MOORLACH UPDATE — KPCC — January 26, 2011

Yesterday, the Board of Supervisors decided to diverge from the staff and Airport Commission recommendation to approve Carl’s Jr. and instead approved McDonald’s for Terminals A and B, with a 4-to-1 vote, with my opposition.  Terminal C then went to Carl’s Jr., over the staff recommendation to approve Sbarro’s/Panda Express, with a 5-to-0 vote.  This story was covered by KPCC 89.3 FM below.

Today the Appellate Court ruled against the County in our retroactive law suit.  It was a quick “no.”  There will be more on my thoughts in tomorrow’s Update.  Today’s LOOK BACK for January 22, 2006, below fits well with this subject.

INVITATION

On March 26th I’ll enjoy a morning hike on with the Irvine Ranch Conservancy to view the spring flowers.  More info to follow.  The date is subject to change in case of rain.

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OC Supervisors choose food vendors for John Wayne Airport

The showdown between the Happy Star and the Happy Meal at Orange County’s main airport didn’t quite play out like an old John Wayne western. The Orange County Board of Supervisors today chose which food vendors will set up shop at the airport and its new terminal.

County staff had recommended that the supervisors replace McDonald’s at John Wayne Airport with Carl’s Junior-Green Burrito, the fast food chain with deep roots in Orange County.

But in the battle of the burgers, the board opted for a draw. The supervisors voted to add Carl’s Junior-Green Burrito to the new Terminal C at the airport. They also decided to keep McDonald’s in Terminals A and B, given the Golden Arches have been at the airport for 21 years now.

Supervisor John Moorlach joked that he was glad In-N-Out wasn’t in the mix.

Earlier this month, supervisors approved a bunch of new restaurants at the recently spiffed-up airport. They include Ruby’s Diner, Santa Ana-based Jerry’s Wood-Fired Dogs and an Anaheim Ducks Slapshot Bar and Grill.

Construction of the new Terminal C is expected to be completed later this year

FIVE-YEAR LOOK BACKS

January 22

2001

There was a small error on the Look Backs in the January 21 Update.  The dates reported were January 20, but the information did relate to January 21.  Please accept my apologies for the typo.

The Bond Buyer would weigh in and repeat the same issuer error.  It was Edison International, not Southern California Edison.  “Utility Woes Shock Calif. Municipalities” was written by Deborah Finestone.  Here are selected paragraphs:

                Orange County’s share in Edison only accounts for 3.3% of the pool portfolio, and the county has a plan in case the company defaults, county Treasurer John Moorlach said.

                “We’re a casualty of the ripple effect of no decisive action in Sacramento,” Moorlach said.

                Moorlach has personally been attacked over the seemingly unwise investments because he was so critical of former Treasurer Robert Citron’s investments that led the county to declare bankruptcy in 1994.

                “Utilities are historically a flight to quality investment,” Moorlach said.  “It’s very rare for A1 paper to default so fast.”

                Edison was still highly rated in December and was performing well in the stock market.

                Moorlach and his officers explored dropping the bonds a week later if they could get par, but they got not bids, he said.

                Though the company had billions of dollars in unrecovered debt, “who would have thought Sacramento would let it devolve to this crisis point?” he said.

                The county received its $115,884 interest payment on Jan. 18, Moorlach said.

                He remains confident the county will receive its full principal.

                If the bonds go into default and the pool incurs losses, it would reduce the net earnings of the 31 school districts in the pool, Moorlach said.  But that is an “extremely remote possibility,” he said.

                “We’re working diligently to protect our interest and we hope Sacramento and the power companies get some resolution to these complex issues,” Moorlach said.

2006

On this day in history, the LA Times published a piece by its columnist Steve Lopez that rocked the public employee union world.  Lopez, a liberal, decided that public employee retirement deals were way too sweet in “Deals So Sweet They’ll Kill Us.”  This column would generate a significant amount of hate mail from public employees.  That it came from the LA Times and from a liberal writer, it was as if the public unions had been betrayed.  If my memory is accurate, Steve Lopez even did a follow up column on the reactions.  The piece was excellent—it’s a classic—when it  was published five years ago.  It was spot on then and it’s provided below in full.

Worried about your 401(k) tanking in your golden years?

You should become a cop.

Ticked off about your company yanking healthcare benefits in retirement?

Get a teaching job.

If you hadn’t already noticed, while the rest of us watch our retirement benefits shrivel up and blow away, public sector retirement deals are sweeter than ever. And we’re footing the bill.

Gov. Arnold Schwarzenegger tried to sound an alert last year. But the big gorilla killed any chance for a serious discussion by bullying cops, teachers and firefighters, making them out to be the bad guys.

