MOORLACH UPDATE — VLF Torpedo — May 9, 2013

In my State of the County address last January, I had the following three slides:

A judge has tentatively ruled that the state gets to rob 7.5 percent of the County’s property taxes. It was a torpedo I was hoping would not hit our ship of state. Although the revenue was characterized as Vehicle License Fees, it’s actually property taxes. Consequently, even though the County did not legislatively clarify the definition as dedicated property taxes after its bankruptcy debt refunding (done before any of the current members joined the Board), it is still money owed to the County. The state should not treat one county differently than the other 57 counties. While Judge Moss engaged in legal gymnastics to sanction this shameful act by the State, the State’s actions are no less reprehensible from an ethical perspective. (And all the more egregious as Orange County is already a significant donor county to the state’s finances.) The OC Register covers the story in detail in the first piece below. The Associated Press covers it in the second piece, from CBS Channel 8 in San Diego.

The Laguna Beach Patch covers the latest Grand Jury report in the third piece below, as does the OC Register in the fourth piece.

And the Ventura County Star, which also recently moved behind a paywall, has an article on a potential candidate for Governor and his most recent activities. A very, very brief clip is the fifth piece below.

Judge says county owes state $147 million

Loss of disputed vehicle-license fees could lead to double-digit budget cuts

Orange County Supervisor John Moorlach said Wednesday that a new court ruling could devastate county finances and lead to broad cuts or layoffs.



SANTA ANA – An Orange County judge has ruled against the county in a dispute with the state over $73.5 million in annual revenue that both sides claim, raising the specter of an immediate cash crunch and possible layoffs of county staff.

The amount is more than 11 percent of this year’s $650 million county general fund revenue. County budget officials had previously asked departments to make plans to cut 10 percent of expenses in anticipation of the tentative ruling dated Tuesday by Superior Court Judge Robert Moss. The county could decide to pursue an appeal, but it wasn’t immediately clear whether that would postpone a fiscal reckoning.

With the dispute over the $73.5 million about to enter its third fiscal year, the hit to the county is potentially more than $219 million over those three years, starting in 2011.

"I am just sick, this is so big," said county Supervisor John Moorlach. "We’re talking $219 million. That will wipe us out. We’ve got to sit down and think about a lot of things. It may mean layoffs. It may mean a whole lot of things. Everything is on the table."

The amount the county owes, some of which would have gone to local community colleges, is actually about $147 million, because it withheld the disputed $73.5 million in each of two fiscal years, though the county was also planning to include the disputed amount in its budget for the next fiscal year, which starts in July. It was unclear Wednesday exactly when the payments would have to be made and how much would go to local colleges.

Supervisor Todd Spitzer, who joined the Board of Supervisors this year, said the county has only itself to blame for the decision by his predecessors to withhold $73.5 million in so-called Vehicle License Fee Adjustment Amount funds.

"I’m not shocked at all," Spitzer said. "I anticipated this ruling. When I read the law it was abundantly clear to me to that the county completely screwed up."

The ruling comes as the county is embroiled in contentious labor talks with its employee unions.

"I anticipate an immediate across-the-board cut in every department," Spitzer said.

The dispute centers on a 2004 state law known as SB1096, by which the Legislature sought to reimburse counties for revenue they lost when the vehicle license fee was cut from 2 percent of a vehicle’s value to 0.65 percent.

SB1096 created a formula by which all counties in the state except Orange County calculated how much in property taxes to keep to make up for the lost VLF revenue. This amount was called the VLFAA. Orange County was excepted because it continued to receive VLF revenue backing bonds it sold after its 1994 bankruptcy.

In 2011, the Legislature passed another law, SB89, taking away the VLF money that had flowed only to Orange County. The reasoning was that the county didn’t need the exemption anymore because its bonds had been refinanced in 2005. The Legislature didn’t say the county could keep extra property taxes to make up the difference. However, that’s exactly what Orange County did.

At a hearing in January, the judge said he saw the issue as "one of statutory interpretation." Moss said his task was to "first look to the language of the statute and see if there is any ambiguity. If there is no ambiguity, the analysis stops there."

