MOORLACH UPDATE — Mulling and Inching — March 25, 2013

There were two defining moments where it became clear that I should research the possibility of running for Governor of the state of California. The Patch provides one of them (thank you, Max), as it provides its update on my “listening tour,” in the first article below. It’s a great piece, but I have one minor clarification. When discussing Rossmoor’s effort to incorporate, I believe I said ““I think after any campaign you’re going to have disappointments and criticisms, but I don’t’ think I’ve been venting any animosities.” However, after the election I no longer felt an obligation to keep Los Alamitos from considering the annexation of the fourth corner. It also looks like the discussion on a supercity is left hanging. Perhaps the paragraph should end: “even if it did not materialize.” Note: I am not campaigning, I am just considering my options (if I were campaigning, you would see a website with a campaign e-mail address).

The Voice of OC provides an update on the Board’s discussion of CalOptima last week in the second article below. The discussion seemed to focus more on the title of the Grand Jury’s report (and whether CalOptima was burning) versus the historical exodus the report addressed and what may have been the impetus for its occurrence.

Moorlach Mulls Run for Governor

The Orange County Supervisor, who represents Los Al, Seal Beach, Rossmoor, Fountain Valley and Newport Beach, said he expects to decide on a gubernatorial bid by April.

· By John Crandall

John Moorlach received his memorable election advice while in the dentist’s chair, the Orange County Supervisor said.

A friend, who also takes care of Moorlach’s teeth, made an off-the-cuff comment in early January: “I think you should be our governor.”

“And he started laughing and then he paused,” Moorlach said, “and he looks at me, looks at me very seriously and says, ‘I’d really like you to be our governor.’”

So Moorlach, who’s represented Orange County’s 2nd District since 2006, decided to consider a bid for the state’s highest office next year. He hopes to have a decision by April. Currently, Moorlach represents Rossmoor, Seal Beach, Los Alamitos, Costa Mesa, Newport Beach, Cypress, Fountain Valley, Garden Grove and Huntington Beach.

Moorlach said he hasn’t made up his mind yet, and he’s seeking input from supporters and critics alike.

“I’m still on my listening tour,” Moorlach said. “I just haven’t come up with a definite answer yet. But I’m having fun.”

Before beginning his term as supervisor, Moorlach also served as the county treasurer-tax collector from 1995 to 2006, and he said the state’s financial woes helped inspire his political aspirations.

“When you see a state you really love and you see that the liabilities on the books are higher than the assets, that would tell you that your state’s sort of in what we would call a bankrupt condition,” Moorlach said. “And so (you ask yourself)’ what can you bring to the equation to help?’”

Moorlach said he has the experience necessary to steer California, especially considering the size of county.

“The county of Orange has a population that’s greater than 20 states, so, for all intents and purposes, we’re already a state," Moorlach said. “We deal with the same issues whether it’s dealing with public safety, health care you name it … (the) same issues as the governor just in different respects.”

Orange County Supervisor John Moorlach swears in John Collins as Mayor of Fountain Valley.CreditKathy Ochiai

Former Fountain Valley mayor and current councilman John Collins said Moorlach would do well as governor.

“He’s a very detailed person, and he has a very good financial understanding and background,” said Collins, who worked as a policy advisor for Moorlach in the county office. “He’s got a sound personality — good moral principles.”

From dealing with state offices as a supervisor, he has a solid understanding of how the state works, Collins added.

Mark Nitikman, former president of the Rossmoor Community Services District, said he has a cordial relationship with Moorlach. However, many people in the 3000-home unincorporated community in northwestern Orange County think Moorlach holds a grudge against Rossmoor because the residents voted against cityhood in 2008.

“I think since the cityhood drive, a lot of people felt he had gone out of his way to be antagonistic to Rossmoor, that the defeat of the incorporation drive was somehow personal against him, which it wasn’t, and that some of us have gotten the feeling that he has had personal animosity or exhibited personal animosity (towards Rossmoor),” Nitikman said.

Moorlach disagrees.

“I think after any campaign you’re going to have disappointments and critics, but I don’t’ think I’ve been venting any animosities.” Moorlach said. “You know, you move on.”

As a Republican candidate for governor in a largely Democratic state, Moorlach said he knows the odds are against him, but he said he’s still considering it. Moorlach said he has a fundamental disagreement with the way Governor Jerry Brown is running the state.

“He believes if you raise taxes, you actually raise revenues, and I’m more about trying to encourage people to be successful and prosperous,” Moorlach said.

He said Brown’s policies make “everything a little more expensive and, therefore, discourage people from starting businesses.”

Moorlach, whose term expires in 2014, said he’s proud of his track record including his role in the creation of the county’s Office of Independent Review, the passage of Measure J and the annexation of unincorporated county areas into cities.

He said one of his disappointments as supervisor was the state Supreme Court decision to deny the county’s lawsuit over retroactive pension increases for the Orange County Sheriff’s Department.

