MOORLACH UPDATE — Successor Process — July 31, 2013

The Daily Pilot provides an update on the process of electing my successor.

Moreno throws hat into ring

College trustee Jim Moreno announces he’s going to run for OC Supervisor’s office.

Coast Community College District Trustee Jim Moreno is trying to return to county government, a comfortable place after spending decades in neighboring Los Angeles County’s inner workings, he said.

Moreno, whose second term ends in December 2014, is running to replace Orange County Supervisor John Moorlach. He is the only Democrat in a field of Republicans seeking the non-partisan position.

Because of term limits, Moorlach’s seat will be open in 2014, leaving a vacancy representing an area that includes Costa Mesa, Newport Beach and Huntington Beach in the 2nd District of the five-member board.

"If there’s an opportunity to run for that kind of an office you need to take it, because I have first-hand knowledge of how things get done at that level," said Moreno, a 42-year Huntington Beach resident.

Moreno worked for Los Angeles County Supervisor Ed Edelman in the 1980s and ’90s as a senior deputy. He spent time on budget analysis as well as other countywide issues like policy development.

Moreno, who announced his candidacy in May, is part of a field of candidates that includes state Board of Equalization Member Michelle Steel and Huntington Beach Councilman Joe Carchio.

Assemblyman Allan Mansoor (R-Costa Mesa) has also said he’s considering running for Moorlach’s seat.

Moreno complimented his competition but said he believes 35 years of experience in county government working for Edelman and as an assistant administrator in county-run hospitals sets him apart.

Moreno twice ran unsuccessfully for City Council in Huntington Beach in 2002 and 2004 and took his first elected office in 2006 when he joined the Coast board.

"I have had the fortune of working with the best resource we have — that’s our youth," Moreno said.

He’s carrying on a message from that position, he said, something students and other county residents share as a concern: finding work.

"It’s jobs," Moreno said. "I think it’s important to focus on supporting education. I think it’s important to support business and to support industry to start importing the jobs we’ve exported."

FIVE-YEAR LOOK BACKS

July 30

1998

Brendan Coffey of Dow Jones Newswires provided a positive report in “Once Bankrupt, Orange County, Calif., Stages Big Comeback.” Here are the opening paragraphs:

Fresh from falling into the largest municipal bankruptcy in U.S. history, Orange County, Calif., has bounce back to become a major investor that Wall Street firms are dying to sell securities to.

Moreover, by aggressively suing its investment advisers, the county now has recovered nearly half the $1.64 billion it lost in the bankruptcy. That legal process, which is continuing, could enable the county to recoup more than it lost earlier, though some litigation experts doubt its recovery rate will be that high.

Today, the county’s payroll remains at about the level it was on Dec. 6, 1994, the date of the bankruptcy filing, and the average county resident has been virtually unaffected by the financial debacle.

“Bankruptcy? What bankruptcy?” asks Orange County’s Treasurer-Tax Collector John Moorlach. Securities dealers “are beating down our doors to do business,” he says.

Even Merrill Lynch, which recently settled a county lawsuit against it for $400 million, has said it would like to do business with the county again. So far the county has collected $739 million in settlements, or 45% of what it lost.

The legal tangle Orange County is in does have its downside. The county has received investment-grade ratings on its debt from Moody’s Investors Service and Fitch IBCA, but it can’t ask Standard & Poors Corp. for a rating because it has an outstanding suit against that agency.

Nonetheless, in just three and a half years, the recovery is remarkable, county officials say, especially considering that voters refused to raise taxes to help compensate for the financial disaster.

OC METRO “Viewpoint” columnist Hugh Hewitt provided thoughts he wanted to get off of his chest with “A Short List of Gripes – Giving credit where credit is due.” One of my fondest memories of the 1994 Treasurer campaign was the Sunday evening before the election. Hugh Hewitt had a talk show on KFI 640 AM and every fifteen minutes or so he would announce his recommended slate of candidates, which included me. I was not endorsed by many in that election attempt. Hugh’s show ran late into the evening, but I refused to go to bed and continued listening because it was one of the few bright spots of that political journey. Here is the opening paragraph and the applicable target:

We live in what the military might describe as a “target-rich” environment. Before the fall brings us a renewal of political combat across the state, let’s review a few select subjects.

Target C: Bankruptcy fallout

Been reading those stories? Pretty amazing stuff. That Citron was quite a card. Astrology charts! Can you believe it!

Too bad only John Moorlach (and Tom Fuentes and –humbly, I admit—me) predicted that Moorlach had it right in 1994 and that the Citron machine was a house of cards. I’d like to remind our readers that as these stories continue to emerge (and just wait till the grand jury transcripts arrive) and especially as the L.A. Times continues to run them gleefully, that it was the Times that – one week before Citron’s re-election in 1994 – pronounced the Moorlach charges a “bad rap” and endorsed Mr. Citron. It’s four years and two editors of the O.C. edition later, and still no apology from Spring Street South.