In his ruling Tuesday, Moss wrote, "The court finds that neither SB1096 nor SB89 are ambiguous." He ordered the county to calculate its VLFAA in compliance with those laws, instead of doing its own math.

"We’re pleased with the court’s ruling because it affirms that the county’s withholding of property tax from schools was illegal," said H.D. Palmer, spokesman for the state’s Department of Finance.

The money the county withheld would have gone into a fund for schools and community colleges. Orange County’s K-12 districts were not directly affected, because the state had to make up for their funding shortfall. However, the coffers of three of the county’s four community college districts stand to get a boost from Tuesday’s ruling.

Coast Community College District should have received $4.6 million of the $73.5 million each year, while North Orange County Community College’s share was $2.8 million and Rancho Santiago Community College District’s was $2 million.

The fourth district, South Orange County Community College, is a basic-aid district and does not receive the same funding.

State Sen. Lou Correa, D-Santa Ana, said he’s had preliminary discussions with Gov. Jerry Brown about "minimizing the shock" to the county’s budget if it were to lose the case. On Wednesday, Correa said he’ll re-engage in those discussions again in earnest to avoid a major disruption to county finances.

County Budget Director Frank Kim said the county has about $245 million in reserves, which could be a buffer against layoffs. "This is not time to panic. We’ll calmly and rationally look at our options," he said.

Register staff writers Tony Saavedra, Jessica Terrell and Brian Joseph contributed to this report.

Contact the writer:

OC may have to pay state millions in tax dispute

Orange County could be forced to make layoffs after a judge ruled against it in a multimillion-dollar dispute with the state.

The Orange County Register ( ) says a tentative ruling issued Tuesday could force the county to turn over $73.5 million in annual revenue – that’s more than 11% of this year’s general funding.

It’s unclear whether the county could prevent the immediate loss even if it appeals.

The case involves a battle over how much property tax the county turns over to the state. It’s been running for several years, meaning the county potentially might have to pay than $219 million.

County Supervisor John Moorlach says that could mean layoffs but Budget Director Frank Kim says there are funding reserves that could act as a buffer.

Information from: The Orange County Register,

‘Culture of Sexual Harassment’ Pervades County, Grand Jury Finds

The grand jury blames a "disturbing pattern" of tolerance for sexual harassment in county departments for last year’s sex assault scandal. County leaders fire back at the grand jury for being "intellectually lazy."

An Orange County grand jury today released a report arguing that there’s been a "culture" of sexual harassment in the workplace that ultimately led to sex charges filed against former county executive and Santa Ana Councilman Carlos Bustamante.

The grand jury "identified a disturbing pattern of sexual harassment claims being overlooked, ignored, poorly investigated, and even suppressed," it said in its report.

"The grand jury found a severe lack of understanding of what constitutes sexual harassment. Also distressing was a strong tolerance for inappropriate behavior, especially when it concerned high-ranking elected officials and executives. As the grand jury listened to the testimonies, it became apparent that this tolerance of inappropriate behavior was culturally inspired."

Orange County Board of Supervisors Chairman Shawn Nelson criticized the report, arguing that officials have undertaken sweeping reforms since Bustamante’s arrest.

"I think the grand jury is completely irresponsible, and in many cases purposefully half-informed," Nelson said.

All the county leaders in charge at the time of the allegations against Bustamante have left the county, Nelson said. Also, county officials have changed the way sexual harassment claims are reported and investigated, he added.

"Those people are all gone," Nelson said. "And you couldn’t make more sweeping changes. As far as leadership from Carlos Bustamante on up are gone. There’s not one person in the food chain from Carlos Bustamante to the CEO who isn’t gone now, and it happened pretty damned quick."

Then-CEO Tom Mauk was forced to resign, and Bustamante’s immediate supervisor was fired, Nelson said. The human resources director faulted for the initial investigation of allegations against Bustamante resigned, Nelson said.

"This particular grand jury is almost purposefully irresponsible, or they’re just intellectually lazy," Nelson said. "They’re more interested in sensationalizing a headline."

