FIVE-YEAR LOOK BACKS
December 6. This is the day that we commemorate (not celebrate) in the OC. The Update for December 7 (Pearl Harbor Day) and the clippings from 1999 and 2004 below will explain why.
I’m not sure if any of the dailies will be doing something in their Sunday editions for the fifteenth year observation. I’m sending this one out late on Saturday evening and nothing has registered on my internet radar screen.
Happy Fifteenth Anniversary!
The front-page headlines just kept coming. Today’s theme was “Citron’s resignation.”
The OC Register’s shocker by Chris Knap and Jean O. Pasco was titled “Citron resigns over fund loss – Federal regulators search treasurer’s office; experts say losses may be much higher.”
“After much thought and soul-searching and with much regret, I have decided for the benefit of the County of Orange to resign from my elected office,” Citron, treasurer for 24 years, said in a letter hand-delivered to County Administrative Officer Ernie Schneider late Sunday.
Accountant John Moorlach said he was sorry to see the veteran treasurer’s career end as it did.
“I feel really bad for him,” Moorlach said Monday. “I only criticized his policies – I never went after him personally. This is his life. He’s been living off the praise of so many people for so long and then, boom, he tragically made a major misjudgment.”
The county has hired Capital Market Risk Advisors, a New York-based consultant firm founded by two derivatives experts, to evaluate the county’s portfolio and determine its market value.
Moorlach said he might ask supervisors to appoint him acting treasurer-tax collector to replace Citron. He said he faxed Schneider a series of proposals Monday on protecting the county fund. He declined to say what the proposals were.
In a separate article, the OC Register’s Chris Knap addressed “Treasurer’s job was Citron’s life – His own lifestyle is conservative, but Citron gambled heavily with taxpayer funds.”
Costa Mesa accountant John Moorlach was criticizing Citron for his heavily leveraged position, suggesting it was overly risky for a taxpayer fund.
Citron held firm, declared he could ride out the interest-rate rise, and most county officials lined up behind him, including [Peer A.] Swan and Board of Supervisors Chairman Thomas F. Riley. Two national investment rating agencies also expressed confidence in Citron’s fund.
“Mr. Citron had a tremendous amount of responsibility and performed very well for many years. It’s obviously very sad that all of this has happened,” Anaheim Mayor Tom Daly said Monday.
The LA Times (Orange County Edition) had a bold top-of-the-fold headline, “Citron Quits as Crisis Deepens—Federal Regulators Pore Over Fund Records.” Here were the closing paragraphs:
Meanwhile, Citron’s political opponent in this year’s race, who had repeatedly warned that the portfolio was highly leveraged, was astonished by the resignation.
“I didn’t anticipate he would do it,” said John M. W. Moorlach, a Costa Mesa certified public accountant and financial planner who lost to Citron in the June primary.
Moorlach, who wrote county officials Monday offering to sit on any committee that may be formed to oversee the operations of the pool, would not say if he would seek the position himself.
The LA Times profiled Citron in “After the Fall, Citron Silent, Defenders Few—Long career marked by credibility, work ethic and financial acumen ends in an extraordinary twist,” written by Gebe Martinez and Martin Miller.
The first hint of trouble had come last spring, as Citron faced his first political opponent since he was elected treasurer in 1970. Citron was almost aghast that anyone—especially his Republican challenger, John M. W. Moorlach—would question his handling of the county’s billions.
As pressure mounted in recent days for Citron to resign, some of his financial backer sin the investment community did not want to comment. Some quickly hung up when they heard his name.
Republican Vice Chairwoman Jo Ellen Allen echoed the sentiment and laid part of the blame at the feet of the Board of Supervisors—who chose to back Citron instead of listen to Moorlach’s concerns.
For his part, Moorlach urged the county Monday to set up an independent citizen panel to review the financial crisis and said he would consider taking on the treasurer’s job if the supervisors ask him. But there is a chance that may not happen, since he has been a loud critic of the supervisors for refusing to heed his warnings.
State Sen. Marian Bergeson (R – Newport Beach) said Citron’s resignation was “probably was the appropriate thing to do” from a political standpoint.
“But there’s a concern as far as having the ability to bring aboard the expertise that we need at a time when we have to come up with some solutions,” said Bergeson, who joins the Board of Supervisors next month. During the campaign, she had withdrawn her endorsement of Moorlach because she feared his criticism of Citron might harm the county’s investment pool.
Len Hall of the LA Times covered Citron’s replacement in “Raabe’s Rise Through Ranks – Successor: The county’s assistant treasurer for one year, he was highly trusted by Citron, observers say.” I don’t recall Len Hall covering anything before or after (which may explain the typo), but he decided to close the piece with the following:
Despite challenger John J. W. Moorlach’s claims, Citron was reelected last June to a seventh term.
