MOORLACH UPDATE — OC Register — July 29, 2011

When Brian Calle of the OC Register’s editorial staff called about openness in employee bargaining unit negotiations, I referred him to my quotes in an OC Register article from August 8, 2006 (you’ll see it soon in an upcoming LOOK BACK).  When you see the August 8th LOOK BACK, you’ll see that my position has not changed:  let’s open up the negotiation process, please.  Brian’s piece is the today’s lead editorial.

The second column is by Barbara Venezia on the status of undergrounding electrical lines in Santa Ana Heights.  For the record, the communication between the County and Newport Beach has been great for the most part.  With large projects, there will always be glitches, but the column may give an impression that is not completely warranted.  As with any relationship, communication can always improve.

Editorial: Governments should deal with unions in public

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For significant reform to be forged on public employee compensation, taxpayers need more information from and a stronger voice at the bargaining table. A more open collective-bargaining process will give taxpayers that desperately needed presence in the discussion and hopefully lead to significant reform measures.

As such, contract negotiations with public employee unions should be made public, by law.

The current system requires lawmakers – or, more typically, their staff – to negotiate with union representatives behind closed doors. In many cases, both sides at the negotiating table have a vested interested in better pay and benefits for the employees.

This approach has come under increasing criticism because more and more scandals and questionable practices have surfaced, raising the ire of taxpayers. Compensation abuses like those uncovered in the city of Bell; or pensions that guarantee some Orange County public safety workers 90 percent of their salaries after 30 years’ work; or special gimmicks like paying officers for washing their police motorcycles, have been met with increasingly loud calls for openness and transparency in local government expenditures.

Compensation data for public workers is now being posted on most government websites, as are current union contracts. That is not enough. The next step in openness is to make union negotiations public and allow taxpayers the ability to see – in real time – offers and counteroffers, as well as allow for public comments on the negotiations.

Orange County Supervisor John Moorlach told us that he has been concerned for years about closed negotiations because it gives little opportunity for public input. He pointed out that, in Orange County, there is a weeklong waiting period for citizens to weigh in on contracts approved by unions.

For editorial writers and news reporters, when asking questions of elected officials or union representatives, it is not uncommon to hear responses like "we can’t disclose that because it is part of negotiations" or "I cannot talk about that because it was in closed session." The same would be true if a taxpayer were asking.

Changing the process would require action by the state Legislature. As Supervisor Moorlach noted, that is unlikely to happen because it would put a wedge between the governor and legislative Democrats and the public employee unions. That leaves a ballot initiative as the only option.

Nicole Aro, organizing director at the Sunlight Foundation, a Washington D.C. nonprofit that uses the Internet to improve government openness and transparency, said, "It’s crucial that citizens have the ability to know what their government is doing so they can hold their elected officials accountable." The current closed practice of negotiations does not allow for such accountability.

Citizens should have a seat at the negotiating table and have the ability to weigh in on contracts before elected officials bind taxpayers to the terms in them.

Santa Ana Heights ‘undergrounding’ finally begins

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By BARBARA VENEZIA
FOOD FOR THOUGHT
THE ORANGE COUNTY REGISTER

Discussions about undergrounding high-voltage electrical poles in Santa Ana Heights first took place between members of the Santa Ana Heights Redevelopment Agency Project Advisory Committee and Supervisor Tom Wilson in 1995. I was there.

The PAC spent years pleading with the county to spend the Redevelopment Agency funds slated to underground the poles, which obstructed trails on Cypress Street and Mesa Drive. Originally estimated around $2 million, two years ago the project broke ground at a cost of about $7.5 million funded by the RDA.

On Monday morning, Southern California Edison was busy converting Mesa Drive resident Andy Crean’s home to the new undergrounding system.

Sixteen years in the making, his would be the first house to be officially undergrounded.

The first step in undergrounding was for crews to tear up the street and lay the conduit. Then each homeowner absorbed the cost of pulling permits and having a private contractor underground conduit from their private property to the new system in the street. Once done, Edison could start the conversion process.

Mike Sinacori, assistant city engineer for Newport Beach, told me out of the approximately 100 homes affected, only four homeowners in Santa Ana Heights have not complied.

He has asked to name them and here they are: Paul Peg, Larry Lake and Richard Roberts on Cypress Street, and Charles Moothhart on Birch Street. The four have been unresponsive to numerous calls and city letters, he says.

So what happens next? "They hold up the process for everyone," Mike says.

These homeowners have the option of signing a release form for the city to do the work and will be billed. If they don’t pay, the city will take legal action, which ultimately could result in a lien on the property. The cost and fines would appear on their property taxes. This could get expensive.

Rick Francis, chief of staff for O.C. Supervisor John Moorlach, says he was delighted that Andy’s house was being hooked up. Moorlach got the underground started in 2009.

But there are still issues unresolved, Francis said.

The city has asked for additional redevelopment dollars for some curbing along Mesa, and resurfacing of other streets. According to Rick, the county asked for estimates at the beginning of the year, and they haven’t heard anything.

"They’ve not been really good at communicating through this whole project," Rick said.