Nelson and Supervisor John Moorlach have taken aim at the grand jury for other reports this year. The grand jury also drew the ire of Supervisor Janet Nguyen, who was harshly criticized for her role in a shakeup of the agency that provides health insurance to the county’s needy.

"I think this report has a lot of information, but it seems like it’s not balanced," Moorlach said. "And it doesn’t give the total picture. We have done a lot and we held people accountable all the way to the top, but I agree there were some things we had to deal with and we did."

The grand jury recommended county officials create guidelines related to the handling of employee complaints and how they are investigated. The grand jury also recommended more training on discrimination and harassment.

Also among the recommendations is the installation of a "confidential communication source for employees who want to file complaints relating to discrimination or harassment with anonymity."

Employees should be able to send complaints via mail, phone, fax or email, the grand jury said.

– City News Service

Report critical of county actions in harassment case

Grand jury criticizes handling of Bustamante allegations.


A stodgy, fearful county bureaucracy lurched from error to error upon learning that a public works executive was accused of sexually harassing female employees, a report released Wednesday says.

The Orange County grand jury’s report on the handling of accusations against Carlos Bustamante suggests that protecting the county from embarrassment and legal damages were overriding concerns of Bustamante’s superiors as they became aware of the complaints against him.

Moreover, county elected officials and executive management sought to distance themselves from Bustamante, once a rising star in county government and the county’s Republican Party and a former Santa Ana councilman, rather than own up to their complicity in his rise, the report says.

"During testimony the grand jury was quite surprised by how many highly placed county executives, elected officials and peers of the accused professed to not really know the accused and describe their relationship as professional only, and with no social interaction," the report says. "This was expressed many times even though many of those testifying had long supported this individual’s political and county career. Each witness that testified on their distant relationship with the accused was contradicted by the next."

The report, in keeping with the grand jury’s custom, doesn’t actually name Bustamante or anyone else, although it’s clear he is the "accused" being discussed.

Bustamante was charged last July with 12 felony counts stemming from allegations by employees of O.C. Public Works. The District Attorney’s Office said Bustamante lured women who reported to him into his office, where he groped them and exposed himself.

Bustamante has pleaded not guilty and is awaiting a preliminary hearing in his case. He resigned from his job as director of administrative services for Public Works in October 2011.

The grand jury found a lack of written policies and training at the county on what constitutes sexual harassment and how complaints should be investigated.

The county, in a news release, said it already has taken significant steps to address concerns identified by the grand jury, including recentralizing its human resources staff, which had been distributed among county departments.

"While the grand jury does acknowledge that positive change is occurring, we feel that the significance of the county’s forward progress in this area was downplayed," Shawn Nelson, chairman of the Board of Supervisors, said in a statement.

Supervisor Todd Spitzer, who has been critical of the grand jury recently, said, "They hit the nail on the head" with this latest report. The grand jury accepted feedback on a draft from Human Resources Director Steve Danley, and incorporated some of Danley’s suggestions before issuing its final version, Spitzer said.

Sptizer said such feedback was missing in prior grand jury reports this year, such as one addressing corruption in county government. "I felt like they’ve disregarded the input they’ve gotten," Spitzer said, adding that, "I beat the grand jury up pretty good" for not incorporating his suggestions into its corruption report, in which the grand jury recommended the formation of a county ethics commission.

Supervisor John Moorlach, who also has been critical of the grand jury lately, called the report "thorough" and said "it has a lot of interesting information, but I think it’s not balanced. It’s imbalanced. It doesn’t give the total picture."

On Tuesday, the Board of Supervisors, on Spitzer’s motion, denied a request for $20,000 in additional funding for the grand jury in the current fiscal year.

Abel Maldonado launches anti-crime initiative

Former Lt. Gov. Abel Maldonado on Wednesday said he will champion a ballot initiative that will be targeted for the November 2014 election — the same ballot on which he may be a candidate for governor.

By Timm Herdt

. . . official Neel Kashkari and Orange County Supervisor John Moorlach.