Now there’s even less of a chance for honest leadership, because it’s an election year — a time when no politician dares speak the truth, especially if it means risking donations from public employee unions. Meanwhile, evidence is mounting across the state that we’re headed for disaster as the bills come due on all the Cadillac retirement plans out there.

Take the Los Angeles Unified School District, where teachers can walk away in their 50s with lifetime medical insurance for themselves.

And their spouses.

And their sons and daughters, up to their 26th birthday if they’re in college.

Are they kidding?

Look, I don’t want teachers, cops or any other public employees to starve in retirement or die from medical neglect, and I know teachers have historically traded pay hikes for full benefits. But this is ridiculous, and it ain’t cheap either.

The state legislative analyst’s office puts the tab for LAUSD’s unfunded retiree healthcare costs at $5 billion over the next 30 years. That’s $5 billion that’s now entirely unbudgeted. The district would have to come up with $500 million a year to fill that hole.

And that’s the rosy scenario.

The $5-billion estimate could grow to $11 billion, depending on investment returns and other factors.

"It’s a time bomb, ticking," said LAUSD chief Roy Romer, who fears having to shortchange kids to cover the debt.

So how did we create problems like this in Los Angeles and across California?

It’s all pretty simple.

Hordes of Democratic politicians and a few oddball Republicans from Sacramento to San Diego have won election and reelection by saying yes, yes, yes to every demand from the public employee unions.

The unions, just like corporate donors, pony up millions to have their way. And if they’re not still sending thank you cards to former Gov. Gray Davis every day of the year, they should be ashamed of themselves.

As a result of all this love, many cops and firefighters in California can retire at age 50 with up to 90% of their active duty pay. The amount is calculated on years of service, and it’s based on the highest annual amount an employee ever made, said Assemblyman Keith Richman (R-Northridge).

In other words, a firefighter who averages $80,000 a year on active duty can retire at $100,000 or more by basing it on a year in which his salary was inflated by overtime, accrued vacation, shift differentials and other factors.

"And then he gets cost-of-living adjustments on top of that," said Richman. "We are currently paying for two police departments or two fire departments" in many cities, Richman added, meaning that the total payout to retired public safety employees is as much as the pay for active employees.

"And it’s going to get worse, because the retirement age has been lowered to 50 over the past few years, and at the same time people are living longer."

Another problem is that it’s the most experienced employees who leave. Why continue working if you can sit on a beach at 90% of your salary, or get a job somewhere else and double your money, as hundreds of cops have done?

John Welter was assistant police chief in San Diego when, at 55, he became chief of police in Anaheim. Now 56, he’s got a $100,000 pension from San Diego and $175,000 salary in Anaheim.

You can’t blame the guy for taking advantage of the double-dip opportunity. But the system he handsomely benefits from also works against him in his role as chief. Welter said that for dicey problems on the street, he’d often rather send an experienced 50-year-old cop than a rookie.

But those are the cops he’s losing.

"It’s very difficult to see these people walk out the door," he said, "but there’s not much incentive to keep them around."

In Santa Ana, Police Chief Paul Walters topped out on his pension benefits in 2001 at the age of 56. But he didn’t want to leave, and the city didn’t want him to go. So it hired him on a contract basis, and Walters now makes north of $300,000 a year between pension and salary.

Walters argued that without an attractive pension plan for cops, it might be difficult to find new recruits willing to risk their lives. Maybe so, but this is beyond attractive, and the same is true of many other public employee deals.

"Everything’s gone loopy here," said Orange County Treasurer John Moorlach, who’s quitting his job to run for supervisor on the issue of fiscal irresponsibility.

Moorlach says there’s a $2.34-billion hole in his county’s pension fund, and services may get whacked to cover the debt. Dips in returns on pension fund investments could magnify the problem, and this is all happening just 11 years after Orange County declared bankruptcy.

So what do the union bosses say?

There’s no problem, just a lot of blather from conservative saber-rattlers.

Nick Berardino, chief of the Orange County Employees Assn., insists that the debt projections are hyped, the retirement packages are fair and there’s no need for employees to make any concessions. Just because private sector employees are "being exploited and essentially thrown to the corporate wolves" doesn’t make it right, Berardino said.

I can’t disagree with him on that, especially with corporate profits and executive compensation at staggering levels, even as fixed pensions go the way of the dinosaur.

But there’s a happy medium between retirement deals designed by Scrooge and those designed by Santa Claus. A national healthcare plan would be a nice way to get around much of this trouble, but we’ll have a simplified tax code and a Wal-Mart on Jupiter before that happens.

On pensions, I’m leery of Richman’s call for a switch to 401(k)s, because I’ve got one, and I’m acutely aware that it could put me under a bridge one day, begging for Snickers bars.