This project hasn’t been easy with two layers of government involved, the county holding the RDA purse strings and Newport contracting and overseeing the work.

The most controversial aspect of this undergrounding has always been the completion of what’s now being called the "multi-purpose" trail along Mesa Drive (more politically correct than calling it a horse trail).

Equestrians fought hard to see the trail completed. County trail maps have always included this trail’s completion as did the RDA plan.

Our understanding is that particular property owners – Buck Johns and Harry Rinker – are not in favor of a trail in front of their homes. The city is trying to work out a different approach. "

Since this project was proposed, Johns and Rinker have opposed it.

But what about the city’s liability issue? Kids on horses and bikes on Mesa Drive are at risk where the trail ends. There’ve been minor accidents between cars and riders. Is it a matter of time before a serious one occurs?

Mike says the city is looking at an alternate plan, possibly narrowing the roadway, which would delete some street parking.

FIVE-YEAR LOOK BACKS

July 30

2001

The first seven months of 2001 were difficult.  The June 30, 2001 Treasurer’s Monthly Investment Report, issued on July 10th, included my year-end report.  It was a doozy.  Some things had transpired during the past few months that needed to be addressed.  This report is still on the OC Treasurer’s website under June 2001.

It was a thirteen-page document that mentioned the initiation of the County’s Extended Fund that fiscal year and its being recognized in the May issue of Treasury and Risk Management (see MOORLACH UPDATE — OCBJ OC 50 — May 3, 2011).  It discussed the history of the Edison International investments.   These were followed by the section that caused the most commotion, which I have provided below:

Investment Policy Statement – March 27, 2001

After the surprise rating downgrade of our school pool by Fitch on January 16, 2001, the Board of Supervisors made two unique requests: a review of our investment procedures by Internal Audit as to acquisition of the holdings that caused this downgrade and two presentations to the Board, including a special “Treasury Workshop,” the first such request in the six years that I have held this position.

It is important to note that all audits performed on the Treasurer’s office are included in our monthly reports.  Audits involving the investment division are:

A quarterly examination of our “Statement of Assets Held By the County Treasury,” applying agreed-upon procedures, by Internal Audit.

A quarterly review of our investment policy statement compliance by Fitch.

An annual compliance audit by Internal Audit.

A statement from the most recent Internal Auditor’s Report is quoted below:

“In our opinion, the Treasury management’s assertions about compliance with the aforementioned investment compliance requirements for the year ended December 31, 1999, are fairly stated, in all material respects.”

This fiscal year Internal Audit also completed a “Control Self Assessment” for my department and found that we fell in the top percentile for departments who have completed similar exercises. The findings included high morale among staff, effective communication, and a  satisfactory implementation of internal controls.

Internal Audit found our EIX acquisitions, in their March 23, 2001 report, “to fully comply with the County’s Investment Policy Statement.” All this to say: we are a clean, transparent and professional operation.

All the same, for some unexplainable reason, the Internal Audit Department Director, along with the assistance of a wanting consultant, determined that he should also provide investment advice to the Treasurer in his report, thus exceeding his scope of responsibility. This resulted in some eleven recommendations, of which seven were summarily discarded by both the Treasurer’s Advisory Committee and Treasury Oversight Committee. One may be included in our Investment Policy Statement submission for our annual review in December to document what we are already doing. I believe the initial four recommendations were not necessary, but reluctantly acquiesced due to the unique atmosphere that the Internal Auditor cultivated through an awkward “shuttle diplomacy” approach.

The first recommendation was to “prohibit buying any securities that is (sic.) on ‘credit watch negative’ by any of the credit rating agencies.” Investment professionals are well aware that prime quality issuers, e.g. P-1, that are on “credit watch negative” may be downgraded one step to P-2, which is still a first-tier (or very high prime quality) issuer. As “credit watch negative” usually occurs when an issuer is involved in a proposed merger or acquisition, we normally review the credit rating reports, the underlying financial statements and its stock price volatility. Accordingly, a complete prohibition is an overreaction to what may be a solid and appropriate investment. For example, the only holdings in our pools on “credit watch – negative” at the time this investment policy change was implemented were issued by CIT Group. I elected to hold them to maturity and the “credit watch – negative” has since been dropped. Investing is an art and a discipline. Relying solely on credit rating agency reports is not necessarily the best way to run an investment portfolio. This was even reiterated at the first Board of Supervisors meeting, yet this is the approach that was strongly recommended by Internal Audit.

Since the existing investment policy statement allowed for acquiring first-tier corporate investments with a split-rating, e.g. A-1, P-2, F-1, (still first tier) we recommended that Internal Audit provide a consistent overall recommendation. Accordingly, their second recommendation was to “prohibit the purchase of split rated (sic.) securities” (i.e., no credit rating agency may give a rating less than their highest rating). I believe that this was also an overreaction by Internal Audit and reflects a lack of professional expertise in the area of short-term fixed income investing. We held onto our split-rated holdings until maturity after the approval of the new investment policy statement with no issuer concerns.

