MOORLACH UPDATE — Voice of OC — March 19, 2013

The Voice of OC was in overdrive this morning. Since our Board meeting did not conclude until a few minutes before 5 p.m., I’m just now getting a chance to communicate. The first piece continues the recent theme of hiring a consultant for some $24,000 to write a report about the efficacy of opening another satellite office for the Clerk-Recorder. The topic did bubble over into today’s Board meeting, as I made some inquiries of Peter Hughes, our Internal Audit Director, about the length of time involved in getting a report out on the Clerk-Recorder’s Office. It was disconcerting to hear words like “reconstructing records.”

The second piece deals with a recently released Internal Audit report, one of what may be a series, covering a topic that I asked for a year ago. The results of this particular internal audit are extremely disturbing to me. In order for a large organization to be successful, it has to be able to trust its key managers, and when you’re talking about the County, that includes both elected and nonelected administrators. When critical information is withheld, then some serious explaining needs to be done. And it should be more dignified then stating that others should have asked more questions. This was also discussed with Peter Hughes, as I thanked him for the report and its recommendations. (It was item number 17 on today’s agenda.)

The third piece was a matter for the Public Comment section of today’s agenda, which was moved up for Latino Health Access, for a brief time of comments before we finally broke for lunch around 1:15 p.m. The matter has not yet officially come to the Board for a decision, but there is no reason to infer that innocent questions from last year were direct orders to staff to arrive at a certain outcome. Let’s hope that Dr. America Bracho pursues better communications with this key revenue and outcomes partner in the future.

Leading Ethicist: Jordan Brandman Plagiarized Report

By ADAM ELMAHREK

A report prepared by Anaheim City Councilman Jordan Brandman for Orange County’s Clerk-Recorder – which contained an entire section that was apparently largely copied from the Wikipedia entry on Orange County – contained clear examples of plagiarism and was problematic “on a number of levels,” a leading government ethics expert said Monday morning.

Judy Nadler, senior fellow at the Santa Clara University Markkula Center for Applied Ethics, said that the report embodies the “exact opposite” of the origin of the phrase “good enough for government work,” which originally implied high standards.

Based on what’s she’s seen, Nadler questioned whether Orange County has basic contracting protections in place.

“I have no idea how Orange County operates, but if I were presented with this as a public official, I would not be inclined to accept it as it is. Because its something that frankly a high school intern could have done, anyone could have done,” Nadler said. “I’m just really curious about what Orange County has as its standards. I’d be really surprised and disappointed to see if you could submit anything you want.”

Brandman was tasked on Jan. 31, 2012 to complete a report on whether the clerk-recorder needs a branch office in Western Orange County under a no-bid contract granted by former clerk-recorder and Brandman mentor Tom Daly. The councilman has already collected $24,000 from the county for draft work that has been heavily criticized as inadequate.

The “context” section of Brandman’s report bears a striking resemblance to the Wikipedia entry on Orange County. The specific text in the Wikipedia entry that nearly matches Brandman’s report was written over a period of years by several mostly well-known Wikipedia authors. Brandman only cited other “multimedia sources” in the report.

Brandman has received two contract extensions and a $1,500 compensation increase since originally being awarded the contract.

Nadler joins county Supervisors Todd Spitzer and John Moorlach in questioning the contract and report.

Spitzer said that payments should not have been authorized for incomplete draft work. And Moorlach has openly questioned whether the councilman’s contract to prepare the report was merely a guise by Daly to financially support Brandman with county funds while he campaigned for office.

The clerk-recorder’s office paid Brandman for submitting the incomplete work in several $4,800 installments during his campaign last year for his council seat.

Brandman reported no other income sources on a statement of economic interests covering the period during his campaign, with the exception of his position as external relations manager at the clerk-recorder, a position he vacated the same day he signed the no-bid consulting contract.

Nadler says that how Brandman’s contract was awarded, standards regarding work-product and compensation, and justification for outsourcing the work are all basic questions county leaders should be asking. The arrangement as it stands bears the appearance of an “inside deal,” she said.

Nadler agreed with Spitzer that there should be protections against compensating a consultant for incomplete work-product. The work could have been done in phases, Nadler said, but each phase should have been adequately completed in exchange for payments.

Nadler also questioned whether Brandman was the right consultant to handle such a report. Beyond questions about his professional abilities, a report on whether the county department should expand its reach could justifiably be outsourced if the goal is to hire an unbiased consultant uninterested in benefitting the department’s employees.

But given that Brandman received his contract the same day he left the county’s employ, that reasoning doesn’t seem likely in this case, according to Nadler.

