MOORLACH UPDATE — Grand Jury Season — June 26, 2013

The month of June is Grand Jury report season. Their latest report illustrates, yet again, why I have become so discouraged with this group. The report reviewed the Treasurer-Tax Collector’s office, tells us nothing new, but provides three recommendations, two of which contradict each other and probably can’t be implemented anyway. The County is having major concerns with Tata Consulting Services, which overpromised and underperformed in writing the code for the new Property Tax Management System (PTMS) and this matter is being addressed. Again, no new news. The first article below, in the OC Register, provides the story. Two clarifications: (1) I am no longer Chairman of the Board and (2) the treasury workstation provider is SunGard.

At Tuesday’s meeting, the Board of Supervisors voted to reject one of the most irresponsible Grand Jury reports I’ve seen to date. To steal a quote from the second article below in the Voice of OC, “In a healthy ethics environment, leaders are not afraid of an independent ethics program, because they understand that the best measure is to do everything possible to prevent officials and employees from creating an appearance of impropriety.” I wholeheartedly concur. But, it makes me wonder what the Grand Jury is there for? The Grand Jury should be there to ferret out malfeasance and expose it. Why does it wish to abdicate this critical duty to an Ethics Commission? If there is corruption, where are the Grand Jury reports, indictments and arrests? Here is the opening preamble to the Board’s approved response:

The Grand Jury’s report discusses a set of idiosyncratic, historical events over a 40-year period in an effort to paint Orange County government as an institution plagued by corruption. The report provides no benchmarking against other jurisdictions, provides precious few examples of unethical behavior in recent history, and makes a highly tenuous case for their ultimate recommendation: to study the need for a County Ethics Commission. The few recent instances of clearly unethical behavior that are cited have more to do with improper behavior on the part of County employees, not elected officials. The reality is that there are a whole host of coordinated oversight and accountability mechanisms that exist within the County for addressing improper behavior on the part of all County employees, including elected officials. Not only are there already multiple layers of oversight, which the report flippantly dubs a “patchwork,” but the report also ignores the existing mandate of the Grand Jury itself to investigate and call out unethical behavior. According to Penal Code Section 925, the Grand Jury “shall investigate and report on the operations, accounts, and records of the officers, departments, or functions of the county.” The expansive nature of this mandate certainly provides an opportunity for current and future Grand Juries to identify and fully investigate instances of perceived or actual unethical behavior. Moreover, the process for selecting Grand Jury members, described in Penal Code Sections 895-902 ensures that the Grand Jury is able to operate independently from any political influence of existing County elected officials. The case for researching and creating yet another bureaucratic structure at taxpayer expense to oversee the behavior of public officials has simply not been made in this report. Accordingly, the pursuit of a feel-good but practically unnecessary County Ethics Commission would be an irresponsible and wasteful reaction to an unsubstantiated conclusion.

BONUS: For a fun weekend activity opportunity in Costa Mesa, check out the LOOK BACKS below.

O.C. treasurer wrestles with IT dinosaurs

By TERI SFORZA

So the Orange County treasurer’s office – charged with collecting and investing billions of public dollars for the public good – has long been a revolving door for folly. One treasurer lost $1.64 billion and went to jail; another lost $7.6 million in public money and was nailed with a $7 million verdict for breach of fiduciary duty (for a separate mishap in the private sector).

After the antics of Bob Citron and Chriss Street, a grand jury probe into operations at the treasurer’s office suggests we’re back in sober hands with the current master of the ship at the helm (Citron’s erstwhile words for himself) – Shari Freidenrich.

The complaints that the grand jurors voiced are not about Freidenrich herself, but about some of the information systems she is forced to work with. Not terribly sexy stuff, but important, as they power the billing, collecting and investing of $4.5 billion in property tax money each year.

For a sense of scope, this involves tracking more than 1 million pieces of property (homes, boats, planes, etc.), valuing each one annually, calculating taxes on each one annually (when there are 4,500 different tax rate areas in the county!), then issuing property tax bills, collecting the dough and handling appeals from irate taxpayers.

To do all this, Freidenrich and her colleagues at the county assessor’s office are saddled with "older legacy systems" that "have limited flexibility and are expensive and difficult to change and enhance," the grand jury said. Or, put more simply, these creaky dinosaurs from the 1980s cost the county money and should have passed into extinction long, long ago.

We’ve told you that the county has actually tried to fix this, spending tens of millions of dollars to update these systems, only to find that things have gone quite awry: Parts of the new system are hopelessly late and over-budget, don’t work, and the subcontractor can’t/won’t/hasn’t fixed it.

In April, the county filed suit in federal court against subcontractor Tata for fraud and breach of contract, seeking costs and general damages exceeding $10 million. Our colleague Tony Saavedra will be telling you more about this in coming days.

John Moorlach, chairman of the Board of Supervisors [sic] and the county treasurer who put things in order between the reigns of Citron and Street (so this means we’re batting .500 since Citron was elected 43 years ago?), said the county is working to get all this in order now.

"We had a subcontractor that just let us down," he said.

Before you worry too much, know that the treasurer’s investment division has much better tools to work with: The Sun Guard [sic] portfolio accounting software system developed during Moorlach’s tenure and Bloomberg systems allow the county to execute and monitor investment strategies, the grand jury said.

The grand jury also made the somewhat cryptic recommendation that Freidenrich should both consider "the benefits of having a current staff member licensed as a Securities representative" – i.e., licensed to sell investments – as well as "address the conflict of interest issues with having a securities licensed staff member."

It did not touch on the political question often raised since Citron’s fall from grace – whether the treasurer/tax collector should be an elected position in the first place.

Freidenrich says that having a licensed securities rep on staff may not be possible.

