I was in Washington, D.C. this week to meet with U.S. Rep. Dave Camp, Chairman of the House Ways and Means Committee (see December 5th article in the OC Register at http://www.ocregister.com/articles/county-540183-camp-pension.html). The meeting was arranged by U.S. Rep. Loretta Sanchez to discuss her bill, H.R. 205, that will enable Orange County to implement an important and cost saving pension reform component delayed by Internal Revenue Service Revenue Ruling 2006-43. It was a very productive meeting with the Chair of one of the most powerful committees in D.C. It was positive and it provided a course of action. I can still remember having to put up with U.S. Rep. Dan Rostenkowski when he was the Chair of the House Ways and Means Committee during my practice days at my C.P.A. firm. All to say, having a private meeting with the Chair of this committee is a big deal. This meeting was mentioned in a piece the prior day (December 4th) in the OC Register. Although the main theme of the article prevents me from including it, here is the related quote:
Among Moorlach’s key issues is pension reform, and he was scheduled to meet in Washington today with House Ways and Means Chairman Dave Camp in support of a pension reform measure sponsored by Rep. Loretta Sanchez, D-Santa Ana. Also expected to be on hand in support of the bill is Nick Berardino, head of the Orange County Employees Association.
Also on December 4th, the OC Register covered a debt issuance methodology that has me very concerned. It’s the first piece below.
In the December 5th issue of the OC Register, there was a brief editorial on the topic of the Chapter 9 filing approval for the city of Detroit. It is the second piece below. The Federal Bankruptcy Judge ruled as I had anticipated and I would recommend that you reread MOORLACH UPDATE — San Diego U-T — October 13, 2013. More significantly, today is December 6th. Today is the nineteenth anniversary of the County of Orange’s filing for Chapter 9 bankruptcy protection. It was a big day in my life and it reminds me of how quickly time flies.
The next two pieces are from the Daily Pilot and the Huntington Beach Independent and The Current in the OC Register about an announcement about a candidate who will be running for the seat that will be vacated by a candidate that is running for the seat that I am vacating.
School bonds just in time to be legal
Westminster district intends to use expensive capital appreciation borrowing, which will soon be outlawed.
By MELODY PETERSEN and DOUGLAS MORINO
Westminster School District plans to borrow money Thursday by issuing construction bonds that are so expensive they would be illegal under a state law that goes into effect Jan. 1.
The district’s so-called capital appreciation bonds delay payments for as long as 40 years. That means much of the cost of the new classrooms will be paid for by the children and grandchildren of today’s students.
The new debt will require future taxpayers to pay more than five times the $24 million the district plans to borrow, or $123 million. Compare that with a conventional 30-year school bond, which requires regular payments of principal and interest, and costs roughly two times the amount borrowed at today’s interest rates.
A new state law signed by the governor in October prohibits schools from issuing bonds that delay payments for longer than 25 years. It also limits the cost of these bonds to four times the amount borrowed.
“If I was living in the city of Westminster, I would be up in arms,” said Orange County Supervisor John Moorlach. “This seems to be motivated by what is best for the deal’s financial advisers rather than what is best for the district.”
In interviews, two school board members said they felt they had little choice but to approve the bonds.
“We are borrowing money and paying it at a ridiculous rate,” said board President Mary Mangold, a third-grade teacher in the Norwalk-La Mirada Unified School District. “But we’re between a rock and a hard place. We have construction projects we have to finish.”
“I would never buy into a 40-year mortgage on a house,” she added. “It’s unreasonable to think taxpayers would do the same.”
Capital appreciation bonds have become increasingly controversial over the last year after a series of media reports detailed how dozens of California school districts were using them to build classrooms today but push the payments to future generations at an incredible cost.
The bonds are expensive because they are like a loan on which no principal or interest payments are made for decades. Interest is charged on the unpaid interest, causing the balance to balloon.
Westminster officials said Tuesday they could not say exactly how much of the $24 million in bonds would be capital appreciation bonds. But according to a slide presentation last month by the district’s financial firms, most of the payments on the new bonds will be delayed until 2035 to 2053.