2003

Bloomberg News columnist Joe Mysak included me in his piece titled “No Need to Worry About California Bond Quake – Yet.” This was the year of the recall, so the entire piece is provided for your historical reminiscing pleasure.

Stop worrying about California’s bonds. For now.

The fever broke last night, a couple of days after Standard & Poor’s downgraded the state to BBB, when the state Assembly approved a budget after a 28-hour session. The patient is still in serious condition, upgraded from critical.

The budget calls for $11 billion in spending cuts, $4 billion in higher vehicle registration fees, some fund transfers and delays in payments to the state Teachers Retirement System. It also includes the sale of $10.7 billion in bonds to help cover the state’s $38 billion deficit, $2.2 billion in pension bonds and $1.5 billion in bonds backed by the state’s share of the tobacco settlement.

There are — and this was the key point for the Republicans who blocked passage of the budget — no new taxes. There’s also a built-in deficit for next fiscal year of $8 billion. This really isn’t a lot of budget.

That’s the good news. What it all means is that California won’t run out of cash, which state officials and some municipal bond analysts had feared might happen by August or September.

Eliminate Deficits

This, to paraphrase Winston Churchill, isn’t the end of the mess in California. It’s not even the beginning of the end. It’s, at least, the end of the beginning.

Complicating the difficult days ahead is the recall election of Democratic Governor Gray Davis, scheduled for Oct. 7.

"With political focus on the recall, the prospects for meaningful structural budget reform resulting from any enacted budget are diminished," said Standard & Poor’s, when it downgraded the state’s credit rating last week.

The rating company said it wanted to see "elimination of out-year deficits." Lawmakers won’t get around to that until after the recall election.

Then the real work begins. It won’t be easy.

What surprised many analysts and observers about this year’s near budget meltdown was the Republicans’ refusal to compromise with their colleagues across the aisle.

This is all about taxes, spending and the level of services government should provide. There’s a lot more to what’s going on in California than right-wing nutcases and talk radio.

Bad News

There are some guys in the municipal bond market who don’t want to hear bad news, and who really don’t want investors to hear bad news. They are afraid it taints the market and frightens investors, and makes their jobs harder.

Of course it does. And yet the news coming out of California was very bad indeed. In sum, the Republicans were quite willing to drive the car over the cliff to make their point about no new or increased taxes.

That was scary. California’s recovery is going to depend upon the municipal bond market, and yet the Republicans, it seemed, were willing to let the state go bust, a move that would imperil its outstanding bonds. Moody’s Investors Service even brought up the possibility of a "payment default."

Improbable? Sure. Unlikely? Yes. Impossible? No.

For those who were there then, what has been going on in California is all too reminiscent of what happened in Orange County back in 1994. The county lost money on treasurer Robert Citron’s wrong way bets with the county’s investment pool. The county ran out of cash. The county declared bankruptcy.

‘Receivership’

John Moorlach is the Republican who blew the whistle on Citron’s investment policies in 1994. He replaced Citron in 1995. Earlier this month, in commenting on the situation in Sacramento, he said something that was positively chilling:

"The state may not be able to benefit from Chapter 9 bankruptcy protection, but some form of receivership may be necessary down the road."

These were hardly cheery words, if you own the Golden State’s bonds.

Bond Angle

Now all talk of receivership and default is moot. The Democrats blinked.

Until the recall election, the California story will be all about politics. After the election, it will be all about the municipal bond market.

There will then be three questions to be answered:

How much is it going to cost California to sell all the bonds it needs?

How much will the state pay for the credit enhancement necessary to keep those costs down?

Are those bonds going to be a buy?

The OC Register had a kind Letter to the Editor, titled “Here’s a vote for Moorlach as the next county CEO.” It was a day late, as the search firm advised me that the Board was not moving forward on my application. See, things have a way of working themselves out for the best.

Treasurer-Tax Collector John Moorlach should be our next county CEO. Some qualities that the voters expect and should demand are demonstrated honesty, integrity, independent thinking and fiscal responsibility on behalf of all county residents. John Moorlach is that choice. Moorlach operates a lean and efficient department, which should be an example for all managers. In spite of a huge increase in countywide housing and commercial construction since John took office in 1995, Moorlach’s staffing level has remained at 1994 levels – well below that of other county departments.

John’s overwhelming approval in the last election speaks volumes about his ability to communicate with the voters of Orange County.