The third recommendation was to “have the Treasurer, Assistant Treasurer, or Compliance Manager review all investment purchases daily.” Based on our existing internal policies, this recommendation is redundant and is of minimal value to this department. All of our issuers are pre-approved by the Treasurer and Assistant Treasurer. Investment officers are empowered to acquire these issuers. Management reviews investment activity with the investment officers on a regular basis. Approving trades after they have been consummated does not reflect an investment acumen or a thorough understanding of our operations by Internal Audit.

The final recommendation was to “submit for review to the Board of Supervisors on an annual basis the qualifications of those to whom authority has been delegated to buy and sell securities.” This also is an awkward investment policy statement inclusion as job descriptions and qualifications are a matter of public record. This recommendation goes on to require that “when changes are made to those who are authorized to make investments, the Board of Supervisors should be informed and should be provided with the qualifications of those individuals.” We have always notified the Board of Supervisors of staff changes in our monthly reports when they occurred and again, in summary form, in this annual report. I am encouraged that the Board wishes to take a more proactive part in my Department, but am somewhat puzzled because the appearance is given that information provided in our reports is not being read.

This unique exercise proved that six years after our bankruptcy filing, it appears that the Board of Supervisors and the Internal Audit Department do not fully understand or appreciate the function and duties of the Treasurer’s office. I do not believe that the Internal Auditor’s attempt to solve an “only once in thirty years incident” with so many draconian and superfluous recommendations was beneficial. It did not put the Internal Audit Department in a good light and it made the Board of Supervisors look “out of touch” at best.  This needs to be prevented in the future. My staff would love to provide a Treasury Workshop on an annual basis. I would also encourage the Board to read our monthly reports and, at the very least, visit this department. I believe you will see that this ship has been sailing a strong and steady course and there is no

reason to panic when clouds appear on the horizon.

If you’re still reading this posting, then you can imagine the reactions that the above section of my year-end report generated.  It was the title of the weekly “The Buzz” column in the OC Register, “O.C. treasurer feuding with 3 supervisors,” compiled by Chris Reed and Martin Wisckol.

Orange County Treasurer John Moorlach and three supervisors find themselves in a snit.  Chafing at criticism of his office’s investment of $40 million in the parent company of debt-plagued Southern California Edison, Moorlach said in a July 10 letter to board Chairwoman Cynthia Coad that supervisors do not “fully understand or appreciate” the work that he and his staff do.  Coad and Jim Silva shrugged off the potshot.  But at Tuesday’s board meeting, Todd Spitzer, Charles V. Smith and Tom Wilson made their feelings known on two seemingly routine items.  First the trio voted against giving Moorlach the authority to modify a contract with a financial-information provider, saying he had to come back to the board.  Then they temporarily put off Villa Park’s bid to join the investment pool run by Moorlach, suggesting the city hadn’t been fully apprised of the risks it ran by investing.

Moorlach seethed afterward, criticizing the board’s “patronizing” behavior.

Spitzer, however, said Moorlach’s resentment of board oversight was ironic and inexplicable, given the circumstances in which he took office.  Moorlach was appointed after the county’s 1994 bankruptcy, which was triggered by the investment gambles of his predecessor, Robert Citron.

But Moorlach said there was “simply no comparison” between Citron’s bets on fluctuating interest rates and his office’s investment in Edison International, which has since repaid with interest.

“I don’t think the treasurer’s office was treated properly,” he said.

Moorlach’s press aide put it more colorfully:  Supervisors are guilty of “maniacal micromanaging,” said Brett Barbre.

2006

The lead article for the OC Register’s Sunday Marketplace section was “Jump in O.C. property tax bills is biggest in 15 years” by Mathew Padilla.  Now that property tax revenues represent more than 80 percent of the OC’s general fund revenues, I am pining for these good old days.  This would be the beginning of the end and the delinquency data was the big hint.  At the Treasurer’s Office we would use the phrase, “the trend is your friend.”  Consequently, after I was sworn in five months later I took a strong position on downsizing the County’s budget quickly in anticipation of the trend that was just developing.  Here are a few selected paragraphs:

                The county charged property owners $3.8 billion for the year ending June 30, a 10.5 percent jump from a year ago and the biggest year-over-year increase since 1991.

                Frenzied buying and selling of homes, shops, offices, apartments and other property led to higher tax assessments, according to real estate brokers and John Moorlach, county treasurer.  Major home remodeling, such as adding a pool or extra room, also bumped up the total, he said.

                There was one troubling trend in the numbers, he said.  The percentage of unpaid tax reached its highest level in eight years.

                Owners stiffed the county out of 1.52 percent of taxes owed.  Still, the percentage is low by historical standards, Moorlach said.

                He said the percentage was bound to rise from its 2004 level of 1.09 percent, one of the lowest rates in the county’s history.

                Lenders last month mailed 462 notices of default to borrowers who had missed several home mortgage payments, a 90 percent jump from a year ago, DataQuick Information Systems says.

                The total is low by historical standards, as are the 13 foreclosures in June, although that figure is up 44 percent from a year ago.

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