take a hard look at what kind of fiscal animal the legislature in Sacramento has created.
"If you can game the system with this kind of behavior, where you’re resigning or retiring and then running again in a couple of days, I find that an issue of abuse and integrity."
Last May, the petitioners started their drive to remove Ruiz from the board, more than once appearing at district meetings to ask him in person to resign. Ruiz has consistently denied any wrongdoing and argued that voters will support him if the recall goes to the ballot.
"I don’t predict anything," Ruiz said Monday. "I stand by my record, and I think people will see that record as always standing by classroom education, with the best interests of the district in mind. I’ve always been an advocate of the classroom."
Despite the protests over Ruiz’s reelection campaign last October, he won a sizable victory over his opponents, Diane Lenning and Bonnie Castrey, garnering 40.8% of the vote.
To place the recall item on the November ballot, the organizers of Recall Ruiz will need more than 36,000 signatures from registered voters. Kidd, who is spearheading the campaign, said he did not know how many had signed the petition as of this week.
Kidd and others said they were grateful for Moorlach’s support.
"I think it’s very important in that John is in a position of authority from the county," said Martha Fluor, a petitioner and a board member for the Newport-Mesa Unified School District. "When he speaks, people listen."
A fun part of trying to find souvenirs on the internet is where you may find yourself in print. Today In The Word is a monthly publication of the Moody Bible Institute. This day’s topic was “Luke 14:1, 7-11.” It would have no identified author. However, the same words would show up again in a book, titled “Job: From Riches to Rags and Rags to Riches,” by Lou Nicholes (see MOORLACH UPDATE — Job — February 20, 2009).
Here is a portion of its edition for Saturday, September 16, 1995:
Sometimes the way up is down. John Moorlach learned that lesson.
In June of 1994, he ran against incumbent Robert L. Citron for the post of treasurer of Orange County, California. During the campaign, Moorlach condemned Citron’s risky investments. At the time, Moorlach’s warnings were written off as campaign rhetoric, and Citron won his seventh four-year term by a 3-2 vote ratio.
When Citron’s investment of county funds suffered severe losses and Orange County went bankrupt, Moorlach sounded like a prophet. The man who had lost the election was unanimously appointed by the Orange County Board of Supervisors to serve as treasurer.
What Moorlach discovered is what Christ teaches in today’s verse. The Lord used the “visual aid” of a dignified scramble for seats of honor at a Pharisee’s house to launch His lesson (v. 7). The guests carefully maneuvered themselves into positions so that the seats they chose would display the honor they felt they deserved. But according to Jesus, true honor is that which is given by someone else, not the honor pridefully taken by an individual. God will see that the proud are humbled and the humble are honored.
Chris Reed of the OC Register covered the big debate in “High-profile political names spar over tobacco windfall – POLITICS: Forum includes state Sen. Dunn for Measure H, Treasurer Moorlach for Measure G.” Here is the article in full to give you a sense of the fun I had during the campaign.
Treasurer John Moorlach and state Sen. Joe Dunn, two of the county’s political heavyweights, squared off Friday over rival health-spending initiatives in a polite but frequently pointed forum.
The Public Affairs Association event effectively kicked off the election-season debate over how the county should use its $30 million-plus annual cut of the 1998 national tobacco settlement.
Dunn, D-Santa Ana, and former Supervisor Marian Bergeson spoke on behalf of Measure H, the initiative placed on the November ballot on the strength of 115,000 voter signatures.
It would give 80 percent of the windfall to health and 20 percent to public safety.
Moorlach and former Assembly Speaker Curt Pringle spoke on behalf of Measure G, the Moorlach-penned initiative put on the ballot by three supervisors. It would give 42 percent of settlement dollars to health, 40 percent to bankruptcy debt relief and 18 percent to public safety.
In the sharpest exchange of the forum, Dunn depicted Measure G as a ruse.
Supervisors, he alleged, hope both initiatives will fail to get the necessary 50 percent, allowing the board to continue to force local hospitals and doctors to cover the cost of emergency care for the uninsured.
In response, Moorlach declared, "I’m not anybody’s shill." He cited his famous warning to supervisors — before the 1994 bankruptcy — about the county’s risky investments.
The treasurer said hospitals in the county — far from being staggered by the burden of uncompensated care — "made over $200 million in income last year." And he noted that Jeffrey Barbakow — the CEO of Tenet Healthcare, which has 10 hospitals in Orange County — took home nearly $28 million in salary and stock options in 1999.
The hour-long forum was marked by similarly intense sparring.
Dunn said the central question wasn’t one of priorities but of honesty: Would county leaders finally honor the 1976 promise that supervisors made to cover the local medical community’s costs for the responsibilities it assumed after the sale of the county hospital?
With Measure G, Bergeson said, "the county is making yet another promise: `We’ll pay off the bankruptcy (debt) and then do our fair share for health care. "’ However, Pringle said leaders would be foolish not to address the county’s $1 billion in bankruptcy debt before the economy turned sour.
And Moorlach noted that Measure G’s basic formula would change in 2008, after $247 million in bankruptcy debt was retired, funneling more money into health — on top of providing $130 million in interest savings.
But Bergeson said H’s defeat could lead to longer waits for emergency-room care and the closures of local hospitals.
And Dunn cited the vast gap in endorsements between the measures.
Measure H’s latest boost came Thursday night, when the board of directors of the Orange County Business Council voted 16-4 to support it.
David Reyes of the LA Times also covered the debate in “Bergeson: Use Tobacco Funds on Health Care – Former supervisor says county reneged on the promise made when is sold hospital.” Here are the closing paragraphs:
"The county has $950 million still to pay for its bankruptcy debt," said Moorlach, who participated in the debate. "The county has an opportunity to reduce the debt, and it should."
In response to a Moorlach comment that Measure G would allow for a faster paydown of the county’s debt much as a homeowner might pay off a mortgage, state Sen. Joe Dunn (D-Santa Ana), disagreed.
"You don’t have the luxury of paying your mortgage early if you have other debts. In this case, the county has the health care private sector [which has accrued] $200 million in uncompensated services."
The San Bernardino Sun had an article by Andrew Silva that had a link to the OC in “Brokerage involved in O.C. suit—Salomon Smith Barney also sued by SB for risky investments.”
A brokerage house accused of losing more than $6 million of county money on risky investments paid $1 million to Orange County after it was sued for its role in that county’s 1994 bankruptcy.
The investment firm Smith Barney [with broker Peter Morrison], now called Salomon Smith Barney, was one of about two dozen firms that sold securities to Orange County as former Treasurer-Tax Collector Robert Citron built a portfolio based on high-risk investments that eventually bankrupted the county.
Citron’s investment strategy ultimately collapsed when interest rates rose in the mid-1990s after he gambled on investments that needed rates to go down.
“When interest rates rise, it has a real impact on market value,” Orange County Treasurer-Tax Collector John Moorlach said.
Orange County asked the Salomon Brothers investment firm to help restructure its debt after the bankruptcy, Moorlach said. After it merged with Smith Barney and the settlements were completed, the county continues to go to Salomon Smith Barney for debt underwriting, he said.
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