MOORLACH UPDATE — 2nd District Court of Appeal — January 19, 2011

I spent the morning and early afternoon in Los Angeles in the Second District Court of Appeal.  The County’s outside legal counsel, Rob Gasaway, clearly laid out our two concerns, the debt limitation and the compensation limitation.  He was peppered with numerous questions.  To keep my summary brief, the questions revolved around “variable” debt.  For instance, questions like, “when the stock market goes down, then you have more debt, is this what you’re suing about?”  No.  We’re talking about self-inflicted debt by granting retroactive benefits to the date of hire.

Former California Second District Appellate Court Justice Miriam Vogel, who retired from the bench in August of 2008 and is now with Morrison Foerster, the firm representing AOCDS, said two profound things.  The first thing she said to her former colleagues was that she didn’t need her full half hour to lay out her arguments.  The second thing she said was something as blatant as this, “honorable judges we’re talking about my pension and we’re talking about your pension.”  Then she sat down.  (For your benefit, they were not talking about the judges’ pensions, but how much more crass does it get?)

Rob Gasaway rebutted with a long list of citations regarding variable debt being subject to the debt limitation.  With all of the citations and case history on the County’s side of the argument and only emotionalism on the other side, it will be most interesting to read the opinion from the three appellate judges some three months from now.

The Voice of OC mentions that the case would be today, but I haven’t seen the “tabs on the day in court” yet.

The second piece is another editorial from the great editorial staff of the Long Beach Press-Telegram.

Appellate Court Set To Hear Retroactive Pension Case

Lawyers for Orange County and the Association of Orange County Deputy Sheriffs will square off again tomorrow in a Los Angeles courtroom in the long-running retroactive pension case.

The 2nd District Court of Appeal will hear the county’s argument that the 2001 granting of a retroactive pension benefit to sheriff’s deputies was both a violation of the state constitution’s provisions on debt limits and an illegal gift of public funds because it gave retired deputies extra pay for work they had already performed.

This argument failed in Los Angeles Superior Court, and, according to the deputies union, has cost county taxpayers more than $2.2 million and could end up costing more than $5 million.

County officials — most notably Supervisor John Moorlach — have said the case is worth it both on principal and cost because if the county wins, taxpayers will save as much as $187 million in pension payouts.

One thing to keep an eye on is the role of former Moorlach chief of staff Mario Mainero, who will be privately advising county attorneys. County Chief Executive Tom Mauk took flack last month for hiring Mainero — who masterminded the case before leaving last year for Chapman University — to help with the appeal.

Deputies union leaders in particular questioned why the county needed Mainero’s help in December, after lawyers had filed their pleadings with the appellate court.

The appellate court should hear the entirety of the arguments Wednesday and then have 90 days to render a verdict.

We’ll keep tabs on the day in court and let you know if anything interesting happens.



So far, no mention of pensions

Some spending problems are too big to be treated as a mere budget item.

Have you noticed? In all the wailing about cutting state spending and dipping deeper into taxpayers’ pockets, the juiciest target of all goes unmentioned: public pensions. There’s a reason.

It isn’t just that state politicians like to avoid the subject, although they do, and it isn’t just that the new governor, Jerry Brown, has changed his tune, although he’s done that before. It is that pensions are too big to be treated as just a budget item.

Not too big to handle, but so big that pensions will be a battle unto itself. The current costs of these government pensions are growing and the future costs are beyond reality. This is a massive undertaking, and not negotiable except in the details.

We assume Gov. Brown has a plan. He’d better have one. Pension costs are the biggest threat to California’s solvency, and bigger yet for cities and counties throughout the state. (Payroll and benefits are 20 percent of the state budget, but 80 percent of most local budgets.)

Brown said some of the right things about pension reform during his election campaign. But he has yet to take it on.

John Moorlach, the west Orange County member of the Orange County Board of Supervisors, had some provocative advice for the governor. Cut taxes as an inventive (sic) to business growth, which will bring in more tax revenue; cut school budgets as well as other services; and change the ruinous pension formulas.

The worst part of the big pension enrichment enacted by politicians in 1999 was that the increase not only was huge (50 percent), it was retroactive. In other words, an employee going out the door the week after the increase would get the full amount without having to work for it.

A lawsuit by Orange County challenges the retroactivity as a gift of public funds, which it is, of course. If an appeals court agrees on the legal point, taxpayers will be relieved of some of the cost burden. If the court doesn’t agree, the problem will be left to legislators, who have done absolutely nothing so far, and to Brown, who has made promises, but has yet to tip his hand.