Look, I’m the son of a Teamster, and I’ve been a union member most of my working life. But at the very least, the unions are going to have to give some ground on early exits. I like firefighters. I think they deserve comfortable retirements. But should we pay them as much to sit on a park bench for 30 years as we did for the 30 they fought fires?

A.J. Duffy, head of United Teachers Los Angeles, said he’s reluctantly willing to "possibly" look at trimming retirement packages for the next generation of teachers.

Possibly?

Come on, Duffy. You’re right about teachers being undervalued. But you’ve got everyone but the family dog on the healthcare plan, and it’s time to retire that gravy train.

*

Reach the columnist at steve.lopez@latimes.com and read previous columns at latimes.com/lopez.

2001

January 23

The Bond Buyer printed a clarification on its article from the previous day and stated “the bonds held by the Orange County Investment Pool are actually from Edison International, the parent company . . .“

David Reyes of the LA Times dealt with the next chapter in the Edison adventure with “County Treasurer to Explain Investment in Wounded Utility.”  Four of the five supervisors were comfortable with the private communications that I had maintained with their respective offices.  One Supervisor enjoyed media attention.  Here is the piece in full:

The investment strategy of the treasurer-tax collector will go under the microscope today in a hearing before Orange County’s five supervisors, when John M.W. Moorlach is expected to defend a $40-million investment in Southern California Edison’s parent company.

The beleaguered utility defaulted on $600 million in bond payments last week amid several days of rolling blackouts that dimmed large portions of Northern and Central California because of an energy crunch.

Meeting last week with supervisors’ Chairwoman Cynthia P. Coad, Moorlach said his office made two $20-million transactions, on Sept. 28 and Dec. 7, which he told her were "sound investments" based on thorough research.

"He said that when he bought it, it had a good rating and that he did do research," Coad said. One of the policies that Moorlach instituted after Orange County’s 1994 bankruptcy "was to make sure we had diversified investments as a protection," she said.

Though Moorlach is generally well regarded, much is at stake for him politically in how he fares before the board. His recent battle with the county’s health care industry over how to spend millions in tobacco lawsuit settlement money ended with the defeat of Moorlach’s Measure G, which would have designated 40% of the money for early payment of the county’s bankruptcy debt.

"We’re not concerned," said Moorlach spokesman Brett R. Barbre. "There aren’t any questions we’re going to run away from. Everything we do is wide open and public."

Supervisor Todd Spitzer asked Moorlach to appear today because the board, not Moorlach, is ultimately responsible for investment policy.

"I need to understand in a public forum with all five board members present because you administer the investment pool," Spitzer told Moorlach. "But it’s the Board of Supervisors which is responsible. . . . "

In a Monday press release, Moorlach quoted an Edison International spokesman as saying that the parent company of the electrical utility would honor its financial obligations.

January 24

The fun continued on the Edison front when it was reported that Fitch put out a report on Edison, but somehow failed to provide it to my office or even provide a courtesy call informing us of the document.  As Fitch rated the County’s pools and was aware of every trade we make, it was quite awkward.  The LA Times addressed the matter in “Moorlach’s Office Alerted on Edison Before It Invested—Supervisors shown county rating agency’s warning of rising risk.  Treasurer says he wasn’t aware of it,” by Jean O. Pasco and Monte Morin.  Here are selected paragraphs:

Moorlach said Fitch may have issued its warnings on Sept. 7 but that did not cause the agency to downgrade its rating of Edison’s investments, which carried their highest rating for both of the county’s purchases. He said his office’s investment research centers on the credit ratings issued by Fitch, Standard & Poor’s and Moody’s.

"All of our data showed things were still rather comfortable" when the trades were made, Moorlach said. "What we encountered in the finance world was the 100-year flood."

Moorlach said the office is considering commingling the educational investment pool with the county’s regular investments, as well as adding an investment analyst to the treasurer’s office.

Martin Wisckol of the OC Register also covered the topic in “Moorlach defends Edison investments—COUNTY:  One supervisor tells the treasurer that rating-agency assurances have failed before.”  It was frustrating to have the rating agencies miss this one, too, but it allowed one supervisor to bask in another “Perry Mason” moment, as we used to call these activities.  Here are the related paragraphs:

During a presentation to the board Tuesday, Moorlach pointed to the top ratings given Edison by three investment-rating agencies until a downgrading earlier this month.  Those high ratings were in effect when Moorlach’s office made two $20 million investments in Edison in September and December.

Supervisor Todd Spitzer, who called for Tuesday’s presentation, questioned whether the county should be relying so heavily on those agencies – and pointed out that two of those agencies gave high ratings to Orange County’s investments until just before the county declared bankruptcy six years ago.

“You can’t just rely on information from your experts,” said Spitzer.  “There’s a lot of documentation out there besides the rating agencies.”