Those firms will be paid their share of $565,000 – the total cost to the district for issuing the bonds. The firms include Piper Jaffray, an investment bank; California Financial Services, an advisory firm; and Lozano Smith, a law firm.
“Are the bond companies getting paid too much? Absolutely,” said Mangold. “Do I believe they’re in bed with educational establishment? Absolutely. I think at the state level it needs to be looked into more.”
The district said in a statement that officials expected the new school buildings to be in use for “well over 40 years.”
Officials also said they believed that the district would have qualified for a loophole in the new state law that allows for the issuance of capital appreciation bonds that exceed the new limits if the school must pay off a type of risky short-term loan known as a bond anticipation note. Those districts can obtain a one-time exemption from the law, but they must get approval from the state.
Financial firms have been aggressively selling these loans to California schools. About $18 million of the money Westminster is borrowing will go to pay off a bond anticipation note the district took out in 2010 at the advice of financial executives, who said it would allow for speedy construction and upgrades at the district’s three middle schools.
The new law appears to have stopped the district’s plan to issue even more expensive bonds in the future. A document prepared by the district’s bankers and financial adviser in November 2012 said the school planned to make five additional borrowings using 40-year bonds, each requiring repayment rates of as much as 10 times the amount borrowed.
Voters agreed in 2008 that Westminster could issue up to $130 million in bonds. The new bonds bring the district’s total borrowing to $80 million. The money is being used to transform the district’s three middle schools, adding new gymnasiums and so-called “exploration” classrooms – two-story buildings for science and math studies that feature experiment labs, research areas and white boards.
The district said this week it doesn’t believe it will be able to complete all the construction it had planned. For example, Stacey Middle School in Huntington Beach will not get a planned gymnasium and resource center.
Jamison Power, another board member, said that he felt it was fair to have future taxpayers pay for current construction.
“This is something that’s going to benefit the community for a long time,” Power said. “We’re preparing our kids for the 21st century economy by giving them today’s technology. This is something we have to do if we want our students to compete in the global marketplace.”
“Any project of this magnitude is expensive,” he added. “That’s the reality."
Board members Amy Walsh and Dave Bridgewaters did not return several messages requesting comment. Former board member Andrew Nguyen, who voted for the bonds but abruptly resigned on Nov. 25 for “family reasons,” also did not respond to voicemails and emails.
The district of 13 elementary schools and three middle schools serves parts of Westminster, Garden Grove, Huntington Beach and Midway City.
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"Our bankruptcy was a little different from Detroit’s," John Moorlach, who took over as O.C.’s treasurer during the bankruptcy and played a key role in the county’s financial recovery, told The Bond Buyer. "Detroit’s is the issue of spending a little more than you make every year, while Orange County was like a hedge fund implosion. Our big focus was trying to address those losses, and deal with all the schools and cities [that lost money] in the investment pool and get the rest of it from litigation. That was our approach to our plan of adjustment, and it was key to getting the deals done."
Mayor Curry to run for Assembly
Allan Mansoor currently holds the seat, but he is eyeing a position on the county Board of Supervisors.
By Jill Cowan
Newport Beach Mayor Keith Curry confirmed Wednesday that he plans to run for state Assembly in 2014.
"It was a spontaneous decision," he said. "My wife and I were having dinner [last weekend] and she said, ‘You ought to do it. The timing is good.’"
Curry, a Republican, wants to represent the 74th District, a recently redrawn swath that encompasses all or parts of Newport, Costa Mesa, Huntington Beach, Irvine and Laguna Beach. Assemblyman Allan Mansoor (R-Costa Mesa) currently occupies the seat but is running for the Orange County Board of Supervisors.
Mansoor, a former Costa Mesa mayor, would vacate his Assembly seat if he is elected to succeed 2nd District Supervisor John Moorlach, who will be termed out in January 2015. Moorlach announced Wednesday that he is running for Congress.
Curry, who has a long Republican political history, worked as a deputy to then-Los Angeles County Supervisor Pete Schabarum. He also served as an advisor to the administrator of the Federal Transit Administration under President Reagan.
