MOORLACH UPDATE — Auditor-Controller Legislation — April 11, 2017

I’m still reeling from Thursday’s final vote count for SB 1, the so-called "Road Repair and Accountability Act of 2017." It barely passed out of both the Senate and the Assembly chambers and the reverberations continue. How this was accomplished is rather disturbing and the repercussions will be felt for some time. My Floor speech opposing the bill can be seen athttps://vimeo.com/212188638 or https://www.youtube.com/watch?v=P8zDeGt4QXc.

In a recent Governance and Finance Committee meeting, we heard SB 292 (Bates), that would allow a County Auditor-Controller to retain outside counsel.
This would be desired if this office holder felt that County Counsel was conflicted by representing the Board of Supervisors and his or her department. This is simple on its face, but the subject is deeper. The proposed purpose of the bill, and its accompanying testimony, was a little frustrating for me because I felt that three stories were not told correctly.

Allow me to provide a little history. When I ran for Orange County Treasurer-Tax Collector in 1994, one of the appointments I made as a constituent with an elected official immediately after the conclusion of tax season, which concludes the evening of April 15th, was with Steven E. Lewis, the elected Orange County Auditor-Controller.

Hoping that Mr. Lewis was doing his due-diligence as an auditor, I asked him a number of questions about the investment strategy of Robert Citron and how he justified the multiple layers of leveraging of the portfolio. After listening to a few of his answers, I was dissatisfied and very disturbed. I can remember saying to myself, "Dang, if I get elected, I’ll have to fix the Auditor-Controller’s office, too." I was that appalled.

Shortly after the filing for bankruptcy protection, the new County Administrative Officer, Bill Popejoy, saw the same problems that bothered me. One of the first things that Bill Popejoy did was to segregate out the internal audit function from the Auditor-Controller and created a new, stand alone department. The elected Auditor-Controller had failed the citizens of Orange County and this was a worthy solution, based on the circumstances.

The next County Administrative Officer, who would change the title to County Executive Officer, was Jan Mittermeier. She also had a beef with countywide elected officials, as she felt that she could not control them. She certainly understood that there were appointed department heads and elected department heads, and it made a few things awkward, but we worked through them.

I also recall that it may have been Jan Mittermeier who established the Public Financing Advisory Committee (PFAC) as a result of a scathing SEC (Securities and Exchange Commission) report. I served on this Committee for many years as the County Treasurer-Tax Collector and it provides a second set of eyes for county officials in their fiduciary roles. In fact, one concern that came out of PFAC recently provided the genesis for my bill, SB 671, which I can address at a later date.

Many years before I arrived on the scene, the District Attorneys and Sheriffs around the state decided to do a ballot measure that would make their positions permanently elected in the state’s constitution. If the proposition passed, then their Boards of Supervisors would not be able to ask their county’s voters to approve making these positions appointable.

The DAs and Sheriffs invited the other countywide electeds to participate. Only the Assessors joined in. Consequently, counties have been slowly converting the positions of Treasurer-Tax Collector and Auditor-Controller to appointed positions, usually with the campaign assistance of the outgoing individuals who were elected to these positions.

This is a long story to state that only the District Attorneys, Sheriffs, and Assessors have the right to request outside counsel. One of my first votes as County Supervisor was to oppose Sheriff Michael Carona’s request for outside counsel. It passed, but it certainly started an interesting relationship between me and the now disgraced Sheriff.

Now a non-Constitutional officer, the Auditor-Controller, wants the same option. And, in order to get it, instead of going to a statewide ballot, he is doing it through legislation. I perceive this as an end run, and have protocol reservations with this strategy. (To make a clarification on the piece below, it was the Board of Supervisors that retained outside legal counsel to address SB 69.)

The Orange County Auditor-Controller did the same thing in the last Session, with Assembly Bill 783 (Daly). Before leaving the Board of Supervisors, I advised Eric Woolery to ease into the new position, work with the Audit Oversight Committee and allow everyone to buy in to the concept of moving the Internal Auditor Department back under the control of the Auditor-Controller.

Instead of diplomatically following this recommended approach, the Auditor-Controller went to Sacramento to get the job done. I voted against AB 783 in Governance and Finance. It later died on the Senate inactive file because the Board of Supervisors relented, concluding that the bill would eventually pass the Senate and Assembly and most likely be signed by the Governor. This leveraged tactic worked and the Board acquiesced.

So Bill Popejoy’s astute move has now been forcibly merged back into the Auditor-Controller’s office.

In Governance and Finance, I asked Eric Woolery, since he is the Auditor-Controller, why he hasn’t performed audits on the matters that have concerned him. His response was that he had to present an audit plan every year and that it would take some time to make this request. This was not a correct response. I believe that the appointed Internal Auditor had to make emergency requests to the Board of Supervisors, but an independently elected Auditor-Controller can perform any type of audit at any time that he or she wishes.

I’m very circumspect about SB 292, so I did not vote for it in Governance and Finance, but out of respect for my new Senate Leader, I did not vote against it. See how much fun goes into making a decision on a particular bill? Especially when you have the twenty-three year history of this unique setting? Fun life. The Voice of OC provides its opinion on this story in the piece below.

