MOORLACH UPDATE — Voice of OC — May 22, 2011

As a resident of the city of Costa Mesa, it has been astonishing to watch the prior City Council burn through $50 million in reserves these past four years and enhance pension benefits!  Now the city has minimal reserves and massive pension plan obligations. 

This is not news.  I wrote about it, along with Councilman Eric Bever, in the MOORLACH UPDATE — Waiting — October 7, 2010. 

What is news – and good news at that – is the city now has two new councilmembers who, along with Councilman Bever, are dealing with the fiscal mess.  These three councilmembers must be doing a great job because the public employee unions have gone apoplectic.

The Voice of OC provides an update on the situation.

A Question of Strategy

On March 16, the day before the city of Costa Mesa officially issued six-month layoff notices to more than 200 employees, Orange County Republican Party Chairman Scott Baugh sent out an email congratulating the newly installed City Council majority on its pending action.

"A team of conservatives on the City Council led by our endorsed candidate, Jim Righeimer, is fixing the problem in Costa Mesa," Baugh wrote.

Baugh’s email was an acknowledgment that Mayor Pro Tem Righeimer and his council colleagues were rushing to the front lines of the GOP’s nationwide ideological war against public sector unions.

It also carried an underlying message that the local Republican establishment had their backs.

The layoff notices went out the next day, and with them came the suicide of city maintenance worker Huy Pham. Local labor leaders have since unleashed a counterattack with an intensity and sophistication rarely seen at the local level.

Union groups have attended public meetings en masse, staged rallies, run television and Internet campaigns, and funded the operations of Repair Costa Mesa, an anti-outsourcing community group.

The effects of these sustained attacks on the City Council have become apparent at public meetings, with council members clashing with one another and with members of the public. Councilman Stephen Mensinger has gone as far as calling for a review of decorum rules for the meetings.

Last Tuesday, two months to the day since the city issued its layoff notices, Righeimer used his comment period after another hours-long council meeting to tell the still-packed crowd that a recall campaign is coming.

"If you haven’t figured it out, all the craziness, a recall will happen in the city," he said. "That’s why it’s getting crazy."

Righeimer noted that both Nick Berardino of the Orange County Employees Association and Art Pulaski of the California Labor Federation stirred thousands of party activists at the state Democratic Convention earlier in the month with the battle cry that Costa Mesa was a West Coast Wisconsin.

"This city council is going to be attacked and attacked," he said.

Righeimer’s underlying message to GOP honchos seems straightforward: The fighting at the front is only going to get more intense. So if you’re behind us, now is the time to start sending reinforcements.

One GOP insider who was in the audience at last week’s meeting wondered aloud whether Baugh and leaders of the deep-pocketed Lincoln Club are doing enough in response to the union efforts.

Others say the drumbeat for a coordinated response to the union efforts continues to get louder.

"Just based on personal interactions, the business community is not amused at all with the ads Nick is running, and they get it," said Orange County Supervisor John Moorlach, a fellow Republican who often crosses swords with labor.

Moorlach thinks counterpunches are on the way.

"In a short amount of time, you might see a counter response. It just takes time to get organized and get it done," he said. "I get a sense there’s people who believe in Righeimer and Mensinger and are getting tired of this."

When confronted with this question, Baugh said the council majority’s back is covered, but he and other GOP bigwigs won’t waste bullets.

"You don’t want to start spending money, chasing a target that is difficult to identify," Baugh said. "But when the issue comes into clear focus, you can rest asurred (sic) that Costa Mesa Republicans and Orange County Republicans will marshal the resources to defend him. Just as we did with [County Supervisor] Shawn Nelson, we’ll be engaged in a meaningful way if there’s any efforts to recall him."

Baugh referred to the 2010 primary election when OCEA and the Association of Orange County Deputy Sheriffs spent more than $1 million on attack mail against Nelson. In the waning days of the campaign, Baugh and the state party raised $65,000 for a series of member communication mailers to Republicans in the area.

Nelson went on to trounch (sic) his nearest competitor, Anaheim City Councilman Harry Sidhu.

