MOORLACH UPDATE — Atwater — October 1, 2012

Last summer, two OC Register reporters started a massive project to determine the fiscal viability of the cities in Orange County.  They asked me a number of questions for their piece.  I said I would review the Comprehensive Annual Financial Reports (CAFRs) for each city and divide the net unrestricted assets by the cities’ populations to determine a range.  They did a great job.  In fact, they took it to another level and contacted CalPERS to obtain the market value of each city’s unfunded actuarial accrued liabilities (UAALs) for pension offerings and also obtained the data for each city’s unfunded retiree medical liability.  This information will become pertinent as the Government Accounting Standards Board is finally beginning the process of requiring the inclusion of these obligations on municipal balance sheets.  The work of Tony Saavedra and Jon Cassidy provided the foundation for my 2012 State of the County address (see…, particularly slide number 23).  However, I expanded from the County’s thirty-four cities, and pursued the same approach they used for the first step of the analysis, but for California’s fifty-eight counties.  Now, this research has become a hobby.  If a city or county shows up in a news clipping with a reference to its financial condition, I go to their CAFR and divide the net unrestricted assets for its governmental activities by their population.  Rarely do their business-type activities show a deficit.  However, that is the topic discussed in the OC Register’s editorial below on the city of Atwater’s potential declaration for fiscal emergency.  Their CAFR data bares out the imperative for declaring such an emergency.  I provided the author with two other cities that have large net unrestricted deficits per capita for their business-type activities.  As I stated in an earlier update, the dominoes are starting to fall (see MOORLACH UPDATE —  City of San Bernardino — July 13, 2012).


Another California city in dire straits

Atwater, in Central Valley, faces emergency that could lead to bankruptcy.


Atwater, a Central Valley town of 28,626, may declare a "fiscal emergency" Wednesday, Oct. 3. "We are hoping to avoid" bankruptcy, Mayor Carol Joan Faul told Dow Jones Newswires. The Wall Street Journal reported that that the city plans to make $2 million in payments on $95 million in outstanding bonds "related to its sewer, as well as its now-defunct redevelopment agency."

This dilemma contrasts with Stockton and San Bernardino, which earlier this year declared bankruptcy because of a difficulty making bond payments. The third municipality to declare bankruptcy this year, Mammoth Lakes, is a small city that was hit with a large legal judgment.

Under to a 2011 law signed by Gov. Jerry Brown, a city facing insolvency has two choices. It can submit to a neutral evaluation process to see if the city should declare bankruptcy. Or it can do what Atwater may do and declare a "fiscal emergency" that could lead quickly to a Chapter 9 bankruptcy filing.

Every distressed municipal budget has unique features. Orange County Supervisor John Moorlach explained to us some of the problems Atwater is having. In 1994, he warned of the Orange County government’s impending bankruptcy, then was appointed treasurer in the aftermath to fix things. He looked at Atwater’s Comprehensive Annual Financial Report for the fiscal year ending June 30, 2011. The subsequent year’s report won’t be available until December.

Mr. Moorlach found that Atwater’s level of "per-capita unrestricted net assets" actually is negative. The government-related assets are a minus $140 per resident. But business-related activity is minus $333. Combined, that comes to minus $473 per resident. Put another way, the government has put each resident – including children – in debt of $473. Of course, that’s in addition to all the debt piled up by the federal and state governments.

Mr. Moorlach calculated that the minus $473 number is "just shy of Stockton," at minus $478, which was dire enough, of course, for Stockton to seek bankruptcy protection. He added, however, that Atwater’s situation might not be as acute as Stockton’s. Even so, he said, "Atwater is a case either for internal restructuring, or it is headed for Chapter 9."

In Atwater’s case, a problem seems to be the "business activities" part of the ledger. This is where the city expects to make money on an activity. In Atwater, Mr. Moorlach said, "it’s either poor timing or mismanagement" of the business activities. Some city activities can be highly profitable, such as the Anaheim Public Utilities, which produces electricity and water, essentials everyone needs. However, public sector operations of what are more typically private-sector activities often don’t pan out.

In the private sector, if a venture fails, owners or stockholders lose their money, and employees lose their jobs, which is painful. But in the public sector, a failed venture can be kept running through tax increases that residents can’t avoid except by moving.

The next municipalities to watch for budget problems, Mr. Moorlach cautioned, are Victorville in San Bernardino County (population 115,900) and the Tulare County town of Lindsay (population about 12,000). Atwater’s problems, following those of the three bankrupt cities, are warnings to all Orange County cities and the county government to keep cutting waste, privatizing as much as possible and getting their financial houses in order.


