MOORLACH UPDATE — Tizzy — May 13, 2013

In Sunday’s OC Register article below, the blame game was afoot. I did not know about the need for legislation to modify how the County received its Vehicle License Fee (VLF)/Property Tax revenues, after the 2005 bankruptcy-related debt refunding (refinancing). The Treasurer of the County does not handle long-term debt financing, that is the job of the Public Finance Office, which falls under the purview of the County Executive Office and the Chief Financial Officer. Consequently, I have no recollection of anyone bringing this concern to my attention. In retrospect, I wish someone would have told me when I became Supervisor, as I could have made it a legislative priority. I know that at least one of this Board’s predecessors even went to New York City to receive an award for the refunding (see http://ocgov.com/about/infooc/news/press/details?NewsID=837&TargetID=93). It’s too bad that a similar time commitment was not devoted to cleaning up this loose end. But, I strongly believe that the money belongs to the County of Orange and its taking is unethical.

The VLF taking will have a big impact on the County’s Unrestricted Net Assets (UNA). The first slide below shows the recent history of the County’s annual UNA. The recession has found the County making cuts and dipping into reserves. For five years its expenditures exceeded revenues. This past year the County turned the corner and has just started to rise above the water line. Absorbing a loss, of the magnitude of the VLF take, will create an Unrestricted Net Deficit. It is also going to significantly squeeze this County’s ability to provide certain critical functions; sharing this concern is hardly a tizzy and I think it best that the citizens of Orange County fully understand that this pain is being inflicted by their State government.

The second slide shows how bad the state of California is when you review their annual UNA. The state’s liabilities exceed its assets. Therefore, every dollar that the state has in its checking account is borrowed. No wonder it has no compunction about stealing funds from its related agencies. Perhaps we should feel some pity and compassion on those who persecute us? This episode makes me think of one of the opening scenes of “Les Miserables.” It seems that we should not only give the state the silverware, but the two candlesticks as well.

VLF surprise was years in the making

County ‘dropped the ball’ in protecting a special revenue stream and now must reckon with a hostile Legislature.

By ANDREW GALVIN and BRIAN JOSEPH

In 2005, when Orange County refinanced the bonds it sold to recover from its 1994 bankruptcy, county supervisors slapped one another on the back, saying the deal would save taxpayers more than $100 million in long-term interest.

But they also knew that a special revenue stream the county received from the state was put into jeopardy by the refinancing. The dedicated stream of vehicle license fee funds was a guarantee for investors in the original bonds that they would be repaid. Now, that guarantee was no longer needed.

Bill Campbell, a member of the Board of Supervisors at the time, said a bill went through the Legislature to allow the refinancing, "and at the time we said, ‘Shouldn’t we get this cleared up,’" meaning tack on an addendum to the bill to protect the VLF flows to the county.

Since it was near the end of the legislative session, "We were advised by our lobbyists and the people in the Legislature who were carrying the bill, ‘No just leave as is and get it done so you can refinance.’"

"Then we dropped the ball, I would have to say," Campbell said. "Yes we did drop the ball, and I can’t tell you why."

The county should have gone back to the Legislature in the next session and pursued a separate bill to protect the VLF funds, Campbell said, but it didn’t. "Looking back on it, you say we should have done it. Did we intentionally not go back? I just don’t know," he said.

A SEARCH FOR FUNDS

For several years, nobody seemed to notice.

Former Assemblyman Jose Solorio, D-Santa Ana, who was in the Legislature from 2006 to 2012, said no one from county government brought the problem up. "The item was never on the county’s legislative platform. Their lobbyists didn’t share the problem with me. The supervisors didn’t share the problem with me or others in the Legislature."

Then, in 2011, Gov. Jerry Brown had teams of analysts scouring the state’s budget for pots of money that could be used to help pay for a plan to return state prisoners to custody of the counties from which they came.

Orange County’s special VLF stream, then about $50 million a year, was sitting unprotected. Brown pushed through a bill that reclaimed the money for the state. The county, saying it was being treated unfairly, decided to keep $73.5 million in property taxes that should have been turned over to a state fund that supports schools and community colleges.

Last year, the state sued the county, demanding the $73.5 million. On Tuesday, an Orange County judge agreed with the state, ordering the county to pay the amount, now $147 million, that it has kept these past two years.

County supervisors flew into a tizzy, with Supervisor John Moorlach saying the judge’s ruling "will wipe us out. … It may mean layoffs."

Nick Berardino, who heads the biggest union representing county workers, said county supervisors and staff executives were "asleep at the switch" after the 2005 refinancing, just as they were before the 1994 bankruptcy.

"What’s so sad is that the first thing you hear a couple of supervisors say is, ‘We’re going to take it out on the employees,’ who had nothing to do with it," Berardino said.

