MOORLACH UPDATE — Credit Ratings — October 12, 2012

This week Moody’s Investors Service released a rating action concerning 32 California cities (see http://www.moodys.com/research/Moodys-reviews-ratings-of-32-California-cities-nine-pension-bonds–PR_257248).  Two of the cities are located in Orange County.  Consequently, my State of the County data was referred to.  I was also able to provide the metric for a few of the cities mentioned (but now I have a few more cities to add to my “per capita unrestricted net assets for governmental activities” analysis).  Today’s lead editorial in the OC Register covers the announcement and the Register editorial board’s recommendations in the first piece below.  I was with the Executive Board of the California State Association of Counties for the last day and a half, which included a Supervisor from the county of Fresno.  The editorial was a point of discussion over breakfast.

I know that I will make an occasional typo in my UPDATES.  But, today’s Seal Beach Sun has a fun one, and an easy one, in its title for the second piece below.  Is it “loses” or “looses?”  “Loose” is to provide a little slack.  “Lose” is what the Oakland As did last evening (sorry about that).  It is not fun to be on the opposite side of an issue with the Howard Jarvis Taxpayers Association, but the Appellate Court ruled in favor of the city of Huntington Beach and the decision has been published, giving guidance to the rest of the state on this matter.   

The OC Register covers the newest carrier at John Wayne Airport in its Business section.  The press conference was held in the check-in area and it was buzzing.  Interjet is similar to a Jet Blue, with comfortable seats and leg room, plus many more amenities.  Orange County will be its only U.S. destination west of San Antonio.  As a Mexican airline, Orange County residents can make direct, nonstop flights to two of Mexico’s most populated cities and the County can enjoy guests that will take advantage of our tourism and business opportunities.  This topic is addressed in the third piece, along with a press release provided by the Orange County Breeze in the final piece.

BONUS:  The 2013 issue of Orange Countiana will be released at the November meeting of the Orange County Historical Society (see http://www.orangecountyhistory.org/publications-countiana.html).  This annual “Author’s Night” will provide members and guests an opportunity to meet the authors of the book’s various chapters and get a few autographs.  Why do I bring this up?  I’m the author of one of the chapters.  More on this at a later date.  In the meantime, mark your calendars.  The meeting will be held on Thursday, November 8th, at 7:30p.m., at Trinity Episcopal Church, 2400 N. Canal St., in Orange.

 

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Editorial: Moody’s warning to California cities

Huntington Beach, Santa Ana among 30 cities facing possible credit downgrades.

Moody’s Investors Service just announced it was looking at downgrading the bond credit rating of 30 California cities. Downgrades could mean higher borrowing costs. Also, Moody’s said two cities are being considered for upgrades: Los Angeles and San Francisco.

Two candidates for downgrading are in Orange County. For Huntington Beach, Moody’s is looking at $12.4 million in "Judgment Obligation" bonds from 2004. The bonds stem from losing a legal case over a property tax refund. According to Moody’s, what’s under review is the bonds’ "Aa3" rating, the firm’s fourth-highest. Aaa is the best. Aa3 still means: "Rated as high quality and very low credit risk."

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Moody’s interest in Santa Ana is $12.5 million in bonds for the "Certificates of Participation City Hall Project…. Baa1 Rating under review for downgrade." The Baa1 rating is considered "Rated as medium-grade, with some speculative elements and moderate credit risk." It’s three levels above junk-bond status.

The City Hall expansion was approved in 1998 during the dot-com boom, when so many other state and local spending errors were made, such as making public employee pensions much more generous. This is why we repeatedly have cautioned against borrowing at all levels of government. Eventually, the money has to be paid back, with interest.

As Orange County Supervisor John Moorlach, an accountant by trade, has advised us in the past, one way to look at municipal finances is the level of "per-capita unrestricted net assets." These are the obligations – or, sometimes, surpluses – that each resident bears because of the city’s finances.

For example, Stockton, which declared bankruptcy earlier this year, tallies a minus $478. (Each resident, including children, is in debt $478 to the city). Another Central California town, Atwater, which declared a fiscal emergency Oct. 3, scores minus $473.

The good news is that Huntington Beach scores a positive 173 and Santa Ana a positive 47. So they’re not in negative territory and are unlikely to be at risk of bankruptcy.

Some other cities aren’t doing so well. Of those on the Moody’s downgrade list of 30 cities, Azusa is minus 124, and Fresno is a minus 530. Fresno’s payments on its employee pension obligations have been so severe that in June voters passed a major reform measure.