“The county has to figure this out. They have to justify putting out the contract awarding the contract in the first place and they have to come up with a justification for selecting this person in the first place,” Nadler said. “What does a $24,000 contract look like, and what are the qualifications for the people who get these? Because if it doesn’t require a lot more than this, I think there are a lot of people who are going to be asking for contracts.”

Brandman and Daly have yet to return phone calls seeking comment.

And so far, Moorlach and Spitzer have been unsatisfied with the answers they’ve received from interim clerk-recorder Renee Ramirez, who has argued the payments adhered to county policies and that the contract was arranged by Daly, now a state assemblyman.

Meanwhile, Moorlach wrote in his regular update Monday that this issue will likely “bubble up” at Tuesday’s Board of Supervisors meeting.

Please contact Adam Elmahrek directly at aelmahrek and follow him on Twitter: twitter.com/adamelmahrek.

County Internal Audit Takes Aim At Clerk-Recorder’s Office

By ADAM ELMAHREK

Orange County staffers failed to inform supervisors in 2008 that a building up for purchase would need renovations that cost more than the price of the property and that the actual revenue source to fund the real estate buy was a restricted fund account under the Orange County Clerk-Recorder’s office, according to a recently released internal audit.

The funds to buy the property, which lies in the county civic center, came from a source that for years has drawn questions from county government insiders.

The revenue source, known as “Fund 12D,” is a restricted clerk-recorder’s office account financed by fees levied on document recording, indexing and certified copies of vital records, the audit says.

Withholding such information – key to deciding whether to buy the property – was identified as “two critical control weaknesses” in the audit. It also places blames on the clerk-recorder’s office, OC Public Works, and the county CEO’s office for failing to disclose some of the information.

News of the audit comes just as the clerk-recorder’s office is embroiled in another controversy over paying Anaheim City Councilman Jordan Brandman $24,000 for a draft report that two supervisors – Todd Spitzer and John Moorlach – are questioning.

County supervisors are set to interview 11 candidates to replace former clerk-recorder Tom Daly, who was elected to the state Assembly last year.

Supervisors are not happy about being kept in the dark.

“When you don’t give the whole story to someone who has to make a decision, that’s disconcerting,” said Supervisor John Moorlach.

Meanwhile, Daly writes on letterhead from his 69th district state Assembly office that the conclusions of the audit are completely wrong. Supervisors had “ample opportunities to ask any conceivable question, just as they do on any other matter. They chose not to, for reasons only they can describe,” Daly’s letter reads.

Attempts to blame the miscommunication on county staff, according to Daly’s letter, “amounts to nothing but a farcical cheap shot, and in my opinion is a sad waste of precious staff time and tax payer dollars.”

County supervisors approved purchasing the property on Jan. 15, 2008, the audit says. The idea behind buying the property was to use the building for additional archive space. But the agenda staff report did not explain that the public works department had estimated necessary renovations would cost between $3.56 million and $4.44 million, the report says.

“This information was known by County staff of the Clerk-Recorder Department and RDMD [public works] about 6 1/2 months prior to the Board of Supervisors meeting,” the audit reads. “This is a critical flaw in the [agenda staff report] process itself.”

Not only was information withheld but the staff report supervisors reviewed was misleading.

The audit quotes the staff report as stating that “RDMD staff conducted a physical inspection of the land and improvements, which concluded the property has been reasonably maintained,”

Needed repairs were referenced, but they were downplayed: “a number of minor deficiencies must be corrected to meet County safety standards. The County Clerk-Recorder’s Office will correct these deficiencies prior to occupancy and refurbish the interior to meet their current and future operational requirements after the close of escrow,” the audit quotes from the staff report.

The clerk-recorder’s office did not prepare the staff report, officials from that department told the audit’s authors. That was done by what is now the public works department, officials from the office told the auditors.

And Daly told the auditors that “the former head of Corporate Real Estate and he briefed the Board of Supervisors ‘…on a number of issues, including renovation costs,’”the audit says.

The audit recommends that a standard questionnaire be developed to ensure that such communication gaps are filled in the future.

The other “critical control weakness” identified in the audit was the hidden source of the revenue to buy the property – Fund 12D.

The agenda staff report only mentioned that the source of the revenue as “Agency 059 – 100%,” which is unrestricted revenue, the audit reads. Yet the true underlying source of the money comes from Fund 12D, according to the audit.

An acquisition contract summary attached to the staff report only briefly mentions Fund 12D, “making it unclear and difficult to discern” the true source of the money, the audit reports.

Also, because Fund 12D is revenue restricted to certain purposes, questions were raised as to whether using the funds to buy the property was even allowed.