Baugh sees similarities in Costa Mesa and says the poll results are on the council majority’s side.

Which is the reason he feels confident that until the word "recall" is mentioned, Republicans don’t need to spend money to combat the labor campaign.

"When the issue is on your side, it doesn’t matter if the opposition outspends you three-to-one," Baugh said. "What matters is if you have enough to get your message out. That’s what happened in the Nelson race."

Yet despite Righeimer’s prediction, labor leaders don’t seem to be using the recall language that might trigger more funding to defend the council majority.

OCEA Communications Director Jennifer Muir confirmed there is talk of recalls but not from labor.

"I’ve heard a lot of people in the community talking about it," she said.

She noted, however, that OCEA’s focus is not on a recall. "Our focus is getting on these layoff notices rescinded."

"Ultimately, a recall has to come from the residents. We’re focused on the layoffs and educating the public on the harm that will come to the community as a result of this politically motivated outsourcing scheme."

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May 22

Running a department is a demanding job.  Running for office is a consuming endeavor that everyone should try at least once to appreciate the experience.  Doing both at the same time is a stressful undertaking.  In the mix you add that there was only one identified candidate for Orange County Treasurer-Tax Collector, which should have made the transition a little calmer.  Consequently, as a result of the County’s adoption of the “2.7 @ 55” pension formula, the Treasurer’s department experienced a rash of retirements of senior employees (those at or over the age of 55) in the spring of 2006.  One of those key employees was the Assistant Treasurer-Tax Collector.  The department went through a brief recruitment period, with the assistance of the CEO’s Human Resources Department, which found the only candidate being the successful applicant for the position.  This provided for a succession planning opportunity to train the next office holder over the following ten months.  The recruitment had some small glitches over the wording of certain documents by HR staff that were remedied, but received media attention in excess of what the administrative human errors deserved.  During the process, the candidate assured me that there were no skeletons in his closet.  A few days before the closing of the filing period, another candidate entered the race.   The claim that there were no skeletons did not appear to be accurate as the new Assistant Treasurer-Tax Collector’s past employer filed a law suit shortly after the filing period closed.  This would dog the candidate and pull me into the fray.

In the final weeks of the campaign, the media did its best to record all of the activity generated by the hiring, the campaign, and the lawsuit.  Jean O. Pasco and David Reyes of the LA Times provided their coverage in Controversy Colors Race for Treasurer — First-time candidate Chriss W. Street has lost key endorsements over allegations that he mismanaged assets at a former job.”  Having someone that you’ve known for years as the result of being in the same fox hole during the Citron campaign, who had a habit of not disclosing the blemishes in his recent work history, made for awkward moments when those blemishes were revealed.  It definitely started putting a strain on our relationship.  The entire article is provided to disclose the fun I endured five years ago.

What otherwise promised to be a low-key race for Orange County treasurer/tax collector has been anything but, with one candidate stung by allegations that he mismanaged the assets of a bankrupt trailer company, resulting in a district attorney’s investigation.

At a time when first-time candidate Chriss W. Street should have been introducing himself to voters and building support, he has lost three key endorsements — including one from Dist. Atty. Tony Rackauckas — amid the controversy.

He has also found himself deflecting charges that his friend and political mentor, Treasurer/Tax Collector John M.W. Moorlach, bent county hiring rules in January to bring Street on as his assistant, giving him a leg up on the job.

Leaders of the county’s employee unions pounced on the allegations, Street said, in an attempt to discredit him and, by association, their chief nemesis on the June 6 ballot: Moorlach.

Moorlach, who has endorsed Street, is running for county supervisor on a pledge to reform the county’s pension system.

"This is all about the unions going after John Moorlach," said Street, 55, an investment advisor registered with the U.S. Securities and Exchange Commission, who brings a crowded resume of private and public financial experience to the race.

"For someone who went along as long as I did … to be trashed like this is amazing," Street said of his role with the trailer company, Fruehauf Trailer Corp.

Challenging Street for the nonpartisan county post is Patrick Desmond, 59, an auditor-appraiser with the county assessor’s office also running for the first time.

