MOORLACH UPDATE — Daily Pilot 103 — December 27, 2013

This is customarily a quiet week, but the media output has not slowed down. Yesterdays Daily Pilot provided two fun topics. The first is their annual Daily Pilot 103 list. Ive had the pleasure of being on this list a few times over the past nineteen years. Instead of providing the entire listing, Ive selected a handful of Orange County personalities for the first piece below. (For the entire list, go to http://articles.dailypilot.com/2013-12-26/news/tn-dpt-me-1226-dp103-20131226_1_assistant-city-ceo-tom-gazsi-sandy-genis.) Congratulations to Costa Mesa Police Chief Tom Gazsi for garnering the top spot. Tom is an old friend and he has taken on the position with professionalism and with a steady, calm style. My former Chief of Staff, Rick Francis, made it to the twelfth position. Since the lost hikers were such a big story earlier this year, I included them. Bob Graham asked me to provide a staircase on the Santa Ana River for pedestrians crossing the bridge from LeBard Park in Huntington Beach on their way to Fairview Park in Costa Mesa. OC Public Works is on it and pursuing the necessary permitting as we speak. And Jacob Ashendorf was one of our interns this year. As he served with distinction, Im giving a shout out to his mother. The second Daily Pilot piece provides a prospective look at the news stories to watch in the year ahead.

The OC Register provides its story on the request for the withholding of contributions from employee paychecks (see MOORLACH UPDATE — United Way — December 16, 2013) in the third piece below. What is not mentioned is that Orange County United Way CEO and President, Max Gardner, graciously agreed with the recommendation made by Sheriff Hutchens on this matter. And the OC Register has a Letter to the Editor that rips into me in the fourth piece below (see MOORLACH UPDATE — Quasquicentennial — December 24, 2013). At least the letter writer was forthcoming about his motivations.

The DP 103: Our list of 2013’s newsmakers

1.) Tom Gazsi: Costa Mesa’s police chief celebrated the 60th anniversary of his department one he leads with a steady, capable hand, despite the tension between his officers and a majority of the City Council members.

12.) Rick Francis: Costa Mesa’s assistant city CEO has made tough decisions this year but maintained his reputation among employees for even-handed dealings and a thoughtful manner.

29.) Nick Berardino: The union leader, Fair Board member and Marine veteran helped lead the effort to preserve the fairgrounds’ Memorial Gardens Building one of the few remaining Santa Ana Army Air Base structures.

33.) John Moorlach: The Orange County supervisor from Costa Mesa is termed out and running for Congress.

58.) Kyndall Jack and Nicholas Cendoya: These two hikers from Costa Mesa went missing in South County on Easter weekend, and a rescuer was seriously hurt trying to find them.

62.) Allan Mansoor: The Republican state assemblyman from Costa Mesa just threw his hat in the ring for a new position county supervisor.

101.) Bob Graham: This Costa Mesa Parks and Recreation commissioner finally helped get his pet project a staircase into Fairview Park from Canary Drive approved this year, after a nearly 20-year battle.

102.) Charlene Ashendorf. She chaired a Costa Mesa program that, for the city’s 60th anniversary, resurrected a scarecrow festival from the 1930s.

Top 10 stories to watch in 2014

From the Daily Pilot staff

10.) Corona del Mar High School cheating: What disciplinary actions will students accused of hacking into the school system and changing grades face next year?

9.) Fairview Park trail: Costa Mesa is set to complete environmental repairs to the vernal pools at Fairview Park.

8.) Banning Ranch: An Orange County Superior Court judge found that the proposed residential-commercial project violated Newport Beach’s general plan, but the city said the ruling will not stop the development from going forward.

7.) Sunset Ridge Park: Newport Beach broke ground on the ambitious new park in December, and work will continue on this new "active" space in 2014.

6.) District 2 supervisors’ race: County Supervisor John Moorlach is termed out, and Assemblyman Allan Mansoor (R-Costa Mesa), State Board of Equalization member Michelle Steel, Huntington Beach City Councilman Joe Carchio and Coast Community College District trustee Jim Moreno want to replace him.

5.) CMPD staffing: The Costa Mesa Police Department experienced difficulty hiring in 2013, in part because of the city’s challenging political climate, police told the Pilot. Will the issue be worked out in 2014?

4.) D.A. investigation: The Orange County district attorney is investigating why a private investigator and a law firm employed by the police association followed Costa Mesa Mayor Jim Righeimer and why someone possibly placed a tracking device on Mayor Pro Tem Steve Mensinger’s vehicle.

3.) Council members’ lawsuit: Costa Mesa Mayor Jim Righeimer and Mayor Pro Tem Steve Mensinger have sued the Costa Mesa Police Officers Assn., alleging harassment. What will happen to police-council relations as the case progresses?

2.) Costa Mesa election: School board trustee Katrina Foley is getting into the council race, and her political opposite, Mayor Jim Righeimer, is up for reelection. Which one of them will have the majority following Election Day?

1.) Fire rings: Newport Beach is considering a compromise solution gas-powered rings and fewer of them. Will the idea go forward or up in smoke?

United Way defends policy

Supervisors, Hutchens say organization redirected contributions.