September 29


After receiving some media attention about the Costa Mesa Republican Assembly’s city council race endorsements of Republican candidates (which is the only party from which they can endorse per their bylaws) (see MOORLACH UPDATE — AB 340 Withholdings — September 12, 2012), an odd and well-meaning letter is printed in the Daily Pilot, “Bad endorsements cont.”  Here is the opening, which may be correct, but misses the point.

                We think Mr. Moorlach should rethink city government.  City council members should not be elected as to whether they are Republicans or Democrats but which one would best serve the city.

                Velta Andreen

Costa Mesa

The Daily Pilot published my monthly “Community Forum” submission, “Defending the religious right – Those who don’t think politics, religion mix ignore history.”  Dangerous territory (or territories), I know, but it does reflect my longstanding appreciation for the Jewish influence in California’s formative history.  For more on this topic, see MOORLACH UPDATE — Western States Jewish History — May 25, 2012.  Some historical updates are in order.  My preceding commentary took on Fred Martin (see MOORLACH UPDATE — Daily Pilot — September 5, 2012).  Thomas Starr King was removed from the Statuary Hall in 2009 in favor of Ronald Reagan.  However, Mount Starr King still retains his name and is an impressive granite dome visible from Half Dome in Yosemite National Park.  Gov. Wilson vetoed a civil rights bill, sponsored by Assembly Speaker Willie Brown, that promised “new job and housing protection to homosexuals, the disabled and people who do not speak English,” three days before the publication of the submission.  The Los Angeles uprising resulted from the acquittal of four police officers accused in the videotaped beating of motorist Rodney King on April 29, 1992.

                If there is anything to be learned from the political debates of our time it is that “labeling” is the favorite tool of the liberals.  My last commentary scratched the surface on the name-calling approach.

                But it always seems that the liberals can do it and the conservatives cannot.

                The recent Herschensohn/Boxer brouhaha on the steps of Newport Beach City Hall is an example.  Ask anyone who was there and they will tell you it was a non-story.  Yet, I digress.

The recent barrage of “labels” includes the “religious right” and “fanatical right.”  Are those who have a faith in God not permitted to participate in the Republican Party?  The press made a scheduled prayer breakfast featuring Pat Boone at the California Republican Party’s Convention this past weekend sound like regrettable news.  But it’s really a great example of inclusion.

Let’s not betray an ignorance of history.  Religious individuals, particularly those of the Protestant, Roman Catholic, and Jewish faiths, have had incredible impact on the shaping of this state’s history.  Early Jewish pioneers brought their families to the mining camps which generated a calming influence on those communities.  Their feeling for history, continuity of tradition, and strong family ties had a civilizing effect.

These Jewish pioneers were law-abiding, respectable citizens and sought political offices.  Many were referred to as “tsadikim” or righteous men and women.  The first City Council of Los Angeles, elected in 1850, included Morris L. Goodman, a Jewish co-religionist, who later encouraged the formation of a committee that led to the formation of Orange County in 1889.

The State of California is represented by two men in the Statuary Hall in Washington, D.C.  One being a Roman Catholic Father most often associated with the founding of the California missions, Junipero Serra.  The other a young San Francisco Unitarian minister, Thomas Starr King, who championed the Union’s cause during the Civil War (a compelling political cause) and the preservation of Yosemite Valley (granted to the state by President Lincoln for preservation) – “a man to match our mountains.”

Let me share a recent historical example.  Prior to 1921 the City of San Francisco had an elected Superintendent of Schools, inevitably an Irish-Catholic, who was virtually unaccountable to a weak four-member Board of Education.  The scenario:

1)      Catholics had controlled the school board, the superintendency, and the public school bureaucracy (as well as all the other departments of the city’s government) since before the turn of the century.

2)      The Irish Catholic political leaders and city administrators were sending their children to Catholic parochial schools.

3)      There was a fear that the Roman Catholic Archbishop (considered to be a de facto member of the mayor’s cabinet) might influence what the students would be taught and who would be teaching them, thus threatening the religious freedom of non-Catholic school children.

Consequently, to counter this hegemony over policy and administration the school system was reorganized in 1921 to include seven members to be appointed by the Mayor.  For the next 50 years, until 1972, the traditional religiously balanced composition of the Board included three Protestants, two Catholics, two Jews, and one representative of labor.  When a Catholic resigned, a Catholic was appointed by the Mayor as the replacement.

Twenty years later, are the “religious” trying to take over?  No.  They are just trying to maintain and, in many cases, regain lost territory (or balance).  This is no cause for alarm.  The real news is that the anti-religious have been trying to take over.

