MOORLACH UPDATE — Detroit Parking — July 18, 2013

The city of Detroit, Michigan, filed for Chapter 9 bankruptcy yesterday afternoon. The media is calling it the largest municipal bankruptcy in United States history, a title that Orange County held for some seventeen years until Jefferson County, Alabama filed in November 2011. So the County of Orange is now in third place. But, I’m enjoying reporter calls today on this significant development, so I’m opening today’s UPDATE with a few thoughts.

The Washington Post provides the following graphic on the filing:

The most interesting fact is the declining population of Detroit, which was 1.85 million in 1950. Losing nearly two-thirds of the population in sixty years is a tough and slow grind. The second observation is the recent increasing deficit by some $100 million each year. But, the strongest quote to come out of the filing documents is, “simply put, the city cannot successfully restructure unless it addresses its crippling unfunded retirement benefit obligations.” It has some $3.5 billion in unfunded actuarial accrued liabilities (UAAL). Having $19 billion in debt makes Stockton, the 13th most populated city in California, and San Bernardino, the 17th most populated city in the state, look like small fry. For perspective, the OC bankruptcy was not quantified by a debt/deficit metric. It was quantified by a $1.67 billion investment loss. The County’s population in 1994 was approximately 2.4 million and it is now 3.1 million. Using my per capita of unrestricted net deficit metric (see my January 24, 2012, State of the County address) as of June 30, 2010, Orange County was $3, Stockton was $478, San Bernardino was $1,078, and Detroit was $1,344. All to say that Detroit has every right to file for Chapter 9 bankruptcy. The big issue that needs to be addressed by the respective Federal bankruptcy court judges is: What can be done with the UAALs to provide some debt relief?

Below, the Voice of OC provides a story on how to best cut costs when selecting a successful contract bidder. With our own fiscal concerns, how do you vote for a vendor when the competition is offering you a savings of some $1.5 million? The incumbent is a great vendor, but $1.5 million better? Staff rated the written proposals, but did not do an oral interview with the two candidates. This provided for some discussion at Tuesday’s Board meeting.

Supervisors Balk at Bidding Process for Parking Lot Contract

By NICK GERDA

Orange County supervisors raised pointed questions this week about the county’s contracting process on a new multi-million dollar deal with the incumbent Parking Concepts, Inc. (PCI) to collect parking fees at county beaches and parks.

The overriding concern, voiced by Supervisor Todd Spitzer, is why the only other bidder, LAZ Parking, was rated lower on price even though it proposed giving the county a bigger cut of the revenue than PCI.

“That’s not intuitive. Why would you get a lower score on the factor of cost when you came in lower?” asked Spitzer.

Up for approval was a new contract with PCI to collect parking fees at county beaches and most parks, which brought the company $1.4 million last year out of $3.5 million in total fee revenue.

It would run through the end of 2014, with likely extensions for another four years.

The contract covers fee collection at Capistrano, Aliso and Salt Creek beaches and dozens of county parks. Overall parking revenue for these properties amounted to $3.5 million last year, according to county staff.

Supervisors ultimately voted 4-1, with Chairman Shawn Nelson opposing, to extend the current contract – which was set to expire next week – until the end of September. The board also directed OC Parks staff go back and conduct oral interviews with the two bidders.

The item is scheduled to come back to the board on Sept. 17.

Beyond the cost concerns, supervisors questioned a lack of oral interviews with the bidders.

“There needs to be a rational” for why you’re not doing an oral interview, said Spitzer. “The issue for me is just the procedure and the process.”

Interim OC Parks Director Rich said staff didn’t do interviews because they needed to get the new contract before the board before the current one expires.

Supervisor John Moorlach also had issues with the process, showing concern for why only one company decided to bid against the incumbent.

Moorlach said he doesn’t “want to create a reputation that it’s not worth it to bid here in Orange County.”

At the same time, Moorlach said LAZ’s bid was “great,” but still had questions about how it could be so low. “Are they bidding this low to just get in the door?” he asked. “That’s where I’m having some reluctance.”

Spitzer again questioned why details weren’t included in the staff report about the bids.

“They’re recommending a more expensive solution. I would hope that if you ask me to pay more money for something, you’d tell me why,” said Spitzer.

PCI had proposed adding mobile technology, though the staff report didn’t explain why it was needed.

One of PCI’s vice presidents is Lyle Overby, a longtime lobbyist who has in the past been an effective fundraiser for supervisors. He spoke to the board Tuesday on behalf of his firm.

Overby said his company was the dominant provider in the county because of its “service, value and a flawless record,” including clean audits by county Internal Auditor Peter Hughes.

“I believe any procurement can be picked apart retroactively,” added Overby, who is also a Voice of OC Community Editorial Board member.

As for his company’s higher cost, Overby indicated that LAZ’s lower labor costs would sacrifice value, safety and service.

Spitzer also saw a flaw in the way contract evaluation panels are set up, saying that with only three members on contracts worth over $1 million, just one “can really skew an outcome.”

He suggested that on future contract procurements, the number of reviewers be bumped up to five.

PCI also handles parking for OC Public Works, Dana Point Harbor and John Wayne Airport.

You can reach Nick Gerda at ngerda, and follow him on Twitter: @nicholasgerda.

FIVE-YEAR LOOK BACKS

July 20

1998

Andrea Figler of The Bond Buyer provided the story of the conundrum I enjoyed with attempting to get access to bond traders in “Loose Ends Stalling Orange County’s Links With Goldman, Credit Suisse.” Other departments within the county were using impacted investment bankers with a reservation of rights agreement, so it seemed fair that the Treasurer have the same access. Here are portions from the piece:

Orange County Treasurer John M. W. Moorlach is awaiting final agreements to resume investment ties with Credit Suisse First Boston and Goldman, Sachs & Co.

It made a preliminary move to do business again with the firms even though Credit Suisse in May paid $52.5 million to settle allegations of making inappropriate investments for the county, and even though the county could get pulled into a legal tussle between Goldman and the Orange County Transportation Authority.

Moorlach said Friday that the law firm of Hennigan, Mercer & Bennett, which represents the county, has given him the green light to start using the two investment banks again for its portfolio, whose risky investment strategies plunged the county into bankruptcy four years ago.

Moorlach said lawyers told him: “You can go ahead and use C.S. Boston and Goldman, but wait on Merrill Lynch.” Merrill Lynch & Co. needs to have its $400 million settlement from June approved by a federal court first.

Credit Suisse and Goldman simply need to reach with the county a “reservation of rights” agreement, which stipulates that the county can work with the investment banks even though it is either involved in litigation with, or might sue, the banks.

Officials for both Goldman and Credit Suisse declined to comment.

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