Desmond’s candidate statement says he joined the county in 2002 after working for a car dealership and as controller for technology companies. He also worked for accounting firm Deloitte & Touche.

He denied that the county’s employee unions recruited him. Some treasurer’s office employees asked him to run, he said, because they disliked Street and didn’t want him to be able to walk into the job unopposed.

He said Street was tainted by a sweetheart job deal from Moorlach and by the district attorney investigation, which prosecutors have declined to characterize.

Whoever wins will be in charge of the county’s $5.6-billion treasury and sit on the board that oversees the $6-billion Orange County Employees Retirement System fund.

The allegations about Street’s business dealings have dominated the campaign.

They involve a dizzying burst of claims over the fate of Fruehauf Trailer Corp., which filed for bankruptcy in 1996. None of the claims have been ruled on by a judge.

After bankruptcy was granted in 1998, Street took over a successor company formed to liquidate Fruehauf’s remaining assets as well as its pension plan. He resigned in August 2005, replaced by a new trustee, Daniel Harrow.

On March 15, five days after Street filed his candidacy papers to run for Moorlach’s seat, Harrow filed a 63-page statement with the Bankruptcy Court in Delaware accusing Street of "mismanagement, conflicts of interest and greed" while in charge of the trust.

Street said the statement was rife with falsehoods. He defended his actions, saying that creditors had recouped their money and that he had shored up the company’s ailing pension fund.

When the federal Pension Benefit Guaranty Corp. announced its takeover of the fund in 2004, its news release said that a $7-million deficit would be covered by insurance.

In April, Street filed a defamation and conspiracy lawsuit against Harrow and a union official who criticized Street before Orange County supervisors.

Supervisors Bill Campbell and Chris Norby endorsed Street, but withdrew support once the district attorney investigation began.

But the endorsements remain listed in Street’s candidate statement and on some campaign literature.

Street said his most treasured endorsement is from Moorlach, whom he met in 1994 after both men took out forms to run against Treasurer/Tax Collector Robert L. "Bob" Citron.

Street said he had investigated Citron’s risky investment strategy after the treasurer stepped in to help the financially troubled Newport-Mesa Unified School District, which kept its money in the county’s investment pool.

Worried that Citron could lose the district’s money, Street said he soon realized the county’s investments were also in jeopardy.

Street threw his support to Moorlach, who was defeated by Citron. Six months later, Citron’s investment scheme collapsed and the county declared bankruptcy, citing losses of $1.7 billion. The county is still paying off that debt.

Street later was appointed to the county retirement board and the treasurer’s oversight committee — experience he said made him uniquely qualified to take over for Moorlach and protect taxpayers.

"The most important issue affecting this election is whether public employee unions will control the future of the county’s investment fund and the pension fund," he said.

Desmond said he had been mystified about why Moorlach continued to back Street in light of the Fruehauf allegations.

At a recent supervisors meeting, board members rejected his request to have Street fired from his assistant treasurer’s job.

He also disputes Moorlach’s assertion that the county risks a second bankruptcy if it doesn’t reform its pension system.

Moorlach has said the county needs another $2.3 billion over 30 years to cover pension payments for its employees.

"I do not know that we’re headed into a crisis with the unfunded pension liabilities," Desmond said. "And I think it’s reckless to play on people’s fears." 

Desmond said he took out an equity loan of $16,000 on his Lake Forest home of 22 years to pay for his candidate statement and filing fee.

He said he had raised about $14,000 for his campaign.

He expects other campaign help thanks to endorsements from the Orange County Employees Assn. and the Assn. of Orange County Deputy Sheriffs.

A Jesuit seminarian in Northern California in the 1960s, Desmond has a bachelor’s degree in theology from Gonzaga University and a master’s degree from Notre Dame.

Street earned a bachelor’s degree in economics from UC Irvine and attended the executive program at Stanford Business School.

He lent his campaign $215,000, infusing $100,000 last week, and had raised about $8,000 as of mid-March. Street lives in Newport Beach. Updated reports for both candidates are due Thursday.

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