"(I)t is our understanding that in order to be licensed as a Securities representative … you must currently be working for a brokerage firm," she told us by email. "In addition, in order to be eligible to take the examinations, you may also have to be associated with and sponsored by a brokerage firm. Therefore, if we validate that the above items are correct, and if we hired investment staff in the future that had any of these licenses, they would not be able to keep their licenses active as a County employee, or they could not take the license exams while working for the County."

She may still consider adding investment-related licenses to the desired credentials for investment staff job descriptions, Freidenrich said.

And the county treasurer’s office – along with other county departments – will keep working on replacing its antiquated property tax management system, she said.

Contact the writer: tsforza

Supervisors Officially Reject Grand Jury Report, Ethics Panel

Orange County Board of Supervisors Chairman Shawn Nelson (right) speaks with fellow supervisors at a recent meeting. (Nick Gerda / Voice of OC)

By NICK GERDA

The Orange County Board Supervisors Tuesday formally responded to a grand jury report that alleged a “culture of corruption” in county government, calling the report “selective, one-sided and clearly tailored to reach a predetermined conclusion.”

In their official written response, supervisors — voting 3-0 vote with Supervisor Todd Spitzer abstaining and Vice Chairwoman Pat Bates absent — also rejected the grand jury’s recommendation that they establish an ethics commission that would lay the groundwork for countywide ethics reform and the establishment of an “oversight authority.”

The grand jury’s finding in May that Orange County lacks effective ethics oversight of its public officials was “irresponsibly broad, vague, and not substantiated in the report," the supervisors asserted in their response.

They argued that the existing system of checks and balances works and that spending the money and staff time creating a commission would be “wasteful.”

They did, however, create an ad hoc committee to research whether to contract with the state’s Fair Political Practices Commission to provide ethics training and enforce local campaign contribution limits. It came on the suggestion of board Chairman Shawn Nelson.

The move came amid a period of extraordinary tension between supervisors and the grand jury. Supervisors last week called the panel’s work “shoddy” and “shameful” and threatened to slash grand jurors’ pay by 70 percent.

The supervisors are especially upset about the report officially titled "A Call for Ethical Standards: Corruption in Orange County" and another detailing problems at CalOptima, titled "CalOptima Burns While Majority of Supervisors Fiddle.”

“You’re here to help us, not to embarrass us nationally,” Supervisor John Moorlach told grand jurors.

“It’s a complete disservice to me, to the public, to people that rely on this,” said Nelson. “It was just chasing ghosts. I mean, it’s very frustrating, and really it’s shameful.”

The corruption report lays out a 40-year chronology of corruption and crime in Orange County.

“From 1974-77, an eye-popping 43 Orange County political figures were indicted, among them, two congressmen, three supervisors and the county assessor. Sadly the conduct continues today at all levels of Orange County government,” the jury wrote.

It also seemed to foresee the supervisors’ opposition to an ethics commission.

“In a healthy ethics environment, leaders are not afraid of an independent ethics program, because they understand that the best measure is to do everything possible to prevent officials and employees from creating an appearance of impropriety,” the report declares.

San Bernardino County recently contracted with the FPPC to enforce its local campaign contribution limits law.

Under that agreement, the FPPC audits the campaign committees of officials elected countywide, trains candidates on legal requirements and prosecutes violations.

Spitzer wrote a separate reaction to the grand jury’s findings.

In his response, Spitzer agreed that the county “lacks effective ethics oversight of public officials” and that an independent commission, appointed by a panel of retired judges, should examine ethics bodies across the country.

“It is essential to give the Blue Ribbon Commission a mandate to construct a proposal that enables an independent Orange County Ethics Commission to provide oversight, enforce ethics ordinances, and provide advice and training,” Spitzer wrote.

On Tuesday, Spitzer backed away from advocating an independent commission, saying he supports Nelson’s plan to explore the FPPC model.

“People need to know that this is not to get people prosecuted, put in jail or fined. This shouldn’t be about gotcha,” said Spitzer. “This should be about setting a standard.”

Spitzer has said that District Attorney Tony Rackauckas helps foster a “tone of tolerance” in Orange County by not having an effective approach to pursuing wrongdoing by politicians.

Spitzer, once a protegé of Rackauckas, is now the DA’s bitter foe and will likely challenge him in the 2014 election.

You can reach Nick Gerda at ngerda, and follow him on Twitter: @nicholasgerda.

FIVE-YEAR LOOK BACKS

June 26

2003

The city of Costa Mesa celebrated its Golden Anniversary and the OC Register’s The Current provided “CostaMazing: History of the city.” Costa Mesa is celebrating its 60th birthday this weekend. Please go to http://www.travelcostamesa.com/costa-mesa-60/index.html for more information for a public event June 28-30 at the Civic Center. The Current did a year-by-year history from 1903 to 2003.

1994: The county declares bankruptcy, but Costa Mesa is better off than most cities when the county goes into the red because John Moorlach, who warned the county about the risky investments, convinces city officials to withdraw their money before the bankruptcy occurs. The school district loses $8.4 million in the bankruptcy.

Disclaimer: You have been added to my MOORLACH UPDATE communication e-mail tree. In lieu of a weekly newsletter, you will receive occasional media updates, some with commentary to explain the situation, whenever I appear in the media (unless it is a duplication of a previous story).

I have two thoughts for you to consider: (1) my office does not usually issue press releases to get into the newspapers (only in rare cases); and (2) I do not write the articles, opinions or letters to the editor.

This message should appear at the bottom of every e-mail you receive. If these e-mails should stop arriving in your mail box, it will be because your address has changed and you did not provide a new one. If you do not wish to receive these e-mails, then please e-mail back and request to unsubscribe.