May 9


Jim de Boom’s “Community & Clubs” Daily Pilot column was titled “Rotary Club of Costa Mesa to hear candidates.” Here are the opening paragraphs:

CANDIDATE FORUMS: Candidate forums for county public administrator, sheriff and 2nd District supervisor will be featured this month at the Wednesday luncheon meetings of the Rotary Club of Costa Mesa.

The public is invited. Club President Ed Decker said public-administrator candidates Chris Beard and Bill Baker will speak May 13; sheriff candidates Mike Carona and Paul Walters will speak May 20; and 2nd District candidates Jim Silva, David Sullivan, Sandy Genis and Ralph Silva will speak May 27. Program co-chairs Art Reese and John Moorlach have lined up candidates for a variety of local offices, including the county Board of Education and 5th District supervisor. The Rotary Club of Costa Mesa meets at noon Wednesdays at Mesa Verde Country Club.


Stuart Pfeifer of the LA Times covered the topic of grace in “O.C. Weighs Investment Forgiveness – The treasurer says it’s time to do business again with Merrill Lynch, which played a key role in the county’s 1994 bankruptcy.” Here is the piece in full:

Orange County’s treasurer wants to renew business ties with Merrill Lynch & Co., the Wall Street giant many blamed for the staggering investment losses that drove the county into bankruptcy in 1994.

Treasurer-Tax Collector John M.W. Moorlach’s suggestion comes nine months after the county Board of Supervisors, still stinging from the bankruptcy, voted to prohibit any financial relationship with Merrill Lynch without full board approval.

Former Orange County Treasurer Robert L. Citron was working with Merrill Lynch in the early 1990s when he engaged in a series of leveraged investments that backfired, forcing the county into bankruptcy. In 1998, Merrill Lynch paid $437 million to resolve lawsuits with the county and other investors.

Now, Moorlach said he wants the opportunity to buy investment products from Merrill Lynch — short-term bonds, for example — when they’re priced better than other competing Wall Street firms. The ability to buy products at opportune moments from the investment house could bring in as much as $1 million a year to the county, Moorlach said.

"For us, it’s not emotional. It’s what’s the best [investment] out there," Moorlach said. "I’m a businessperson. I can’t in clear conscience allow a grudge to cost the county money. I don’t care who’s selling it to me; just give me the best deal."

The treasurer has not made a formal proposal, but his idea has the support of two new county supervisors who say that in tough financial times it’s important to put emotion aside and think about what’s best for the county’s financial health.

"If we can do it in a conservative way and earn more money for the county, we ought to do it," Supervisor Bill Campbell said. "One million dollars is quite a bit of money. It could mean additional services in child care. It could mean taking care of some streets in unincorporated areas. It could mean a park ranger opening a park a little earlier in the spring. It’s the extras that can make a difference in the qualities of life."

Supervisor Chris Norby said he has tremendous faith in Moorlach’s investment strategies. Before the county declared bankruptcy, Moorlach ran an unsuccessful campaign against Citron, telling a largely unreceptive audience that Citron’s investment strategies were far too risky. After the fiscal collapse, Citron — who ultimately spent nine months in a work furlough program — quit and supervisors appointed Moorlach to the job.

"The bankruptcy was nearly nine years ago. Certainly, Merrill Lynch does not deserve a death penalty from the county in terms of being permanently prohibited from doing business with the county," Norby said.

Norby said that although Merrill Lynch played a decisive role in the bankruptcy, much of the blame pointed to a treasurer in over his head and supervisors who weren’t paying attention.

Merrill Lynch spokesman Bill Halldin said the firm deserves Orange County’s business.

"We would be open to the opportunity to provide services to the county at the point in time when the county wants to take advantage of the competitive and extensive products we offer," he said.

"I’m here to do a job," Moorlach said, "not carry expensive grudges."


KNBC Channel 4 provided a lengthy piece on another Grand Jury report, titled “OC Receives Failing Restaurant Scores – Studies Show Improvement in LA County With Ratings System.” May and June are the traditional months for releasing Grand Jury reports, just before it’s members one-year term concludes on June 30. This one was on restaurant ratings, which would go on to be a fun topic for the Board to debate. Here it is in full:

Orange County earned a failing grade Thursday in a grand jury report on the method used to advise diners on the sanitation and safety of food and drink in restaurants, according to City News Service.