The audit says that, because of the restricted nature of the revenue, only recorded real property records can be stored in the building. Currently, there are some records stored there that don’t qualify, according to the audit.

Nonetheless, whether Fund 12D was an appropriate use of the money was a question that should have been answered before the purchase, the audit concludes.

Only about 21 percent of the building space is being used, the audit says, and a county officials need to assemble a written plan for the building, the audit recommends.

County supervisors are scheduled to review the audit at the regular board meeting Tuesday morning.

Please contact Adam Elmahrek directly at aelmahrek and follow him on Twitter: twitter.com/adamelmahrek.

Latino Health Access Will Protest Funding Cut to Supervisors

By DAVID WASHBURN

Representatives of Latino Health Access are expecting a large crowd to join them at the Orange County Board of Supervisors meeting Tuesday in protest of cuts in county funding to the Santa Ana-based social service nonprofit.

Late last year, county officials informed Latino Health Access (LHA) that they would not be extending the organization’s exclusive contract to provide promotores services throughout the county, opting instead to divvy up the approximately $500,000 allocation among several community organizations.

The decision took LHA leaders by surprise and has left the organization scrambling to obtain other funding to keep its community-based health awareness program running at its current level.

"We want to assure that it is clear for the public and the partners that a vital and effective program is being dismantled and the money is being given to good organizations that did not ask for it," said America Bracho, LHA’s president and CEO in an email sent to supporters last week.

"We have to make our political representatives accountable for their decisions."

Bracho has said she is convinced that the decision to cut funding was, on some level, retribution for a dust-up LHA had with the Board of Supervisors when the two-year grant was up for approval in 2011.

Then, Supervisor John Moorlach took issue with the fact that promotora, a Spanish word, was being used to describe a county-funded program and hinted that the grant might not be approved. Nelson, meanwhile, questioned whether the program would seem exclusionary because of the word "Latino" in Latino Health Access.

The supervisors faced swift backlash from supporters of the organization, which included state Sen. Lou Correa and then-Assemblyman Jose Solorio. The supervisors ended up softening their public stance, with Nelson going so far as to meet personally with LHA leaders.

Now, Bracho believes that county officials are exacting some measure of revenge. "The only answer is they approved [the original grant] against their own will in the first place, and it is a political decision," Bracho said in an interview earlier in the year.

Supervisors and other county officials, however, say the decision was the decision in name of efficiency, not political payback. It was made as part of an overall effort to consolidate programs and to broaden the promotores program, not to punish LHA, they say.

Promotores have long played a key role in administering health care in Latino and other minority communities, acting as liaison for people who because of economic and cultural reasons do not have ready access to the health care system. The concept first began to be widely used in the United States in the 1960s and 1970s.

The program has been a cornerstone of the services offered by LHA since Bracho founded the organization in 1993. And it was because of LHA’s expertise in the field that county officials asked it to train other community organizations.

Most recently, LHA held a training in November that included: Multi-Ethnic Collaborative of Community Agencies; Orange County Asian Pacific Islander Community Alliance; Western Youth Services; and Orange County Child Abuse Prevention Center.

And it was after this training that county officials to tell LHA of their plan to take the more than $500,000 that was going exclusively to LHA and split it evenly between LHA and the four groups it trained.

"All of these is happening without any response on our part," Bracho wrote in her email. "We will be there sharing the need of this program and the outcomes."

Please contact David Washburn directly at dwashburn.

FIVE-YEAR LOOK BACKS

March 19

1998

Michael B. Marois of The Bond Buyer provided another potential financial dilemma with “Faced With Default, Nevada County, Calif., Considers Bankruptcy.” Nevada County was not considering bankruptcy, but it had a CFD, a community facilities district, that issued debt on behalf of a developer who was not selling real estate at a pace strong enough to make the principal and interest payments. That’s an oversimplification, but it was the issue of the day and I received a call on the matter. Here are the opening three paragraphs:

Nevada County, Calif., adminstrators are researching the possibility of seeking bankruptcy protection for the county’s failed Mello-Roos district.

County Treasurer Chris Dabis suggested that option Tuesday to county supervisors, who did not vote on the issue. Dabis said yesterday she already has spoken on the phone with Orange County, Calif., Treasurer John M. W. Moorlach and is waiting to talk with the law firm that handled that county’s historic 1994 bankruptcy.

If federal bankruptcy protection from creditors is possible, it would cover the community facility district but not county government, she stressed.

2008

In the “Letters to the Editor” section of the News Enterprise had one that was titled “Preserve Rossmoor’s Identity.”