Larry Gilbert

Mission Viejo

2008

Peggy Lowe of the OC Register covered the Board vote in “Supervisors OK ballot measure for voter-approved pension hikes – Plan bars future boards from sweetening public workers’ benefits.” As an update to one of the sentences below, the county’s retirement system now has a $5.7 billion deficit and is 63 percent funded, according to a recent 2012 report.

Orange County supervisors diluted their own power Tuesday by approving an initiative that would require voters to OK any increases in public workers’ pensions.

Despite criticism by one supervisor that it was "posturing over substance," the board voted unanimously to place a plan on November’s ballot that would bar future boards from sweetening county employees’ retirement benefits. The plan won’t change current formulas, but amends the county’s charter to require a vote of the people on any pension hikes.

Supervisor Chris Norby, who voted against a benefit increase for the majority of county workers in 2004, said the initiative was political posturing and comes ten years too late. The plan sends a message that supervisors can’t trust themselves to do the right thing, he said.

"Do we really want to vote to save ourselves from ourselves?" Norby said.

Still, Norby and Supervisor Janet Nguyen, who was also critical of the plan, voted for it. The issue is popular with many voters and is a priority for the Lincoln Club, the powerful group of wealthy Orange County Republicans.

"The proposed amendment would simply ensure that those who must ultimately pay for public employee benefits – the taxpayers – are allowed to determine whether such increases are reasonable before the increases become effective," said Scott Anderson, a Lincoln Club board member.

The plan was written by Supervisor John Moorlach, long a critic of public pensions, and is his second attempt to limit benefits. Already, the board has filed a lawsuit seeking to cut the retroactive retirement benefits negotiated for deputies in 2002.

Unions are fighting Moorlach’s plans and labor leaders statewide are monitoring them. Lisa Major, assistant general manager of the Orange County Employees Association, the county’s largest public workers union, called the plan a "misguided effort" that didn’t address any of the real financial concerns of county residents.

"It does not give residents hope that their elected officials are going to make the tough decisions," Major said.

The county currently faces a $2.7 billion deficit in its pension system, which is 73 percent funded. In San Francisco, one of just two local governments in California that requires voter approval of pension increases, public benefits are 107 percent funded. Moorlach’s plan was modeled after Proposition B, a plan passed by voters in San Diego County in 2006.

Orange County’s retirement system was more than 100 percent funded in 2001 but took a hit when the then-board approved a significant increase for public safety employees. Deputy sheriffs won a formula that allows for 3 percent of final pay times years of service after the age of 50. Based on erroneous assumptions about retirement patterns, the county’s unfunded liability grew by $200 million.

In 2004, the liability was again increased when the board approved a plan that allows county employees to retire at 55 with 2.7 percent of their final pay times the number of years they have worked. But the county didn’t see such a significant burden because employees agreed to pay for their increased benefit.

Christian Berthelsen of the LA Times also covered the story in “County pension hike issue to go on Orange County ballot – Supervisors will let voters decide whether they should get to rule on future benefits increases for workers.” Here are the concluding paragraphs:

The Orange County measure was put forward by board Chairman John Moorlach, who earlier this year led the county to file a lawsuit seeking to roll back pensions for sheriff’s deputies. It also had the support of conservative activist groups including the Lincoln Club and the Orange County Taxpayers Assn.

"This gives the public an ability to weigh in and say, ‘Yes, this is a good idea,’ or ‘This is not a good idea,’ " Moorlach said.

The measure’s only opposition came from the unions that represent county workers.

The measure "does not give residents hope that their elected officials will make tough decisions, since it shifts that responsibility onto the backs of voters," said Lisa Major, the assistant general manager of the Orange County Employees Assn.

Still, it is not clear whether the ballot measure will set up a vigorous fall fight between the unions and the measure’s supporters. Union officials dismissed the measure as political grandstanding by Moorlach and said it would have little impact, since county workers have already received substantive pension enhancements and are not seeking more in the foreseeable future. Also, the measure is likely to be hugely popular with voters — San Diego’s passed by nearly 70% — so the unions may choose to save their campaign resources for a different fight.

The most memorable moment of the debate was an earthquake. Susan Valot of 89.3 KPCC FM provided a mention of it in “OC Pension Measure Goes to Ballot.” It was the only significant earthquake that I’ve experienced while working in a county building over these past eighteen years and it was caught on tape.

Susan Valot: Supervisor Janet Nguyen had some reservations, especially when it comes to multiple union contracts . . . . then the earthquake hit.

Janet Nguyen: Would there be multiple elections be required every time these contracts come up? . . . Whoa! [Various people yell
“calm down” while others apparently panic and scream during shaking. Someone says: “Slowly exit.”]

John Moorlach: It’ll be over.

Susan Valot: After that shook things up, the supervisors unanimously decided to shake up the November ballot with the pension approval charter amendment.

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