The report concluded that the procedure for notifying the public of conditions inside restaurants is almost non-existent — even though inspections conducted by members of the Environmental Health Division of the Orange County Health Care Agency are exceptionally thorough, according to grand jury foreman Ann Avery Andres.

Results of the agency’s inspections are posted online, but only a relatively small number of people know that, would take the time to find out or have the ability to find the results, the report states.

The public "is almost universally unaware" that a small placard at the entrance area to each restaurant or food-vending locations states the restaurant is "in substantial compliance with California food safety and sanitation standards" or "a re-inspection has been scheduled."

Even upon seeing the placard, the diner does not know what the level of sanitation is at the restaurant, how many major or minor violations have incurred, or whether it has been found to be in violation of any California health code sections, but is currently operating between re-inspections.

The current system has been in place since 1999 and was adopted by the Board of Supervisors.

William Ford, assistant director of environmental health, said at the time that a letter system as used in Los Angeles and San Diego counties could give the public a false sense of security.

None of the supervisors on the board in 1999 are still in office.

Howard Sutter of the Health Care Agency said he was not at his current position in 1999 and cannot comment on the decisions made then.

"It’s a policy decision for the board," Sutter said.

Orange County has some 12,400 restaurants, supermarkets and markets that sell pre-packaged food. The goal is to conduct three inspections a year of facilities that prepare food on the premises and one of those offering pre-packaged food, Sutter said.

The figure does not include mobile food vendors and wholesalers, he said.

According to the grand jury, studies have found that the A-B-C grade-card inspection used in Los Angeles County for 10 years has significantly reduced food-borne illnesses that cause hospitalization.

"To my knowledge, there hasn’t been similar study done in Orange County," Sutter said.

Sutter said his agency would prepare a response on the report that will go to the county executive officer, which will then go to the board.

Sutter said the grand jury "was very complementary of the thoroughness of the inspections."

In Orange County, restaurants can earn an Award of Excellence, which they can hang on their wall, if they have had no major violation on any routine inspection during the previous calendar year, has an average of no more than six minor violations, has at least one individual who has passed an approved food safety exam and has had a minimum of two inspections within the previous calendar year.

According to the grand jury, the existing Orange County grading system does not adequately motivate restaurants to maintain sanitary health conditions. It cannot impose monetary sanctions against restaurants, and without on-site public notification, market forces cannot come into play to force a cleaner environment or be shut down.

Under the posted grade system, restaurant owners seek to improve or retain high ratings in order to keep patrons, Andres said.

C-grade restaurants have either cleaned up or gone out of business — a win either way for consumers, Andres said.

Sutter said posting the inspections online and keeping a copy at the restaurant gives diners a lot of information, but how many people actually take those steps is unknown.

According to the grand jury, costs to implement the system will be minimal, although the county Environmental Health Division estimated it would cost $150,000 to $300,000 for training, database adjustments and ordinance adoption. The division also estimated ongoing costs of $650,000 to $800,000 a year for a 10-minute increase in inspection time per facility.

The grand jury said the estimated costs are not realistic.

Supervisor Chair John Moorlach said his office, since the issue was raised in the media in February, has been working with staff to overcome hurdles.

"We’ve been moving forward in that regard," Moorlach said. "We’ve done our best to encourage (environmental staff) to consider it and bring something to us for approval."

Most people who have contact his office on the issue are in favor of a grade system, he said.

A battle is raging in the county regarding the best way to ensure the public’s right to know how safe their local restaurants are, if one reviews even a small number of articles posted on the Internet in 2008, the grand jury report states.

"Hopefully the Board of Supervisors has the wisdom and courage to follow the example of Los Angeles County and protect our citizens," the report states.

The Daily Pilot’s Alan Blank provided a John Wayne Airport settlement update in “JWA renovation draws praise, worry – Airport officials say new terminal and parking structures, set to begin construction this summer, will ease burden on passenger traffic; supervisor, local groups opposed to further expansion.” Here it is in full:

New airport construction slated to begin Aug. 1 has many singing its praises and others afraid of its potential to lure more flights over their houses.