It was gratifying to see the huge turnout for the March 12 LAFCO meeting, and we should appreciate LAFCO’s willingness to bring their regular meeting to Rossmoor to discuss potential incorporation.

Although applause indicated the audience was fairly evenly split on the issue, I was surprised by the number of residents who spoke so negatively about the idea – I can only surmise from their comments that they had not actually read the Comprehensive Fiscal Analysis (CFA) and/or did not understand the consultant’s excellent powerpoint presentation that addressed many of their concerns.

Rossmoor has enjoyed 50 years as an unincorporated ward of Orange County, but as Supervisor Moorlach aptly noted, it’s now time for the kids to leave home. Those who argue that we can continue indefinitely as an unincorporated area ignore the explicit fact that the county wants to GET OUT OF THE MUNICIPAL GOVERNMENT BUSINESS.

We have a unique and limited window of opportunity to control our own destiny before AB 1602 expires next year. If we fail to seize this opportunity, our future will likely be determined for us by others. A $20 monthly utility tax is a small price to pay to preserve our identity and control our future.

Things are much different now than 50 years ago, and we need to embrace these changes. Commissioner Bouer (sic), who served as mayor of Laguna Woods shortly after its incorporation in 1999, noted many unanticipated benefits of incorporation for a new city that experienced some of the same uncertainty that we now face. Whether we like it or not, the bus is leaving, and if we choose not to be the driver, we’re along for the ride with no idea where we’re going.

Michael Sanders

Rossmoor

Peggy Lowe of the OC Register introduced the new initiative in “Board approves ‘OC brand’ for agencies – ‘OC Infrastructure’ is in, RDMD is out.”

What’s in a name? Apparently, a lot of TV exposure generated by teenage Romeos and Juliets.

Capitalizing on a now-canceled television show that gave the world "The OC," the Orange County Board of Supervisors on Tuesday reorganized a major part of county government and rechristened several agencies using what supervisors call "the O.C. brand."

So the bureaucratic jumble called the Resources and Development Management Department is now "O.C. Infrastructure."

The Dana Point Harbor was baptized as the geographically redundant "O.C. Dana Point Harbor."

And Integrated Waste Management was dubbed "O.C. Waste and Recycling."

"I prefer ‘O.C. Waste Management’," said Supervisor John Moorlach, "although ‘O.C. Dumps’ is a lot of fun."

The change, which includes a reorganization of a major part of county government, is being promoted as a way to adhere to the county’s new slogan, "OC: Our Community, Our Commitment." The OC brand was first used last October when supervisors changed the agency long known as Harbors, Beaches and Parks to "OC Parks."

Supervisors believe that simplifying the agency names will help the public more easily identify departments lost in an alphabet soup of acronyms.

If the effort is aimed at making more-transparent the often confusing list of bureaucratic names, it may be successful, said Sanjay Sood, an associate professor at UCLA’s Anderson School Management. But if the board wants to cash in on the cache of the popular TV show, it probably won’t happen, he said.

Marketers often want the "halo effect" caused by attachment to a popular brand, hoping that some of the positive impression of that brand rubs off on their product, Sood said.

"The OC brand (or) the MTV brand out there in the consumer space is very different than these government functions," he said. "I don’t think people are going to have this halo effect of OC and pop culture to OC and whatever government agency is attached to it."

And the majority of those responding to an unscientific online poll at the Register’s Total Buzz blog thought the change wasn’t a good idea.

"The board of supervisors is obviously out of touch with their constituents," said a comment posted by Drew. "No one except tourists call Orange County ‘OC.’"

The reorganization was done to increase efficiencies for agencies that have been hit with state and federal budget cuts, according to a staff report. It will also allow smaller agencies to share administrative resources and eliminate duplicative services, the report said, with creation of two agencies under "OC Infrastructure" saving $500,000.

Some of the supervisors wondered what the cost would be to change letterhead and business cards, but CEO Tom Mauk told them there would be "relatively minimal costs" as the project will be phased in over the next year. Still, the board told Mauk that it would like a report within a few months on the costs of the project.

Ronald Campbell of the OC Register provided bad news with “British court ruling threatens county’s $80 million investment – Complex investment by Treasurer Street is in receivership. Court ruling indicates O.C. won’t get anything back until 75 other investors are paid.”

A British court order could threaten all or most of Orange County’s $80 million investment in a complex security.

The order requires Whistlejacket Capital to pay senior creditors in the order their notes come due. That means at least 75 creditors would be paid before the county gets a penny.

"Assuming this court judgment stands on appeal, the Whistlejacket assets will be exhausted long before the county’s note would be paid," Supervisor John Moorlach said in a written statement.