In 2006, Curry was appointed to the Newport Beach City Council, and has since won three elections to keep that seat. He will be termed out in 2016.
After he retired from public finance consulting in 2011, Curry formed the Center for Public Policy at Concordia University in Irvine.
Faced with a heavily Democratic Legislature, Curry said that, if elected, he would collaborate with others to improve the state.
"Republicans need to engage with a positive agenda for the people of California," he said.
Curry, 58, added that he would focus on giving "cities the tools they need to control their costs and foster economic growth" — a need he said that his experiences in Newport have underscored.
"One of the things I’ve learned as mayor is that Sacramento does not understand nor respect the role of cities," he said.
Curry said he expected to make a formal announcement about his candidacy at a Newport Beach Chamber of Commerce event set for Thursday morning. So far, he said, responses to his candidacy have been encouraging.
Newport Beach mayor to run for empty state Assembly seat
Keith Curry says he could be the voice of reason in Sacramento.
By Barbara Venezia
The 2014 political season is shaping up to be an interesting one, especially now that Newport Beach Mayor Keith Curry has thrown his hat in the ring to run for the 74th Assembly District.
I called Curry on Wednesday after a little birdie told me he was about to announce his plans to run for the seat Allan Mansoor will be vacating as he runs for Orange County supervisor in 2014.
Curry confirmed he was going to make the announcement today at the Chamber of Commerce breakfast.
I told him I was looking forward to his participation in the 2014 Feet to the Fire Forum on the race on April 17.
“It was one of the reasons I decided to run,” he joked.
All kidding aside, Curry told me he made the decision over the Thanksgiving weekend after getting the OK from his wife, Pam.
“Pam and I were in the desert for the weekend,” he said. “We talked about it and she said, ‘You should do this.’ It was like when I decided to go for City Council; the timing seemed right,” he said.
When Curry came home on Monday, he decided to go for it.
Curry said he’s already spoken to Orange County Republican Chairman Scott Baugh, who told him he was happy to hear the news.
To give you some background, Curry was appointed to the Newport Beach City Council in 2006. Later that year he ran for office and won – as he did in 2008 and 2012, where he ran unopposed. He’s been mayor twice – in 2010 and currently.
A Republican, Curry served five years in President Ronald Reagan’s administration as the special assistant to the federal transit administrator, and prior to that as a deputy to Los Angeles County Supervisor Pete Schabarum.
For more than 20 years he was a partner/owner of the nation’s largest public finance consulting organization, Public Financial Management.
When he retired in 2011, he formed the Center for Public Policy at Concordia University, where he also teaches a graduate course.
He said his experience at Concordia prompted him to look at the bigger picture.
“We have a lot of issues in California – the budget, taxes, Prop. 13 – so I’ve had a lot of time to think about problems in California,” he said.
He used to say he didn’t want to go to Sacramento. He said he now sees an opportunity to make a difference.
Curry said he can be a voice of reason in the predominantly Democratic state Assembly, as his skill set is bringing people together.
“On my board at Concordia right now I have John Moorlach and Nick Berardino,” he said.
Though these two are politically on opposite ends of the spectrum, Curry said they’ve been able to meet on common ground for the university.
But traditionally, Newport politicians have never done well getting elected to higher office.
Curry said that could be because not many have tried. He pointed to his record on the council, saying Newport is well-managed and last year had a surplus of $12.7 million with cash reserves topping $130 million.
The city has also reduced pension costs without the turmoil other cities have faced.
Though that’s all well and good, Newport also has a stigma of being “rich and entitled,” something I’ve run into time and time again when talking to some politicos on county and state levels.
Curry said it’s his record of fiscal responsibility and the fact he’s been president of the Association of California Cities Orange County, president of the Orange County Division of the League of Cities and president of the Orange County Parks Commission that will overcome any stigma.
With such races costing upward of $300,000, Curry said he plans on selffunding $100,000 and raising the rest.
Curry is interviewing campaign consultants and should announce his choice this week, he told me.
With Curry entering the Assembly race, it will be interesting to see who throws their hat in next. Last year Bob Rush and Councilwoman Leslie Daigle had eyes on this seat, which Mansoor eventually won.