GOP OUTPOST

By population, Orange is the third largest county in California with more than 3 million residents. It is a center of business and wealth, and a popular tourist destination. But despite its many bona fides, Orange County has long been the odd man out at the state Capitol, where it is dismissed as a historically Republican region in a state dominated by Democrats.

"The reason we have toll roads is because Willie Brown hates Orange County," said former Senate Republican Leader Dick Ackerman, speaking of the legendary former Democratic Assembly speaker.

Ackerman represented parts of Orange County from 1995 to 2008 and with little effort he can tick off examples of how the region "gets the short end of the stick," including the time it chose to establish toll roads in part because highway funding to the region was blocked.

Another prominent example: Orange County gets back from the state less of its property tax revenue than other counties.

It "just seems like every time the dice gets thrown we get snake eyes," said Tom Harman, a former Republican legislator from Huntington Beach who was termed out in 2012.

Ackerman is more direct: "Orange County gets screwed."

SUPERMAJORITY

Orange County’s delegation to Sacramento has little influence in state affairs simply because the majority of its members belong to California’s minority party – the GOP.

For Ackerman’s legislative career, and most of Harman’s, Republicans had at least a small amount of influence in the state Capitol because the rules then required a two-thirds majority of the Legislature to approve the state budget. With the Republicans then occupying a little more than one-third of both the Assembly and state Senate, Democrats had to concede just enough to garner a token few Republican votes each year.

That meant a united GOP could, in theory, block any proposal it felt was out of line – including, say, a money grab that would raid $50 million a year from a densely populated Southern California county.

But that changed in 2010. California voters that year approved Proposition 25, which reduced the threshold for passing a budget from two-thirds to a simple majority. Overnight, what little leverage the Republicans had was eliminated.

Then, last year, Democrats captured two-thirds majorities in both the Assembly and the Senate, rendering Republicans irrelevant in state governance.

Looking back, Orange County appears to have missed its chance to protect the VLF stream in the years before Proposition 25 was passed.

"The mid-2000s definitely would have been an opportunity for Republicans and Democrats from Orange County to work together to fix this in a proactive way," Solorio said.

Contact the writer: agalvin

FIVE-YEAR LOOK BACKS

May 13

2008

David Reyes of the LA Times provided a fixed guiderail story with “O.C. agency approves $12 million to study transit ideas – A monorail in Anaheim and trolley system in Santa Ana are being considered to lighten traffic load.”

In Anaheim, planners are mulling a monorail to move passengers from the city’s train station to its resort district.

In Santa Ana, the idea is a bit more old school — trolleys.

In an effort to get such wide-ranging projects off the ground, Orange County transportation leaders Monday approved spending $12 million to complete environmental studies for inner-city public transportation projects.

As part of Anaheim’s plan to transform the area near Angel Stadium into a vibrant residential and retail community, the city wanted an inviting, if not entertaining, way of moving people from the train station to their destination, said Mayor Curt Pringle.

"With the expansion of the Disneyland area, we need to keep cars off the streets" to keep traffic down, Pringle said.

Critics note that monorails are expensive compared with other forms of transportation.

But supporters say the 2.5-mile Disneyland monorail has achieved iconic status, something the city hopes to share, Pringle said.

The monorail opened at a cost of $1 million in 1959.

By contrast, it will cost $6 million alone for environmental and preliminary engineering studies just to determine whether the idea is feasible, said Orange County Transportation Authority planners.

Santa Ana, working with Garden Grove, also received nearly $6 million to study moving Metrolink riders five miles from the Santa Ana train station to Harbor Boulevard in Garden Grove.

City planners envision using a trolley or bus system that would run along the old Pacific Electric Railway right of way.

Metrolink service in Orange County is scheduled to expand, and planners have pushed cities to explore ways to get riders from train stations to area employers, malls and hotels.

By 2010, the goal is to have commuter trains running every 30 minutes, from 5 a.m. to midnight, weekdays between Fullerton and Laguna Niguel. Seven locomotives and 59 passenger cars have been ordered, new track has been laid and parking lot improvements are scheduled or underway at stations in Fullerton, Orange, Tustin, Irvine and Laguna Niguel.

Orange County Board of Supervisors Chairman John Moorlach and other board members expressed concern about using the right of way in Santa Ana and Garden Grove and the veracity of ridership numbers submitted by Anaheim and Santa Ana.

Anaheim estimated at least 2.4 million riders annually by 2030. Santa Ana projected 4.2 million a year by 2030.

Art Leahy, OCTA’s chief executive, assured the agency’s board that its action Monday was meant to determine whether the projects were feasible. He said cities and OCTA would conduct separate analyses on ridership.

OCTA board member and Tustin Mayor Jerry Amante wants cities to verify their ridership projections.

"I have no assurance that these numbers have been scrubbed," Amante said. "I want to know that at the end of $6 million, we will know how many riders they’re going to have."

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