He said he counted his plan to create a supercity out of Los Alamitos Seal beach and Rossmoor as a success, even if

“I see the supercity as an idea that needs to come from the ground up. So, I see it more as a success that, at least, we started dialogue over the years, even if it frustrated some people,” Moorlach said.

Moorlach said he might not even run for office again.

“One of my options is just to retire and take a nice break and then do some consulting — maybe run a nonprofit,” Moorlach said.

Or, he said, he might run for a different state position.

“There are a lot of friends that are saying maybe there are other options to consider: One, being running for state controller. Another may be state board of equalization.”

Moorlach said he hasn’t made up his mind. He said anyone with advice, whether critical or supportive, can send him an email at district2.

“I’m at an interesting juncture,” said Moorlach. “And, as Yogi Berra said, ‘When you get to the fork in the road, take it.’”

Supervisors Inch Toward Response to CalOptima Report


A split county Board of Supervisors is moving forward to craft a response to a scathing grand jury report from earlier this year that criticized the county’s handling of CalOptima, the health insurance plan that covers much of the area’s poor and elderly.

A 3-2 board vote adopted a draft response on March 19 to severe criticism the board received in January from the county grand jury, which issued a report titled “CalOptima Burns While Majority of Supervisors Fiddle.”

Both the CalOptima board and the supervisors are required to respond to the grand jury report by April 25.

Supervisors created a temporary committee of Supervisor Janet Nguyen and Supervisor Todd Spitzer to further analyze grand jury recommendations that more supervisors be added to the 11-member CalOptima board.

Currently, only Nguyen serves on the board, which oversees about $1.5 billion in state and federal tax funds, the largest of any county agency.

“We, as a board, do not accept the criticism that CalOptima is imploding,” said Supervisor Pat Bates, one of a three-member majority that voted to restructure the previous CalOptima board.

Bates said supervisors remade the CalOptima board after prior board members began to leave, although actually it was the other way around. In October, 2011, Nguyen, with the backing of lobbyists from the Hospital Association of Southern California, abruptly proposed a major change to the existing CalOptima board.

Her ordinance was adopted in December with the support of Bates and former Supervisor Bill Campbell. The new ordinance caused several existing members to be ineligible for reappointment and in the months that followed, others, like former vice chairman Jim McAleer, quit.

Among other things, McAleer cited micromanaging by Nguyen as interfering with the work of CalOptima staff. In the months after Nguyen took over CalOptima, at least 16 top or key executives, including the CEO, chief operating officer and chief medical officer quick to work for private industry or other government agencies.

In the past, CalOptima has received high marks for the way it provides MediCal and Medicaid coverage for more than 400,000 county residents.

“Something happened at CalOptima because there was a mass migration,” said Supervisor John Moorlach, who, along with board Chairman Shawn Nelson, voted against Bates’ proposed response to the grand jury.

In its report, the grand jury warned “political turmoil threatens the organization, jeopardizing its membership’s access to quality healthcare and potentially putting the entire entity at risk.”

The grand jury’s term ends in June and it’s not clear what, if anything, will happen as the result of its findings. It’s supposed to issue two more reports concerning CalOptima before disbanding.

Just before the supervisors began to discuss the grand jury report, Bates distributed a four-page proposed response, providing no time for the public to read it in advance.

Open government expert Terry Francke, who advises Voice of OC on public access issues, said such actions are legal because the 60-year-old Brown Act, which requires open meetings, doesn’t ensure transparency under all circumstances.

Bates proposal covered five grand jury findings, saying the supervisors disagreed “wholly” with most of them.

The first finding said a majority of the supervisors “have failed to take an active role in preserving an entity playing a vital role in the healthcare needs of the County’s young, disabled, low income and senior residents.”

That’s not our job, Bates’ response said. “By design, the Health Authority Ordinance (which created CalOptima) provides no authority for the Board of Supervisors as a body to participate in the detailed operation and oversight of CalOptima.”

That response applied to another grand jury finding that supervisors failed to act while key CalOptima executives left for other organizations.

Regarding a finding that “member organizations have expressed fear of retaliation if they do not support certain causes or candidates and the Board of Supervisors majority has not attempted to curtail or dispel these fears,” Bates’ draft response said “the finding lacks specific information required for further analysis.” If the supervisors had specifics, it said, the county “takes seriously its obligation to investigate issues of fraud, intimidation” and other laws.

But, it said, complaints that result in an investigation are reported to the board’s Audit Oversight Committee, which includes two supervisors, so it was unclear how someone could complain about something that potentially involved a supervisor.

“To date there is no record of any complaints or investigations relating to ‘fear of retaliation reported by member organizations,’” according to Bates’ draft response.

The Bates report also “wholly” disagreed with the grand jury that having just one supervisor on the CalOptima board keeps the two county department heads who also are on the board from acting independently. The grand jury reported “county employees are reluctant to vote against a Supervisor.”

In her draft, Bates said it’s common in Orange County and elsewhere to have county employees serve on boards and also have only one supervisor.