A third terminal with six gates and two new parking structures are designed to help John Wayne Airport deal with an increase in passenger traffic over the next few years, but local anti-airport expansion groups say the new infrastructure may attract more airline flights.

“We kind of have the attitude ‘build it and they will come,’ so we’re waiting to see if [the construction] will be an invitation for more traffic,” said Melinda Seely, president of anti-airport expansion group Airfair.

Under the settlement agreement between the airport and the community, John Wayne is only allowed to serve 10.8 million passengers per year until the agreement expires in 2015. Last year, the airport served about 10 million travelers. It could have served more, but the lack of parking and terminals kept that number down, according to airport officials.

“We probably wouldn’t go up to 10.8 million because we like to have some room, but I would definitely imagine that we would at least be up to 10.3 by the end of 2011,” said Jenny Wedge, an airport spokeswoman. “The demand is there, so as soon as we have the facilities to provide for them, we will increase the passenger levels.”

County Supervisor John Moorlach said he is working with as many local groups as he can — including Stop Polluting Our Newport, Airfair and the Airport Working Group — to create a strategy for stopping the airport from drawing more than 10.8 million annual passengers.

“We need to do our best to present a unified front and renew the settlement agreement as it is,” Moorlach said, citing his commitment to finding alternatives to airport expansion such as ground transportation to other regional airports like Ontario and Palmdale.

If Orange County can develop a workable plan for alleviating some of the demand for John Wayne Airport, then it can make a good argument for stopping growth, according to Moorlach. Airlines will pressure the Federal Aviation Administration to expand John Wayne Airport’s flight offerings, but if demand goes down, then expansion will be unnecessary, Moorlach said.

He considers the planned construction important, though.

It’s not an expansion. It’s a remodeling to get the airport up to where it should be,” Moorlach said of the current project. “You can’t park at John Wayne Airport on a Wednesday — the parking lot is full. We have a luggage transfer system that’s overused. It’s at capacity.”

Costa Mesa City Manager Allan Roeder recently assigned Deputy City Manager Don Lamm to oversee airport issues on behalf of the city. City Council members Katrina Foley, Allan Mansoor and Wendy Leece are all part of Airfair, and the remaining members also have a record of being anti-expansion.

Summer travelers planning on flying out of John Wayne may find it difficult to park at the airport after construction begins because a 1,200-space structure will be demolished and replaced with a smaller temporary lot.

“We’re encouraging passengers to get dropped off at the airport because parking is already a challenge. During construction, we’re taking away about 500 spaces,” Wedge said.

Airport funds will cover the majority of the project, which is expected to cost $572 million and see completion sometime in 2011. Once construction is finished, passengers will have more parking, less traffic and shorter wait times on the tarmac, Wedge said.

The Bond Buyer provided “Vallejo: Poster Child of a New Era? — Risks and Rewards in Chap. 9 Strategy,” by Andrew Ward. I was included in the body and here are the four last paragraphs:

“It costs. It is a dangerous and risky solution,” said John Moorlach, president of the Orange County Board of Supervisors, who was appointed treasurer of the county after its filing. “The world hasn’t forgotten about it.”

If Vallejo teaches other governments that they can escape labor obligations, such as unfunded pension and retiree health care benefits liabilities, it could be a sign of things to come, [lawyer at Chapman & Cutler LLP in Chicago, James] Spiotto said.

“This is the tip of the iceberg,” said Orange County’s Moorlach, using the same phrase Spiotto used to describe the situation.

“If you can actually undo employee bargaining unit agreements that enhance pension benefits, that might be a great strategy, but if it doesn’t work, you’ve spent a boatload of money to drive your car into a cul-de-sac,” Moorlach said. “Everybody’s going to line up to file for Chapter 9 in California.”

Moorlach said Orange County won’t be heading that way again. He said the county negotiated a deal to cut its unfunded employee health care benefits to $400 million from $1.4 billion.

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