Of the 30 cities facing possible downgrades, Moody’s warned of "economic weakening, revenues failing to keep pace with expenditure growth and declines in fund balance." Given the generally modest economic recovery in California and the United States, in general, that doesn’t seem likely to change.

These cities share some challenges, Assemblyman Chris Norby, R-Fullerton, told us. "Pensions are one issue," he said. "The other is that many cities overextend themselves with redevelopment agencies. They dipped into that money. When the RDAs were eliminated last year, now the cities have to make up for it." He added that many cities are finding they can cut costs through "economies of scale." He pointed to Santa Ana recently contracting out fire protection to the Orange County Fire Authority.

Although our two Orange County cities on the Moody’s list aren’t close to bankruptcy, this should serve as a warning to all 34 O.C. cities and for the county government. Pension reform and privatization are essential. And no more bonds, please.

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Sunset looses court case  By Dennis Kaiser

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Supervisor John Moorlach

The long battle waged by Sunset Beach residents to remain independent of Huntington Beach is apparently officially over.

On Friday, Oct. 5, an appellate court rejected an appeal by the Citizens Association of Sunset Beach, against the unincorporated Orange County “island’s” oceanfront neighborhood’s annexation by Huntington Beach.

“The issue of taxation without a vote was a legitimate legal question,” said Sunset Beach Community Association President Mike Van Voorhis. “Now that it has been decided, it’s time to move forward. Huntington Beach has treated Sunset Beach very fairly and I believe that our future looks very good.”

Supervisor John Moorlach, a member of the Orange County Local Agency Formation Commission, said he was pleased with the court ruling. He said that the case would help the other 57 county LAFCOs in the state with their annexation cases.

Holdouts opposed to Sunset Beach’s annexation said they feared the mega city of Huntington Beach would not best represent the concerns of the small beach community. Others said they were worried that Sunset Beach, which has existed for more than 100 years, would lose its unique identity and it autonomy in keeping its culture alive.

At issue in the appeal was the grass roots association’s position that Sunset Beach residents should not be forced to pay the same taxes as the rest of Huntington Beach.

The Sunset Beach group, which had held out against annexation after others in Sunset Beach had come to consider the annexation a fait accompli, filed their lawsuit in December 2010. They said the city and county should negate the annexation or hold it until Sunset residents could vote on an added utility tax and retirement property tax.

Orange County Superior Court Judge Frederick P. Horn ruled against the lawsuit in August, and Sunset has since been an official part of Huntington Beach.

With the Howard Jarvis Taxpayers Association’s backing, they appealed Horn’s decision. They argued that Proposition 218, which grants residents the right to vote on new taxes, meant that Sunset residents should be able to vote on whether they would pay the same taxes as other Huntington residents.

The ruling, denying the Sunset Beach was signed by three judges from the 4th District Court of Appeal.

Despite the apparent “nail in the coffin” of the issue, Citizens Association of Sunset Beach President Jack Markovitz has said that, although disappointed by the court’s ruling, but that the group is still looking into what possible option they might employ to continue their struggle.

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Mexico airline Interjet begins O.C. service

Mexico’s second largest airline started daily flights Thursday to Mexico City and Guadalajara.

By MARY ANN MILBOURN

John Wayne Airport, which had no service to Mexico just five months ago, saw a second airline enter the market Thursday when Interjet launched its inaugural daily flights to Mexico City and Guadalajara.

Interjet is Mexico’s second largest airline, but is a relative unknown in Southern California because the company’s U.S. service previously was limited to Miami, New York and San Antonio.

The two daily Orange County flights mark Interjet’s debut on the West Coast and puts the airline head-to-head with Air Tran Airlines, the Southwest Airlines subsidiary that initiated service from John Wayne to Mexico City in June. Air Tran also has a daily flight to Cabo San Lucas.

Jose Luis Garza, Interjet’s chief executive, predicted his airline’s low fares and good service – the slogan is "We give you more for less" – will win over customers not yet familiar with the carrier.

Based on a projected 80 percent load factor, he expects close to 90,000 passengers to fly to each of Interjet’s Mexico destinations in its first year at John Wayne.

"It will bring prosperity to both countries," he said, during an airport news conference.

Garza acknowledged that Orange County might seem an unlikely choice for a Mexican airline to establish its first West Coast service.