The Daily Pilot’s top-of-the-fold headline was “District’s $47 million verbally guaranteed—Citron quits; Moorlach says he will consider taking post if asked.” It was written by Evan Henerson and Tina Borgatta.
The resignation of embattled County Treasurer-Tax Collector Robert Citron on Monday left a trail of unanswered questions in his wake.
Among them: Does Costa Mesa accountant John Moorlach stand a chance at being appointed to the post?
“I did want to be treasurer – that’s why I ran,” Moorlach said. “I would ask for a day or two, so that I could take a long walk with my wife and talk to my family about it, and then make a decision.”
Moorlach said the news of Citron’s resignation took him by surprise.
“If you had said to me, ‘John, where would you put your money?’ I’d say, ‘Bob’s going to hang in there,’” he said. “I know it’s gotta be extremely difficult for him.”
The supervisors, emerging from a two-hour closed session, gave no comment about the resignation or about the fate of the county investment pool. The board will reconvene for another closed session meeting at 9:30 this morning and every morning thereafter, if need be.
“I’m extending an offer to help because I’m a private citizen, and probably the most informed on the pool,” [Moorlach] said. “I’ve spent lots of time on this thing. The election didn’t end it for me. I’ve been meeting with the school district, with the city.
“Being a prophet is a tough job. Your personal integrity is at stake. People accuse you of being an alarmist and all sorts of things.”
Moorlach became Citron’s harshest critic six months ago, calling him a “gambler” with the taxpayers’ money. And, Moorlach cautioned against what affect the rising interest rates would have on the county’s investment in risky, high-yield bonds.
Moorlach’s beliefs caused former Sen. Marian Bergeson to withdraw her endorsement.
But on Monday, Bergeson – who will become a county supervisor in January – said she would give Moorlach her full support if he were appointed to the post.
The fifth anniversary of the filing for Chapter 9 bankruptcy protection was observed. Consequently, you can anticipate 1994 articles on this topic in the December 7 Update.
Michael Kahn of Reuters did an article titled “Orange County bankruptcy hits 5-year anniversary.” Here is a portion of the first five-year milestone:
John Moorlach, who took over as Orange County’s treasurer a few months after the bankruptcy, said the crisis showed the need for municipalities to diversify their portfolios. It also led to more oversight and stricter state laws to avoid similar financial meltdowns in other communities.
“Orange County had a major impact on the cash management and investment industry,” Moorlach said in a recent telephone interview.
But Moorlach acknowledged the county will never be able to shake off all the residue from its massive bankruptcy. “It’s very expensive and damaging to the reputation,” he said. “We will always be the county that went bankrupt.”
Associated Press had an article on the topic, titled “Bankruptcy woes still haunt Orange County.”
The county’s current treasurer, John Moorlach, said he has taken several steps toward safeguarding the public’s money, including refusing to boost investments with borrowed money or aggressively recruit investors.
Moorlach said he also regularly discloses his office’s finances and investments, which are overseen by two committees.
The LA Times had a lead article for the Orange County section, titled “Five Years After a Very Costly Lesson—A billion-dollar debt remains from Orange County’s bankruptcy, which changed the culture of government. Experts say it could happen again,” was co-authored by Meg James and E. Scott Reckard. It shared the same themes of oversight and disclosure.
“There was no oversight of Mr. Citron, and he opposed it every time it was even brought up,” said Moorlach. “[Now,] we’re not really selling the portfolio . . . It’s more of a ‘Hey, it’s available.’”
It was the lead article, top-of-the-fold for the Daily Pilot. Andrew Glazer’s article was titled “Bankruptcy’s mark remains – Man who saw county’s 1994 financial crisis coming recalls his prediction as ‘bittersweet.’”
County officials called him Chicken Little as he cried that the sky was falling on its investment fund.
But he was proved right five years ago today, when the county declared bankruptcy after the fund crashed five days earlier.
But John Moorlach said he is not, and never was, bitter. In fact, the Costa Mesa resident and former certified public accountant who is now the county’s treasurer-tax collector, said he would rather talk about what the county learned from its mistakes.
“I think we have a nature of being overly defensive when criticized,” said Moorlach, referring to the way then-Treasurer-Tax Collector Robert Citron dismissed his warnings.
“I think now people are more likely to step back and ask, ‘Is what’s being said true?’ We’re in a day and age, the information age, where it doesn’t take very long.”
While Moorlach said defensiveness is one aspect of human nature, so is vindication. Moorlach said his was “very bittersweet.”