The best possible outcome for California is unlikely, but Moorlach, writing recently in the Orange County Register, sums it up well: If Gov. Brown is intent on selling the idea of higher taxes, then he should provide balance by showing that public employees are interested in their employer’s survival.

Whether they are or not, Brown has little choice but to do what he said he would do about cutting costs and cleaning up the pension mess. Taxpayers have taken notice, and are counting on it.


January 19


By day four into the downgrade of Edison, I took a proactive strategy that would provide an entirely different adventure.  I formed a creditors committee.  It was covered by City News in “Edison Investments.”  Here a few selected paragraphs:

                Forced to explain recent decisions to invest $40 million in Edison International, Orange County’s treasurer took steps to protect the investment pool should the utility declare bankruptcy, an assistant said.

                Brett R. Barbre said his boss, John Moorlach, formed an ad hoc committee that will be in position to negotiate with Edison should it face restructuring.

                “We’re taking control of the situation,” Barbre said.  “This is a pre-emptive move to protect our interests.”

                Moorlach was elected chairman of the ad hoc committee, which is inviting the participation of other unsecured creditors.  The committee has retained Greenbert (sic) Traurig LLP as counsel, and Chriss Street & Co. as financial advisor.

                “I appreciate the opportunity to support the fair and full restructure of Edison International, so that the company can honor all of their commitments,” Moorlach said.  “We believe this step is critically important in order to protect the rights of each and every unsecured creditor.”

The ad hoc committee also made it to Bloomberg News by reporter Robert Wahlen in “Orange County, Others to Form Edison Creditors Committee.”  Here’s a paragraph:

                Orange County Treasurer John Moorlach will lead an ad hoc committee representing creditors of Edison International and its subsidiaries, which defaulted on more than $338 million of notes and commercial paper this week.”

Danette Goulet of the Daily Pilot did a follow up piece with “Schools cautiously optimistic about funds—Newport-Mesa official sees irony of investments made by county treasurer possibly failing.”  Here are a couple of selected paragraphs:

                “It’s definitely ironic that he would end up making a mistake like this, if it turns out to be a loss,” said school board member Wendy Leece, who stressed she has faith in Moorlach.

                Moorlach assured, again, that the money is not about to disappear.

                “Right now, we’re still not in default,” he said, adding that he expects a return of the $40-million principal and interest.

Even the Wall Street Journal covered the story in a piece written by Gregory Zuckerman and Jathon Sapsford, titled “Amid California Power Crisis, Investors Bet on Utilities Bonds.”  Here’s the applicable paragraph:

Even as [money manager Martin Whitman of M. J. Whitman] and others place their new bets, many investors who months or even years ago bought the utilities’ debt, figuring it was rock solid, are licking their wounds.  “We stayed away from tobacco.  We stayed away from Japanese banks,” says Orange County Treasurer John Moorlach, who invested $40 million in Edison’s commercial paper before the credit-ratings agencies downgraded the utilities’ debt.  With the two California utilities now rated below other investments that Mr. Moorlach wouldn’t touch, he says, “It’s frustrating.”  “This is survivable,” he says of his current quandary, “but it’s just awkward.”

Matt Coker of the OC Weekly did an article covering a national issue in “Recount Draculas – Meet some Orange Countians who helped Bush steal the election.”  Matt has a way of pulling stunts, but this time he went too far.  He went after my mom!  Here are the two opening paragraphs:

When George W. Bush raises his left hand, is corrected by Chief Justice William Rehnquist, and then raises his right hand to take the oath of office as president of the United States on Saturday, he will have a lot of people to thank.  Millions voted for him.  Tens of thousands contributed to his campaign.  And thousands helped fund his successful legal fight to prevent every American’s vote from being counted.

Two hundred and two Orange Countians are officially known as George W. Bush Presidential Recount Donors.  Their contributions ranged from the $10 given by county Treasurer/Tax Collector John Moorlach’s mom, Rita Moorlach, to the $5,000 doled out by Paul F. Folino, the chief operating officer of computer-data-storage giant Emulex Corp. in Costa Mesa.


In the Daily Pilot’s “The Political Landscape” column, Alicia Robinson had a subheading of “Nonstop Campaigning” and provided this update:

                Orange County Treasurer John Moorlach received an early endorsement from the Orange County GOP, which rarely backs candidates before primaries.  Moorlach is running for the second district county supervisor’s seat, which [Jim] Silva now holds.

While the endorsement was good news, Moorlach said Wednesday he was more surprised by being named the county GOP’s elected official of the year.  Though Moorlach is the only candidate for the supervisor seat, the party decided on an early endorsement because “there are employee unions that are trying to recruit a candidate to run against me, and they’re also approaching Republicans,” Moorlach said.

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