Those in our community of religious faiths make it their ambition to lead quiet lives by attending to their own business and work, trying to behave properly and not to be in any need.  They are subject to the laws of our land, obedient to them and to those who make and uphold them.

They are enjoying their families.  They stand ready to pitch in for a good deed, malign no one, are uncontentious, gentle, and show consideration for all men.  They constantly pray for our country and its elected officials and their staffs (not just in times of crisis like the Gulf War).

Those of the “religious right” diligently pay their taxes and are charitably inclined.  They chose where their contributions go.  They are disturbed where their tax dollars go.

They are part of the middle-class that is just as frustrated with Federal, state and local government spending and social policies as their non-believing neighbors are.  They participate in the system, which everyone is encouraged to do.  Many register, become loyal party members, research the candidates and ballot measures, and vote.

When some of them protest, it is peaceful and compliant.  Those who are fanatical prayerfully sit in front of an abortion clinic, causing no property damage, to reduce the over 4,000 babies being aborted per day.  Contrast that to the homosexual community that destroyed over $2.5 million of state property because of one veto from the Governor.

Or to the malicious murder by thugs of some 56 innocent citizens plus uncountable financial ruin to a significant portion of Los Angeles because of one jury’s verdict of innocence.

Now, as in the past, the religious community has felt a responsibility toward civic involvement.  Their involvement is motivated by compassion and love for their fellow man.  Let’s hope that they continue to be a calming influence on our community and country.

They should be included in the debates of our times.  Their viewpoints should not be persecuted or vilified out of hand.  The “labels” and attacks from the left will only fan the flames of the “cultural war.”  A war where ideas, values, and morals will clash – a war that is worth fighting to ensure a healthy environment for future generations.

“Give us ‘tsadikim’ to match our mountains.”


The lead column in the Sunday OC Register’s Commentary section was by Steven Greenhut and it was titled “Election 2002:  The State Controller’s Race – The controller’s bully pulpit.”  Ten years later, not much has changed as it relates to Sacramento.  I provided a quote that was used as the closer, and the last paragraph was a prescient as you can get.

Californians apparently have a death wish, at least when it comes to taxes and economic growth. They've handed iron-clad control of the state government to the Democrats, who believe money grows on trees, that businesses are evil and need to be punished, and that anything in a taxpayer's pocket can be better spent on a government program.

Under the "leadership" of Gray Davis and the Democratic-controlled Legislature, the state has increased its general fund budget an astounding $18 billion - from $58 billion to $76 billion over the past four years. The number of state employees has grown by 40,000 under Davis' governorship. New regulations placed on private enterprise seem designed to send as many businesses as possible to Nevada.

The latest budget is pure smoke and mirrors. It borrows from the long-term tobacco settlement to stop the flow of this year's red ink, and the economic projections it is based upon are a flight of fancy. Once the Nov. 5 election is past, residents better prepare themselves for bone-crushing increases in income taxes, sales taxes and possibly even the imposition of a 3 percent tax on home transfers.

There's no check on this insanity now that Gov. Gray Davis has abandoned his so-called "middle road" for the freeway that veers sharply to the left.

There's no chance that Republicans can take back either chamber in the Legislature, especially after the redistricting fiasco that has locked the current partisan breakdown in place for the next decade. GOP gubernatorial candidate Bill Simon would be a big improvement over the incumbent, but Simon is only now showing any signs of being able to run a good campaign.

Despite the gloomy scenario, there is another statewide office besides governor that could serve as a check on runaway government, provided voters remember the importance of it in the election.

The office is controller, which is the chief financial officer of the state of California. "It is the mission of the State Controller's Office to strengthen California's financial condition by being the leader in economic policy development; providing financial management services to state and local government; and being the independent protector of taxpayer dollars," according to the office's mission statement.

Basically, the controller signs the checks, sits on various boards that determine tax policy, and has audit power and the bully pulpit to push for sound fiscal policy.

Current controller Kathleen Connell has been fairly effective in her watchdog role, even though she is a Democrat. Unlike, say, Attorney General Bill Lockyer, who has acted like Davis' consigliere, protecting him by scuttling investigations of his corrupt pay-for-play fund-raising practices, Connell has willingly butted heads with Davis, a man she - and most Californians - rightfully dislikes.

During the electricity crisis, Connell kept pointing out truths that Davis wanted the state to forget - i.e., that Davis' panic to sign long-term contracts has put California ratepayers on the hook for billions of dollars, unnecessarily.