“It was sweet, because I was right,” he said. “But it was bitter because my county went bankrupt. It was a very sad day in my life. I sobbed.”
Moorlach said the county has learned to make financial adjustments as well as changes in its attitude. He has invested county money in funds that are more prudent and less risky.
Moorlach said he was sitting alone in his office the day after the county declared its bankruptcy, when a friend from Los Angeles visited. He said he had a message from God.
“I normally get a bit nervous when someone tells me this,” he said. “But his message was one that I have really taken to heart. It was, ‘You need to be better, not bitter.’”
The Associated Press came back with another article titled “Bankruptcy cloud hangs over the O.C. a decade later.”
“Did the average guy on the street notice there was a bankruptcy? At the end of the day, I don’t think he did,” said county Treasurer-Tax Collector John Moorlach, who repeatedly warned about the county’s impending financial collapse and was ignored.
Deirdre Newman of the Daily Pilot wrote the front-page top-of-the-fold article with “Still battling bankruptcy after 10 years – A decade removed from the massive county financial debacle, Newport and Costa Mesa now adhere to the mantra of oversight, oversight and, yes, oversight.” One new bit of information: the bankruptcy debt was recently refinanced and will be paid off in full in 2016, ten years earlier than originally scheduled. Also, former Mayor Erickson’s kind proclamation of appreciation hangs on our office’s wall.
The county still owes more than $800 million and will be paying off the debt until 2026, said John Moorlach, the county treasurer who predicted the bankruptcy while he was a candidate for that office.
“We put the whole thing on a credit card, and it’s still squeezing out vital services, and there will be a price for that still,” Moorlach said. “There will be a price to pay for the things we didn’t’ do that we should have been doing, like deferred maintenance. We just finished one decade, and we have two more decades to go.”
Costa Mesa created an investment oversight committee that is still watching over the city’s money management, said former Councilman Joe Erickson, mayor during the bankruptcy. The city escaped relatively unscathed, since it had listened to Moorlach’s warnings that the investment strategy was inevitably going to self-destruct. It had only $2.6 million invested at the time of the bankruptcy. Newport Beach created a finance committee of council members to monitor the city’s investments. It had $16.2 million invested in the county pool.
“I was very, very grateful that John, as a resident of Costa Mesa and a friend, had warned the city,” Erickson said. “We were able to pull the vast majority of our funds out of the county pool prior to the bankruptcy, and that was in large part due to his warning . . . I regret we didn’t take out every penny.”
The Bond Buyer’s Rich Saskal weighed in with “The O.C., 10 Years Later: Lessons of the Orange County Bankruptcy of ’94.” It was a lengthy analysis.
“Only a county like Orange County could have come back from such a dramatic loss,” said John M. W. Moorlach, the county’s treasurer and tax collector.
Moorlach said the county was fortunate in that its recovery from bankruptcy coincided with a general economic recovery, giving an added lift to the county’s inherent economic strength.
“We’re just a dynamic economic powerhouse,” he said. “Some other counties – I don’t know if they would have fared as well.”
Treasurer Moorlach said the biggest potential bite could come from retirement liabilities.
The county’s unfunded liability for pensions is $1.2 billion, with another $1 billion in liabilities for retirees’ medical costs – combined liabilities bigger than the investment losses that triggered the bankruptcy.
“I almost feel we’re back in need of a turnaround,” Moorlach said.
With most of the private-sector taxpayers who ultimately pay for public employee pensions not looking forward to anywhere near as lavish a retirement as their public servants, Moorlach believes there may be a backlash coming and trouble ahead.
“When you put all the cops on one side of town, then something happens on the other side of town,” he said. “We’ve taken care of investment risk, so now we’ve got to take care of overpromising elsewhere.”
With that segue, George Skelton, Capitol Journal columnist for the LA Times, had a remarkable piece, titled “Fuse Getting Short on Pension Debt Time Bomb.” We had a fun interview. And his conclusion was also very prescient. It mirrors what our Board just recently negotiated with our largest employee bargaining unit.
“Pay raises you can take back. You can’t take back pension plan enhancements,” notes Orange County Treasurer-Tax Collector John Moorlach, who foresees a deepening pension hole.
“What happens if you retire earlier? You live longer. So we have to provide [bigger pensions] plus cost of living increases for the remainder of their longer lives. Also, if you have a little higher retirement income, you’re not so fiscally stressed. So you live longer. Wealthy people live longer than poor people. Surprise, surprise.”
Democrats and unions would be wise to ponder a possible hybrid system: a pared-back pension supplemented by a 401(k). It’s what many of us paying the government freight already have.
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