Santana: OC Auditor Controller Leads CA Public Accountants Uprising

By Norberto Santana, Jr.

http://voiceofoc.org/2017/04/santana-oc-auditor-controller-leads-ca-public-accountants-uprising/

Orange County Auditor-Controller Eric Woolery publicly declared before a California State Senate panel two weeks ago in Sacramento that he was “coerced” by County Counsel Leon Page to approve questionable public sector payments for political mailers sent out during last November’s tight election for the first district county supervisors’ seat.

The county mailers, among a batch of nearly $500,000 in public newsletters questionably funded by taxpayers last year during election season, were credited by many as providing a critical edge in the First District county supervisors election, which Republican Andrew Do ultimately won by a narrow margin (0.4 percent) over his Democratic counterpart, Santa Ana City Councilwoman Michele Martinez.

Woolery is also raising alarm bells just as county supervisors are poised today to water down a key 1994 bankruptcy-era reform that requires public review before supervisors can borrow large amounts. Known as the Public Financing Advisory Committee, the panel used to have real power on public financings.

That potentially ends today.

While the county staff report downplays the change, the red-line version of the new ordinance is telling in what is proposed to be struck.

“No proposed public financing shall be considered by the Board of Supervisors except upon the express written recommendation of the Committee,” is the line that is cut out of the current proposed ordinance.

Woolery warns the change is “watering down transparency.”

“You had a PFAC that was put in place for a specific purpose. The Board of Supervisors were borrowing hundreds of millions to invest with the likes of (County Treasurer) Bob Citron…the ordinance was put in place to make sure there was an independent citizens group looking at borrowings,” Woolery said in an interview Monday. “It shines a light on the board.”

Woolery has found himself increasingly at odds with county supervisors, largely over questionable checks.

Woolery tried to reverse a questionable pension payment from taxpayers to Supervisor Shawn Nelson, a Republican who campaigned against pension abuses in 2010, then opted for a public pension once he got elected, then argued to get out of the system and then got himself back in with backdoor negotiations.

Once Nelson, county officials and retirement administrators finalized their latest deal – leaving Nelson as a pensioner as long as he made nearly $100,000 in payments to the retirement system (which he paid from his public office budget) – Woolery tried to intervene arguing Nelson had already denied a pension.

Woolery’s staff actually reversed Nelson’s pension payment, which prompted DA investigators to immediately pounce, accusing Woolery of criminal embezzlement.

When he tried to get his own attorney – to challenge what he saw as an illegal arrangement between Nelson and a host of public sector executives, including the County Counsel – Woolery was rebuffed by Nelson’s own colleagues on the county Board of Supervisors who declined to offer him – despite being a fellow Republican – a chance to make his case.

Despite Woolery’s own misgivings, he would have to rely on the same lawyer that was telling Nelson his deal was ok.

Woolery eventually approved the payouts.

But that’s when he began to seek the statutory ability to have his own legal advice when questioning a payment.

“We have to stand up for ourselves,” said Woolery, who this week is attending a statewide convention for the California State Association of County Auditors in Northern California.

Getting your own legal opinions is a right that both the Sheriff and County Assessor currently have. They can publicly trigger a process where they can seek authorization from the board of supervisors to hire their own specialized legal advice.

Ironically, when county supervisors back in 2012 needed former Orange County Auditor-Controller David Sundstrom to approve their radical plan to withhold $73 million in property taxes from Sacramento (later found to be illegal), he was publicly encouraged by supervisors to hire his own attorney to ensure his approval of the payment met muster in his own mind.

Yet when Woolery wanted to question the irregular pension payment to Nelson, he was shut down on getting his own legal advice.

Woolery’s legislation, SB292, has found a powerful ally in former Orange County Supervisor Pat Bates, who cited the Nelson situation as a motivation for immediate action at last month’s hearing in Sacramento.

The scariest part of this drama is that it is apparently quite common across California.

“The need is widespread,” said Bates – who now leads Senate Republicans – at last month’s hearing at the state capitol.

Indeed, 44 out of 58 auditor controllers from across California are supporting Woolery because they face similar situations.

“I’m in shock this is happening and that we even have to go this far,” said State Senator Janet Nguyen, herself a former Orange County supervisor, during the hearing.

Robert Stark, a former Auditor-Controller from Sutter County, told state senators at last month’s hearing he had been personally destroyed by standing up to questionable pension dealings by his board of supervisors.

Riverside Auditor-Controller Paul Angulo put it in even starker terms to the gathered state senators saying, “You can only have one master.”

“We have no shield. No defense. But we are moving millions,” Angulo said.

Former Supervisor John Moorlach, who is now serving on the state senate committee looking into Woolery’s bill, voiced some misgivings about the legislation.

Moorlach indicated Sheriffs and Assessors amended their powers as part of a broader look at their offices, a ballot initiative, which he seemed to support in this case for Auditors. Absent that, he seemed reluctant to piecemeal revisions to the authority of an independently elected office.

The Senate Government and Finance Committee ultimately approved Woolery’s bill on a 5-0 vote.

We’ll have to see what the full legislature has to say about how independent our auditor controllers should really be in California.

Yet Moorlach makes a great point.

Perhaps it is indeed time to have a statewide conversation, maybe in the form of a ballot initiative, one that really engages the public on why it’s important that auditors actually be able to look under the hood of government, just like Sheriffs or Assessors.

It was, after all, an accountant that took down Al Capone.

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