9/11 Lookbacks

Fortunately, the media coverage has been quiet the past couple of weeks.

In order to avoid giving you a large e-mail in the near future, I decided that the Look Backs for September 9 and 11 were significant enough to send by itself.

After losing to Robert Citron in June of 1994 it seemed that I was now the recipient of taunts by one of the OC Register’s reporters. 

The article that appeared on September 9, fifteen years ago, still evokes emotions when I read it.

I’d like to dedicate this Update to my Uncle, Edward H. DeBoer (October 28, 1924 – September 3, 2009). 

My entire family and I attended his graveside and memorial services yesterday in Bakersfield and I had the opportunity to participate in the memorial service. 

Uncle Ed was a big advocate of telling the truth, no matter how painful it may be to the hearers to do so.

Consequently, it is nice to see that the reporter noted that I “was unrepentant” in my earlier and continuing efforts to conservatively tell the truth about Citron’s investment management strategies.


September 9, 1994

The OC Register’s Chris Knap authored one of the most frustrating articles of the post-election cycle, claiming that all my warnings were for naught.  His piece, “O.C.’s SKY DIDN’T FALL—Government:  Critics of the tactics of Treasurer Robert L. Citron had predicted financial doom,” should explain my car’s license plates (SKY FELL).  It was an amazing article, recounting all of the warnings that were published in various publications during the campaign and concluding that everything was fine.  It claimed that interest rates had leveled off—very, very wrong.  (And tell me again that reporters are supposed to be objective.)

I can recall receiving calls from clients that day.  This article was top-of-the-fold for the Business Section.  They called to ask questions like, “are you as stupid as the Register claims you are?”  It was not pleasant.  In fact, it motivated me to write a letter to then publisher David Threshie about how sadly off the mark his paper was.  I would bump into former editorial page editor Ken Grubbs a few weeks later and, when I asked about my letter and the lack of a response, all Ken could say was they were “bemused.”  What a profoundly appropriate response.  Now the Register’s holding company is in Chapter 11 bankruptcy.  What a very strange twist of fate.

Here are some segments to give you a flavor of the fun summer I had fifteen years ago.  Talk about watching the band playing on the deck of the sinking Titanic.

                Costa Mesa accountant John Moorlach, whose campaign against Citron fueled stories in the financial press, declared, “Regardless of who is elected on June 7, Orange County has a bleak future for its fiscal assets.”

                Well, the campaign is over, interest rates are leveling out, and to tweak a line from Mark Twain, reports of Bob Citron’s death spiral appear to have been greatly exaggerated.

                “All those dire predictions never came true,” Assistant Treasurer Matthew R. Raabe said.  “It would appear that our investments were pretty well on target.”

In fact, county government’s budget managers say they relied on Citron’s arbitrage strategy to dig them out of a hole last year:  The county issued $200 million in taxable notes – in effect borrowing at 3.95 percent interest – and Citron invested it in a series of higher-paying investments.  Those secondary investments, known as reverse repurchases, returned 7 percent.  After costs, the county earned $20 million.

“That’s what is helping us survive,” county budget manager Steve Franks said.

This year, Citron has been asked to invest $600 million the county has borrowed; arbitrage earnings are expected to be at least $40 million.

In total, according to figures provided by Franks and Auditor Steve Lewis, Citron’s investments will bring the county general fund $120 million this fiscal year, more than the county’s share of local property taxes.

“He has gone out and done a heck of a job as far as I’m concerned,” said Lewis, an independent elected official.  “To (earn this interest) the county has taken some risks, but in my opinion the risks appear to be very well managed.”

Moorlach, who lost in the June election, was unrepentant in an interview this week, noting that leveraged private investment funds have continued to collapse, despite the leveling off of interest rates.

“I had predicted a pretty steep price to pay,” Moorlach said.  “I think it’s too early to say that Citron has escaped that.”

During the campaign, Moorlach was accused by county officials of scaring jittery bond buyers, driving up the cost of Orange County’s borrowing.

Again, Moorlach defended his actions.  He volunteered that he went to city officials in Costa Mesa after the June election and tried to convince them to pull out of the county pool.  They refused.

“I was overly cautious (in the campaign).  I was too conservative in my remarks.  I had people tell me, ‘Make it (the investment pool) crash,’” Moorlach said.  “I didn’t want to do that.”

“As far as rubbing Moorlach’s nose in what he said, I’m not interested in doing that,” said Citron, 69.  “I’m not interested in creating another controversy.

“Sixty-one percent is not a landslide, but it’s certainly a strong election by the people of their faith in me.  People just didn’t believe what (critics) were saying.”


The OC Register’s lead editorial was titled “Pension tsunami, Part II – County retiree medical liability tops $1 billion.”  It started off with Supervisor Smith’s quote (see September 8, 2004 Look Back).  Here is a portion of what followed:

                Yet Mr. Smith misses the point.  There was plenty of information available that the county could not continue to grant new taxpayer-backed benefits to county employees, even without specifics about this particular element of the problem.

County Treasurer John Moorlach warned that the spike in pension benefits – base on an overly optimistic rate of return of 7.5 percent annually for 30 years – would create an instant $300 million liability in a system that already is more than $1 billion short of meeting its retirement obligations for current county workers.

Now we see that other pension-related predictions have been mistaken, this time on the medical front.  Frankly, we’re surprised how quickly the bad news is rolling in.

Mr. Moorlach isn’t surprised.  Between the remaining bankruptcy debt, the new liability the supervisors took on by increasing county pensions by more than 60 percent and the new liabilities for the retiree medical benefits, the total liability is hitting $3 billion.

Ultimately, as usual, taxpayers could be left holding the bag.

September 11, 2004

There are events in your life that we refer to as inflection points.  They are times when you conscientiously make a turn in the road or have a dramatic impact on your life.  They are events or decisions you remember for the remainder of your life.  September 11, 2001, is certainly one of those days. 

I had one of those moments when I decided to leave a great elected position for another.  Norberto Santana, Jr., of the OC Register, slipped the news out in “Decision riles Moorlach to run for supervisor—Treasurer-Tax Collector says county leaders committed ‘financial mistake’ by approving expansion of pension benefits.”

                While Moorlach said he loves his current job, to which he was appointed shortly after the county’s bankruptcy in 1994, he said recent fiscal decisions by supervisors have motivated him to become a decision-maker rather than opinion-giver.

                “Someone’s got to start getting serious about fiscal issues at the county and I believe I’ve got the credentials to do that,” he said.  “It’s turnaround time again.”