"When we decided to come to this region, the Southern California area, we had several choices," he said. "But Steve Hannahs, the CEO of (jet leasing firm) Aviation Capital Group in Newport Beach, said, ‘Why not come to John Wayne?’"

The airport’s central location in Southern California, the facilities and the county’s quick action on Interjet’s application for service – approved in 45 days – made it an easy choice, he said.

County Supervisor John Moorlach used Thursday’s event to do a little boasting about John Wayne’s convenience.

He pointed to the lines at the ticket counter three hours before the Guadalajara flight’s departure time, noting "they must be used to the LAX experience."

Most of the passengers got through check-in in about 20 minutes followed by about 10 minutes going through security.

Arriving passengers cleared John Wayne’s new customs service in about 20 minutes, but that also included a little first-day welcome hoopla. Mickey Mouse and a Disneyland ambassador greeted arriving passengers from Mexico City and each passenger received souvenir Mickey Mouse ears.

Many of the first-day passengers said they booked Interjet because of its promotional fares – $289 round trip to Mexico City and $299 to Guadalajara through November.

"It was my first time, but when I bought my flight here, they offered a good price," said Gerardo Ramirez of Santa Ana, who arrived on the first flight from Mexico City. "And it’s kind of good for me because I don’t have to drive and LAX is too crowded."

He said he would fly Interjet again, depending on the fares.

Others liked Interjet’s generous baggage policy – two bags up to 55 pounds each for free. That’s what sold Bernice Arteaga of Baldwin Park.

"My travel agent told me they were free," she said.

Sara Nia, who used to drive to Tijuana to fly Interjet, was just happy to have a flight minutes from her Irvine home.

"Now my husband doesn’t have to drive for two hours to take me to the airport," she said.

Contact the writer: 714-796-3646 or mmilbourn@ocregister.com

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Today Interjet starts daily service to Mexico from JWA

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The following information was released by John Wayne Airport (JWA).

Today Interjet inaugurates daily service to Mexico from John Wayne Airport in Orange County. The flights – to Mexico City and Guadalajara – represent the company’s fourth U.S. gateway as Mexico’s second largest air carrier continues to make a strong impact in the popular U.S.-Mexico travel market. Interjet already flies from Miami, New York and San Antonio to Mexico City.

Special introductory fares of $289 to Mexico City and $299 to Guadalajara including taxes are valid until the end of November, subject to availability.

“Interjet is very pleased to commence service from Orange County to two Mexican gateways – Mexico City and Guadalajara – which are popular destinations for Southern California business and leisure travelers. In addition, Interjet’s Orange County flights to Mexico City provide the most convenient same-day connections to over 23 Mexican gateways served by Interjet which will make travel to Mexico even easier. We look forward to providing our Southern California friends with the quality service and appealing amenities that travelers from other parts of the U.S. already enjoy,” said Jose Luis Garza, Interjet’s CEO. In addition to its U.S. gateways, Interjet’s international route structure currently includes Guatemala, Cuba, and San José, Costa Rica.

“The OC tourism industry is absolutely thrilled with the new service by Interjet to two cities in Mexico. As John Wayne Airport, Orange County continues to expand its air service to new international markets; Mexico is a natural and critical market for the region’s success,” said Gary Sherwin, Chairman of the Orange County Visitor’s Association. “We welcome Interjet to the OC family and look forward to extending our famous OC lifestyle brand to all of its passengers and providing them with an exceptional experience.”

Passengers arriving on the first two flights into Orange County today were greeted by Airport employees and representatives from the Orange County tourism industry. Each passenger received goodie bags filled with items representing sites to see and places to visit in Orange County as well as Disney Ears and a one-day pass to Disneyland Resort parks. All items were donated by Anaheim/Orange County Visitor and Convention Bureau, Destination Irvine, Disneyland Resort, Knott’s Berry Farm, Laguna Beach Conference & Visitor Bureau, Legoland & SEALife Aquarium, Medieval Times, Mission San Juan Capistrano, OC Parks, Orange County Great Park, Orange County Visitor’s Association, San Diego Zoo, Sea World Parks, South Coast Plaza, The Outlets of Orange and Visit Buena Park.