Not everyone was happy with Connell's abrasive management style. Others question some of her investment decisions and wonder why she was AWOL on key issues, such as the "3 percent at 50" retirement boondoggle Davis signed as a political payback for police and firefighters. But at least Connell understood that the controller holds real power and needn't serve as an apologist for the governor.

Connell, who was first elected in 1994, is term-limited out this year. The two candidates vying to replace her are Democrat Steve Westly, a dot-com millionaire (who earned millions with a fortuitous sale of eBay stock) with little political experience but an enormous amount of money to spend on the race, and Republican Tom McClintock, a feisty state senator from Thousand Oaks. McClintock has limited cash, but is running ahead in recent polls.

The ideological differences between the two are more stark than the differences in the size of their bank accounts. McClintock is known as one of the Legislature's most ardent foes of government waste, a man whose career has been spent fighting for lower taxes, less government, more accountability by state officials.

By contrast, Westly is - how can I say this charitably? - a political neophyte with an unhealthy trust in big government. He sees the controller's office as a means to promote policies that will lead to higher taxes, more government spending and pet liberal causes that have little to do with the office. Rather than keep a watchful eye on Gov. Davis and the liberals who run state government, Westly would be part of the gang looting the state.

Based on his stated positions, Westly wants to promote smart growth and regional planning, oppose offshore drilling and promote alternative energy development. He wants to use CalPERS and CalSTRS retirement funds to push for corporate reforms and social investing. He wants to expand subsidies to build low-income housing and pass housing bonds that will lead to new taxes. He wants to raise teacher salaries and lower the cost of school lunches. He wants to promote better access to abortions, provide prenatal care to immigrants, promote affirmative action and day care for working moms.

Most outrageously, Westly announced that as controller he would withhold funds to any hospital that refuses to perform abortions. As McClintock points out, that's a breach of the California Constitution. A controller has no legal right to refuse funds approved by the Legislature and signed into law by the governor.

When I asked Westly about that issue last week, he point-blank denied taking that position. But then I turned to Westly's Web site, which said: "Steve has defended a women's right to choose for 20 years as a democratic activist and has pledged that as Controller he will deny state funding for health facilities that do not provide full reproductive health services."

Westly is taking positions that "are utterly irrelevant to the duties of controller," McClintock told me.

The controller is about looking after the books and keeping an eye on wasteful spending, not about implementing legislative reforms and spending programs that come right out of the AFL-CIO and National Organization for Women playbooks.

Westly's liberal activist emphasis seems silly until one realizes the serious mischief it could cause. For instance, Westly Web site argues that, "As a board member of CalPERS and CalSTRS, the controller can help steer billions of dollars of investment funds to environmentally sound and sustainable businesses."

The last time I talked to Connell, she had called to express her dismay with state officials who want to use investments in this way. This is a dangerous trend that will sacrifice real people's retirement incomes in the name of political correctness.

What about McClintock?

Even his political foes admit that he is the real deal, a true tax fighter and waste-buster who would stand up to Gov. Davis. In particular, McClintock would use the controller's audit power to investigate government agencies, pinpoint wasteful spending and unnecessary bureaucracy, then push for legislative fixes to the problem.

McClintock says his role as controller could find enough savings that the state wouldn't have to pass the massive tax increases that Democrats have up their sleeves.

McClintock would start a waste commission that would conduct an office-by-office review of every state function, and elaborate a blueprint for cutting spending. "I would propose the broadest range of fiscal reforms ever proposed to the Legislature," he said.

The current three-week-old budget, he added, already is $10 billion more in the red according to the most conservative estimates. He would keep the heat on the government, rather than do what Westly has promised, which is to be part of the Davis team.

"People realize we can't have one party completely in control," said Orange County Treasurer John Moorlach. "The place looks like hell financially. It's a national embarrassment. We've got to have checks and balances. We need someone who can go in and fix it. We don't need some ideological left-winger. We need someone in the governor's face. I see McClintock doing that."

Even liberals, who prefer Westly's political philosophy to McClintock's, ought to realize that without at least one government watchdog to keep an eye on things, that California's welfare state will eventually collapse under the weight of excessive spending, waste and corruption.


David Haldane of the LA Times provided the joys of bargaining unit negotiations inO.C. deputies accuse county of ‘bad-faith bargaining’ – Both sides say they’re far apart in negotiating a new contract. Pensions continue to be a point of bitter disagreement.”  At the time, the Board of Supervisors had already concluded successful negotiations with a half-dozen bargaining units and had also participated in two bargaining unit negotiations at OCTA.  The Association of Orange County Deputy Sheriffs (AOCDS) had been stalling and then provided the Board with a surprise law suit.  We are in the initial stages of the current rounds of negotiations with AOCDS.  Let’s hope for a prompter and more congenial resolution this time.