In its recommendations, the grand jury urged the supervisors to appoint more than one of its members to the CalOptima board, noting that all five supervisors serve on the financially smaller Orange County Transportation Authority.

After the grand jury report came out, Nelson, Moorlach and Spitzer said they favored adding more supervisors. But in the past, the county has had trouble getting supervisors to serve on the CalOptima board. Spitzer and Nguyen will make a recommendation to the supervisors on the issue.

Adding more supervisors “would minimize potential conflict of interest and reduce any opportunity for CalOptima to be used for political gain or to advance personal agendas,” the grand jury reported.

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March 23


The main article in the California Municipal Finance Journal was titled “A Public Agency Fights an Underwriter: Does The Contract Spell It All Out? A Test of Reliance and ‘Duties of Care’.” The case being litigated was based on an interesting premise: if you have a business relationship with a client and you fail to inform that client that they are doing business with another entity that you know is not conducting its affairs in a legal and/or proper manner, you may be liable for that other business relationship’s results, even though your client publicly endorses that other business relationship as a sound one. This makes sense on the one hand, and is chilling on the other. It may explain why I tend to overemphasize the negatives that taxpayers are facing when I give presentations about the County of Orange. Look at my State of the County addresses. I would prefer to focus my talks on how great the weather is and what an amazing community we have here in our 800 square miles. But, I don’t want someone coming up to me in the future asking “Why didn’t you tell us how large the defined benefit pension plan liability has become?” After the County filed for bankruptcy protection in 1994, Goldman Sachs publicly told everyone that they did not do investment trades with Robert L. Citron because of their concerns about his investment strategies. However, they had worked on six debt offerings for the Orange County Transportation Authority (OCTA) from 1991 to mid-1994, of which the proceeds were deposited into the Orange County Investment Pool. OCTA, being a client of Goldman Sachs then asked, “Then why didn’t you tell us that?” OCTA had $1 billion in Citron’s Orange County Investment Pool and its chief executive officer, Stan Oftelie, was Citron’s most visible proponent in Citron’s re-election campaign flyer. Here are selected paragraphs of an interesting segment of the County’s and OCTA’s history:

. . . The thrust of the complaint is that “Goldman cultivated OCTA’s trust and confidence with lofty promises about the breadth and quality of services OCTA should expect from it; yet Goldman betrayed that trust by withholding information crucial to OCTA’s financial well-being,” the authority’s brief says.

Of course, there is another side to this case, and one might argue that finance professionals have as much reason for alarm as [James] Kenan [, finance director of the OCTA] does. Lawyers for Goldman Sachs respond that the authority now wants to burden the firm with all sorts of responsibilities that never existed contractually. Furthermore, Goldman’s lawyers argue that the authority knew about the information that it now claims was withheld, and is now looking for a scapegoat.

Two years later, the OCTA sued Goldman Sachs. The main thrust of the suit is that Goldman Sachs harbored concerned [sic] about the pool long before the bankruptcy, but allegedly did not bother to tell the authority. In fact, Goldman decided “not to deal with the pool, even on a secured basis,” the authority says in a recent filing. Nevertheless, during that same time, Goldman Sachs worked on OCTA deals in which it knew proceeds were being invested in the pool, the authority alleges.

Goldman Sachs was not hired to provide advice about the investment of bond proceeds, nor was that responsibility included in written agreements, the firm’s lawyers say.

But did Goldman Sachs take on a fiducial role that goes beyond the contracts? That is a point of disagreement.

OCTA is suing because it and Goldman had a relationship on the basis of which California law recognizes a duty of due care. [The] duty of due care which this case is about is not a duty obligating Goldman to provide ‘advice’ (financial or otherwise), but rather a duty obligating Goldman to communicate to OCTA information which was already known to Goldman and was vital to OCTA’s ability to make informed decisions.

It is in this area, however, that Goldman’s lawyers say the authority has an Achilles’ heel. The OCTA knew about the risks, they allege. Among other things, debates about Citron’s strategy appeared in press reports during a 1994 election battle with the current treasurer, John Moorlach. Furthermore, Citron was the authority’s ex officio treasurer, and the OCTA governing board overlapped with members of the Orange County Board of Supervisors. At the very least, Citron’s knowledge should be ascribed to the authority under a theory of imputation, lawyers for Goldman Sachs argue.

One lawyer [interviewed for the article] even joked that Goldman Sachs is being singled out and penalized because it had the sense not to deal with Citron.

For those involved, however, this is not joking matter.

March 24


At the top of Rick Reiff’s “OC Insider” column in the Orange County Business Journal, above the title, were the graphics of the OC’s branding and that of the television show of the same name (TV series that ran from 2003 to 2007). I use the County’s version at the bottom of my UPDATES, and it is the first graphic provided below. A facsimile of the show’s graphic is provided below it, with the observation in the OCBJ in between.

The county supes’ campaign to brand the “OC” name includes a tourism logo (left) that John Moorlach admits is “almost identical” to the one that graced “The O.C.” TV show. So far, he says, “Warner Brothers is not complaining.”

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