A spokesman for county Treasurer Chriss Street, Keith Rodenhuis, said, "We disagree with their conclusion that the assets will be long-exhausted, especially because they’re over collateralized."

The receiver for Whistlejacket, accounting giant Deloitte & Touche, has said it will appeal, Senior Deputy County Counsel John Abbott said.

County Treasurer Chriss Street, who bought Whistlejacket notes last year, stressed Tuesday that the company is sitting on $6.5 billion in assets, including $1 billion in cash.

The court decision is the latest in a series of problems for Street, who has twice beaten efforts by Moorlach to strip him of his investment powers. Moorlach and Supervisor Pat Bates both scolded Street Tuesday for not alerting them in advance to a critical article about the Whistlejacket investment in The Register last week. Street said he disagreed with portions of the story but apologized for leaving the supervisors "flatfooted."

In American bankruptcy courts similar creditors are treated the same way: They are paid simultaneously, and if there isn’t enough money to pay them in full they all take an equal percentage "haircut."

The receiver wanted to run Whistlejacket the same way.

But Chancery Court Justice Terrence Etherton ruled that the Whistlejacket receiver must "pay as you go," paying each senior creditor when its notes mature. He issued his ruling March 5. Moorlach announced it Tuesday.

The Whistlejacket receiver went to court after two creditors demanded immediate repayment of $370 million.

The receiver warned in court that if it had operated on a "pay as you go" basis, the first few creditors in line would have snapped up all of Whistlejacket’s cash by Feb. 29.

That would force Whistlejacket to sell its remaining assets – more than half of which consist of collateralized mortgage obligations, mortgage-backed securities and student loans. These are all unpopular investments right now.

That could create "a fire-sale situation," said Mario Mainero, Moorlach’s chief of staff. Whistlejacket could be forced to sell assets at bargain prices to pay creditors at the front of the line, leaving little – or nothing – for later creditors.

"The court’s saying without consideration of the next creditor in line, you have to pay the most senior creditor 100 cents on the dollar," Mainero said.

Street bought two Whistlejacket structured investment vehicles, or SIVs, in January and July 2007. They mature Jan. 25 and Jan. 26, 2009. The investments were part of a larger plan to diversify the county’s portfolio away from the troubled U.S. mortgage market.

Whistlejacket went into receivership on Feb. 12 and stopped paying creditors Feb. 15.

The county is struggling to learn British receivership law on the fly. The list of creditors – normally among the first pieces of information provided in American bankruptcy – has yet to be issued, Abbott said.

The county also doesn’t know precisely what assets Whistlejacket owns. The receiver is offering to provide that information if the county signs a confidentiality agreement.

"The good news, if there is any, is that the receiver has the interest of all the senior creditors in mind," Abbott said. "They have a lot of credibility, so hopefully they’ll prevail on appeal."

Christian Berthelsen of the LA Times covered the same topic in “O.C. officials trying to recover $80-million British investment – A British firm holding county funds is forced into receivership.”

The Orange County treasury is struggling to recover an $80-million investment in a complex British fund that was forced into receivership last month after it defaulted on payments to creditors, the county treasurer told the Board of Supervisors on Tuesday.

Under a decision by a British judge overseeing the fund’s affairs, the earliest investors are to be repaid before more recent investors, which include Orange County, Treasurer Chriss Street told the board. Street and county lawyer John Abbott said the decision ran counter to how the default would have been handled in a U.S. court, in which all creditors would be treated equally and the available proceeds split evenly.

A creditors’ committee is appealing the decision, but if it is upheld, the county may have trouble recovering any of its money. The two officials said the fund, Whistlejacket Capital Ltd., has $1.3 billion in cash but $6.5 billion in outstanding notes.

Asked by supervisors about the fund’s underlying assets and whether they could be sold off to raise cash to repay investors, Street and Abbott said they were trying to get more information about them.

Supervisor John Moorlach said the court’s judgment makes it seem unlikely that the county would be repaid, but the treasurer’s office disputes that assertion.

Whistlejacket has been the biggest casualty thus far in Orange County’s rocky foray into structured investment vehicles, complex investment pools that buy credit securities tied to mortgages, credit cards, student loans and other debts.

The county put $850 million, or 14% of its total portfolio, in structured investment vehicles, although it has since reduced its holdings in such securities. About half the investments faced a possible credit rating downgrade in December, but so far they have held up.

Street said Tuesday that the $80 million represented a small fraction of the county’s overall portfolio and noted that the county’s investments netted a return of $315 million last year — implying that even if the county loses the Whistlejacket money, it would still come out ahead overall.

Half of the money came from the county’s funds, and half came from an investment pool for 34 Orange County school districts.

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