Orange County sheriff’s deputies have filed a lawsuit accusing the county of "bad-faith bargaining" in contract negotiations that have been stalled nearly a year, officials said Friday.

The lawsuit, filed Wednesday in Superior Court by the Assn. of Orange County Deputy Sheriffs, alleges that the county’s Board of Supervisors is guilty of "withdrawing its original wage offer and replacing it with one that is significantly worse . . . reneging on an agreement regarding the cost of retiree medical costs . . . insisting on contract demands that will foreseeably make agreement . . . impossible, and failing to vest its negotiator with authority to reach agreement."

"We’ve been at an impasse for a while and have reached a level of frustration with no end in sight," said Mark Nichols, general manager of the 1,800-member deputies union.

"We’re just not going to have an equitable resolution, so we’re asking the courts to have the county comply with bargaining in good faith."

Board Chairman Chris Norby said he was surprised by the lawsuit. "I think it’s grandstanding on their part," he said.

"They say that we’ve taken certain things off the table, but what we offered them they rejected in the first place.

"It’s a curious lawsuit; the courts aren’t going to resolve this; we have to resolve it by sitting down."

Though neither side would provide details, both said they were far from agreement on a variety of issues including wages, retiree health care and auditing a medical trust fund that the union controls.

The deputies, who’ve been working without a contract since last October, currently earn a starting wage of $70,000 to $75,000 a year, county Chief Executive Tom Mauk said.

"We’re trying to work it out with the deputies and they’re trying to work it out with us," he said.

"We’ve made progress, but we’re not close to a conclusion at all; there’s a long way to go."

The lawsuit comes during a bitter dispute over pension benefits.

In July, Supervisor John Moorlach unveiled a proposal to shrink what he said was an overly generous retirement plan for deputies and other law enforcement investigators.

The supervisors subsequently voted to consider suing to invalidate portions of a 2001 agreement with the deputies that retroactively increased their retirement pay at age 50.

Earlier this month, a legal opinion solicited by the board cast doubt on whether the county could prevail in whittling down those pensions.

But supervisors nonetheless hired a law firm to represent them in the effort.

And union officials have said they would respond with a legal challenge of their own.

The lawsuit filed this week, according to both sides, will not resolve that dispute.

"It expresses the concern of the deputies," Mauk said, "but I think both parties still want to reach an agreement. We have an impasse and we have some problems, but I think the board wants it solved and the deputies want it solved."

After all, he said, "They’re our employees."

October 1


Hector Castro of the OC Register followed up on the feeding topic with “Costa Mesa businessman says pigeon problem is for the birds” (see MOORLACH UPDATE — Board Meetings — September 25, 2012).

                John Moorlach’s office on El Camino Drive is easy to spot.  Just look for the flock of pigeons that has it staked out.

            For the past three weeks, pigeons of all shades of gray have wrapped their toes along the telephone wires in front of Moorlach’s office, making their mark on the sidewalk below.

            “The sidewalks are brutal,” Moorlach said.  “You would not want to walk on this side of the street.”

            There are at least 30 and as many as 100 birds there, Moorlach said.

            His secretary, Connie Askew, said she has contacted numerous agencies, from the city Police Department to the state Department of Agriculture.  But most of the methods for getting the birds to leave involved killing some of them.

            “I don’t want the birds to die,” Askew said.  “I just want them to go away.”

            The pigeons have adopted this particular corner of El Camino Drive and Mendoza Drive because they are being fed, neighbors said.

            Kristine Winnen said she saw a woman drive by and deliver a pile of birdseed in the middle of the street for the pigeons.

            “There were tons (of pigeons),” Winnen said.  “They just covered the street.”

City Manager Allan Roeder said the situation is not unusual and that pigeons have congregated in city neighborhoods before.  In the past, he said, city workers have applied a chemical to the telephone wires or tree branches the birds are perched upon that causes some minor burning sensations and persuades the birds to move on.  The city plans to apply the chemical in the El Camino area by the end of this week.

After the pigeons leave, Roeder said, the city will clean the sidewalk.

Sgt. Marie Hulett-Curtner of the Orange County Animal Control department said most pigeons can be frightened away with a plastic replica of a large owl.

“They’re so real looking, the pigeons don’t realize they’re just figurines and they stay away,” she said.


The Orange County Business Jour