January 25

I also communicated with my participants as frequently as possible, including a personal meeting with the Chief Business Officers of every school district in the County.  This was covered in “Probe of investments sought—MONEY:  Concerns about county practices are raised in light of Edison purchase,” by Martin Wisckol of the OC Register.  Here is a selected paragraph:

                After meeting with business representatives of the 31 county school districts participating in the pool, those districts asked Moorlach for an independent review of his investment system—which he said he will provide.

Jean O. Pasco of the LA Times covered the Treasury Oversight Committee meeting in “O.C. Panel:  Edison Plunge Proves Pool Needs Reform—Oversight committee urges using more criteria for county investments besides credit rating.”  Here are a few paragraphs:

The Treasury Oversight Committee, formed after the county’s 1994 bankruptcy, concluded that Treasurer John M.W. Moorlach’s office should use more information than just credit ratings before making purchases.

"As we’ve seen, credit ratings are less than perfect," said Clyde Kendzierski, a member of a technical committee that reviews the county’s trades weekly and advises Moorlach.

Moorlach has repeatedly apologized for the investments and says his office is considering adding a financial analyst to do more research before trades are made.

While Edison had a good rating at the time Moorlach’s assistants made the first of two $20-million investments, the county’s rating agency had warned of putting money in the state’s utility market.

2006

In a déjà vu type of article, Norberto Santana, Jr. of the OC Register had an interesting headline with “County board questions trip to Canada – 5 sheriff’s employees will still be paid during the ‘free’ goodwill mission.”  Our Board just had a similar discussion two weeks ago.  There was a subheading within the article, “Pension Bond Approved,” which is similar to what our Board approved yesterday.

The supervisors unanimously approved a plan to float $120 million in short-term bonds to take advantage of a 7.5 percent discount being offered by the Orange County Employees Retirement System.  The funds would allow the county to pre-pay its annual pension payment.  County Treasurer/Tax Collector John Moorlach will purchase the bonds being floated without the need for underwriters.

In all, the move saves Orange County taxpayers $4 million.

The Bond Buyer also covered the topic in “Orange Co. Selling to its Treasury—County Sets $117M Of Pension Notes,” by Rich Saskal.

                “I think it’s just good fiscal stewardship to look at any opportunities that are of minimal risk to reduce our overall costs,” Moorlach said in a phone interview this week.

2001

January 26

In the middle of all of the Edison drama, a letter writer to the OC Register was provided a complimentary tone in “Moorlach serves us well.”  I use the word “drama” because Edison would dominate the news for most of the year 2001.  September 11th of 2001 would provide a dramatic perspective, but Edison would continue even beyond September.  Get ready for an interesting adventure during this year’s LOOK BACKS.  (Something tells me I owe Doug Davert of Tustin a lunch or dinner.)

                All the criticism concerning Treasurer John Moorlach’s investment in Edison International is misplaced and misguided.

By any objective standard, Moorlach’s investment in Edison was both prudent and in accordance with Orange County’s investment guidelines that he helped develop in the wake of the 1994 bankruptcy.  Utilities in general, and Edison in particular, have consistently ranked among the most solid and conservative investments.  Your readers should be very cautious in jumping to erroneous conclusions on these investments.  Edison has not defaulted on the notes, is current on its interest payments and promises to repay the invested principal at maturity without delay.  The current situation is a far cry from Bob Citron’s debacle of 1994.  Moorlach’s abilities have restored the county’s financial health.  We should be saying to him:  “Thank you.”

Doug Davert

Tustin

On the opposite page, the OC Register’s lead editorial was titled “Keeping track of taxpayers’ funds.”  The piece gives a detailed description of the activities to date, focusing on Supervisor Spitzer’s prosecutorial style versus reality.  Here are a few paragraphs, including the closing seven:

We’d caution county residents, and those worried about the county’s educational investment fund, to stay calm.  No money has been lost and the treasurer did nothing inappropriate.  His latest action – setting up an ad hoc committee of Edison creditors to collect funds in the event of a bankruptcy—is proactive, and the treasurer’s office has been forth-right about its decisions.

Why the fuss?

“More than anything it’s the irony that it’s happening to me,” Mr. Moorlach said.  “Here’s a guy who predicted the bankruptcy and now he has a problem investment.”

Mr. Spitzer said he is concerned about systemic problems that he would like to see corrected.

We welcome newfound scrutiny and debate over county investments.  It’s certainly within a board member’s purview to question these investments and hold them up to a bright light.

Could the treasurer’s office have thought twice in September about Edison, given the unfolding events?  Probably.

Could investment officers have foreseen at that point Stage Three alerts and rolling blackouts?  Probably not.

In this case, until we see evidence that the county treasurer’s office knowingly acted in ways that put county dollars at unusual risk – beyond what can happen in the stock market – or made investment decisions outside their legal restrictions, we won’t hit the panic button.

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