Will they consider it again and go up against Curry?
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FIVE-YEAR LOOK BACKS
Jan Norman, the OC Register’s small business columnist, did a piece on personal property taxes in “Company should tell tax office what it owns – The value of equipment is included in the assessment equation, but owners don’t always realize they have to file.” Here are selected paragraphs:
What is business property? California has taxed personal property since it became a state. Several decades back, the state exempted household personal property, says Bob Wright of the Orange County Assessor’s Office.
However, businesses still must pay taxes on possessions such as furnishings, computers and equipment. Payment on these assessments is not secured by the property, as real estate is, but is a lien on the owner, says county Treasurer-Tax Collector John Moorlach.
This year’s Orange County’s unsecured business property tax totals $140 million.
Tax Collector Moorlach has a caveat for small-business owners: Don’t ignore your business property bill.
“Let’s say you get a $20 bill and ignore it,” he says. “There’s a $48 collection fee.”
The Bond Buyer’s Andrea Figler provided a “News In Brief” bankruptcy-related litigation update piece with “Orange County to Get $7.9 Million in Deals.” Although the County had the largest Chapter 9 bankruptcy filing in U.S. history (a title it held for 17 years), it also had the largest litigation settlements in U.S. history. All to say, the numerous long days of depositions were worth the sacrifice of time and emotion.
Orange County closed two more chapters in its bankruptcy litigation Wednesday, the trustee said in a statement.
SBC Capital Markets Inc. agreed in principle to pay $6.5 million to settle charges that it helped contribute to the county’s infamous bankruptcy, trustee Thomas W. Hayes said.
In addition, the county agreed to settle its litigation against Paribas Corp., parent of Banque Paribas, for $1.4 million, according to county Treasurer John W. Moorlach. Both firms were broker-dealers that sold securities to the county’s investment pool prior to 1994, when heavy losses prompted the county to declare bankruptcy.
The county lost $1.8 billion four years ago from risky reverse repurchase agreements and inverse floaters included in its investment pool. To date, the county has recovered $779.67 million, and has more than 10 cases still pending.
Dan Weikel of the LA Times provided a piece on the airport’s remodeling in “John Wayne Airport continues expansion project despite dismal state of airline industry – The Orange County airport is undertaking a $652-million project that includes a new passenger terminal and a parking structure with at least 2,000 spaces. Not everyone, however, is on board.” My UPDATE at the time made the following observations: “The old Clint Eastwood line, ‘I guess you have to ask yourself,’ comes to mind. I guess you have to ask yourself if you would rather remodel your home when contractors are in a slump and available or when they are so busy you have to wait in line? By all perspectives, now seems to be an excellent time to get the job done.” And it was, as the project was on time and under-budget. In fact, at its recent “Turning Red Tape Into Red Carpet Awards and Reception,” the Orange County Business Council presented its “Award for Public Sector Leadership” to Alan Murphy, Airport Director of John Wayne Airport. Here’s what the OCBC said: “Alan Murphy is the Airport Director at John Wayne Airport, the 33rd busiest airport in the nation and critical to the needs of Orange County’s business community. As director, he oversees all aspects of the day-to-day management, including Business Development, Facilities, Finance and Administration, Operations and Public Affairs. He is responsible for managing a $305 million annual budget and a staff of 174 direct employees. Recently, Murphy oversaw the on-schedule, on-budget completion of the “Airport Improvement Program,” a multi-year effort that included the construction of a new terminal with six new commercial passenger gates; new security checkpoints; major improvements to parking; as well as the Central Utility Plant. Under his leadership, JWA also successfully expanded international flights through the JWA Air Service Development Program.” Congratulations, Alan. Here’s the piece in full (one statistic that wasn’t provided is that JWA has the busiest gates in the nation. The average passengers per year to go through a gate is 350,000. In the last few years, JWA has seen 700,000 to 850,000 passengers per gate per year).
Airports across the country are shelving or downsizing planned expansions because of a sharp drop in passengers, yet John Wayne Airport in Orange County is proceeding with a $652-million terminal project