The new Orange County to Mexico City service departs from John Wayne Airport at 10:30 am Monday through Friday, arriving at the Benito Juarez International Airport at 4:05 pm. On Saturday and Sunday, flights from Orange County depart at 3:15 pm, arriving in Mexico City at 8:50 pm. Flights leave Mexico City at 7:45 am, arriving in Orange County at 9:30 am Monday through Friday, and at 12:30 pm arriving in Orange County at 2:15 pm on Saturday and Sunday. Daily service to Guadalajara’s Miguel Hidalgo y Costilla International Airport departs John Wayne Airport at 1:35 pm, arriving at 6:45 pm; flights from Guadalajara depart at 11:15 am and arrive at 12:35 pm.

“We are honored that Interjet has chosen John Wayne Airport as its first destination on the West Coast,” stated Alan L. Murphy, Airport Director, John Wayne Airport. “Orange County’s strong tourism and business sectors – along with our terrific international arrival facilities – make John Wayne Airport a great choice for convenient, nonstop service from Mexico.”

Interjet earned its reputation as one of Mexico’s most successful airlines based on numerous passenger-pleasing flight and service features. Interjet is known for its high quality service at competitively affordable prices as well as its excellent safety record. With 35 new A320 aircraft, the airline has put the customer first with such decisions as removing 30 seats to create maximum comfort for 150 guests as well as serving complimentary snacks and premium beverages during flights between Mexico and Orange County. Interjet also offers transferable tickets, an appealing frequent flier loyalty program, in-flight entertainment program, an unrestricted 20 percent discount year-round for seniors, a unique take-off/landing camera and women-only toilets on all airplanes. In contrast with other carriers, there is no extra charge for passengers to select seats or check up to two 55-pound bags per ticket. Interjet does not overbook its flights and has no hidden fees in the ticket purchase prices; the price offered by the airline is what the customer pays, including all taxes.

Reservations can be made online at www.interjet.com or through your travel agent.

Featured photo

Pictured left to right: Alan L. Murphy, Airport Director, John Wayne Airport; Jose Luis Garza, CEO, Interjet; Alejandra Garcia Williams, Consul General to Mexico in Santa Ana; John M. W. Moorlach, Chairman, Orange County Board of Supervisors.

Photo courtesy of John Wayne Airport.

FIVE-YEAR LOOK BACKS

2007

October 11

Alicia Robinson’s weekly “The Political Landscape” column was titled “Treasurer may face censure — County to consider nixing Chriss Street’s investment powers in ongoing investigation of questioned papers.”  This Daily Pilot feature was co-written with Michael Alexander.

When supervisors meet Tuesday, they’ll consider a list of tighter controls for the treasurer’s office, from daily reports to ensure investments jibe with county policies, to putting the investment portfolio and treasurer’s 14 employees under control of the county’s chief financial officer.

Street is reportedly under investigation by county and federal prosecutors and other agencies for several issues, and he’s the subject of a lawsuit alleging he mismanaged a corporate bankruptcy trust. County Supervisor John Moorlach, a former supporter who helped Street get elected in 2006, asked the treasurer to resign because of the investigations, but Street refused and has denied wrongdoing.

Two county architectural employees are on leave during a county investigation into an allegedly falsified document, signed by Street, that describes bids to renovate the outside of the treasurer’s building, and now officials are questioning how Street divided up more than $300,000 in contracts to redo the treasurer’s offices.

State law requires public agencies to put contracts worth more than $5,000 through a bidding process to ensure the best value.

“It was all divided in these tiny little contracts that just do not make sense,” said Mario Mainero, Moorlach’s chief of staff. “Suddenly we’ve got 42 of these things that are under $5,000.”

Officials have said the county investment pool is not in danger. If supervisors vote to strip Street of his control over investments, the measure would become effective Nov. 26.

October 12

Larry Welborn and Peggy Lowe of the OC Register provided a story on “Labor dispute bogs down courts – Deputy sheriffs delay work for legal proceedings ahead of going one full year without a contract.”  The drama mirrors the techniques that public employee unions are encouraged to take by a certain legal firm that has been in the news of late.  Here are the first and last two paragraphs:

                An Orange County judge sent a jury in a murder case home when the defendant was not taken to the courthouse from the jail Thursday morning because of a work slowdown by deputy sheriffs.

                Union members are also angry about a move by Supervisor John Moorlach, supported by Supervisor Chris Norby, to cut their pensions.  The board has hired a law firm to prepare a lawsuit against the union in hopes of cutting a retroactive pension boost members received in 2001.

                “This is just the byproduct of the frustration that the members and employees have with the county’s employee-employer relations,” said Mark Nichols, the union’s general manager.

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