The leader of Orange County United Way is defending his organization after county supervisors and Sheriff Sandra Hutchens criticized it for redirecting contributions meant for a law enforcement booster group.

Max Gardner, the Orange County United Way president and CEO, says county officials should bear some of the blame.

Over the past six years, contributions have dropped dramatically to the Orange County Sheriffs Advisory Council, a nonprofit that buys extra equipment for the Sheriffs Department and supports families of deputies killed on duty.

United Way manages county employees automatic charity payroll deductions, and sends them to nonprofits for an administrative fee. In the past, employees who selected the sheriffs group had their election automatically renewed each year.

But around 2007, United Way changed its policy to require that Orange County employees reselect their charity annually, instead of automatically renewing. Many did not, so their funds were directed to the general United Way coffers and distributed to other local nonprofits.

Gardner, who took over Orange County United Way in 2011, says the policy was agreed upon by county administrators, who should have notified employees they needed to recheck the advisory council box.

The communication of that was with the county, Gardner said, and not United Way Orange County.

The sheriffs groups United Way contributions dropped from $146,000 in the 2006-07 campaign, according to Gardner, to $13,000 in the 2011-12 campaign. Other sources of contributions also dropped off during that time frame, according to the councils public tax filings. Gardner provided figures showing the United Way contributions to the sheriffs council were less than 20 percent of the total contributions to the council, according to the tax filings.

In 2011, county officials and the United Way decided to revert to the automatic rollovers, but Hutchens says her employees are still wary of the United Way process. She asked the Board of Supervisors this month if the advisory group could take money directly from paychecks, instead of through an intermediary.

They have dropped their participation, Hutchens told the supervisors, and Im not sure how were going to get them back into a position where they trust that their donations are going where theyre designating them to go.

Some of the supervisors blamed the United Ways policy change.

It really upset the employees, said John Moorlach, who requested a broader review of automatic paycheck contributions. Supervisors delayed a vote on the issue until Jan. 14.

Other factors contributed to the decline in contributions, observers and officials say.

Longtime political watchdog Shirley Grindle says disgraced former Sheriff Mike Carona, who preceded Hutchens, heavily pressured employees to contribute. Carona resigned in January 2008, around the time of the policy change, and before being convicted of witness tampering.

Also, the drop coincided with the Great Recession.

It was hard to tell if the economy was driving the decline, said Marilyn Mac-Dougall, the advisory council administrator.

Some of the supervisors and Hutchens also expressed concern about the 9 percent administrative fee charged by United Way.

Gardner, in an interview, explained the funds cover printing and distributing the election forms as well as writing checks to charities. Last year, it amounted to $3,000 in total fees deducted from county employee contributions, he said.

Happy Birthday, O.C.?

So, county Supervisor John Moorlach wants to spend $10,000 of taxpayer money for a birthday party for the county [Who pays for O.C.s birthday party? Local, Dec. 24]. Really? You have got to be kidding me.

Thank God, for Supervisor Todd Spitzer being the adult in the room and saying that may not be the right way to spend taxpayer money.

It is especially outrageous considering Moorlach is running for Congress as a conservative. As they say, When pigs fly ….

Dan Spear

Orange

FIVE-YEAR LOOK BACKS

1998

December 27

OC Register business columnist Jonathan Lansner addressed an internal debate regarding the cash versus accrual basis of accounting in Lewis didnt learn lesson of bankruptcy. County Counsel would later opine that the States code was silent on the accrual method. Consequently, I had legislation drafted, SB 1493, that was successfully carried by then-Senator John Lewis, to address the matter. Ironically, the Countys Auditor-Controller still did not want to allow the use of the accrual method. So, even to this very day, a provision is included in the monthly Treasurers report detailing when interest will be paid (cash in hand), versus accrued (interest earned and a receivable). For the accountants, here is the piece in full:

It’s hard to fathom: Outgoing County Auditor/Controller Steve Lewis is pestering Treasurer John Moorlach to alter new accounting procedures on the county investment pool so that the books would revert to looking like the days when disgraced Bob Citron ran amok.

Yes, at first glance, this battle seems like an arcane accounting debate at the county Hall of Administration. A deeper look, however, shows how little some in county government have learned since the bankruptcy debacle.

Lewis is apparently upset that Moorlach three years ago switched the investment pool’s accounting. What took so long for the beef?

Who knows? Lewis is not talking to the media, and Moorlach argues that this change was done with the concurrence of numerous folks, including his oversight committee, county counsel and the Board of Supervisors.

You see, Moorlach‘s way – called "accrual accounting" – is just like the way that your money-market mutual fund adds up its net asset value every business day. It’s a so-called "mark-to-market" philosophy – that is, religiously tracking the value of the securities owned. Such practices would have caught ex-Treasurer Bob’s stupid tricks in a flash. With "accrual accounting," pool participants would have easily seen the volatile nature of the old pool’s ill-fated bond bets.

Now Lewis says that "accrual accounting" has a fault: It is possible that because this tactic is based largely on values of assets owned by an investment pool, it could mean that the treasurer might pay a pool participant income before that money arrives at the treasurer’s office. Some bonds, for example, build up the interest due on a weekly or monthly basis but do not actually pay it until maturity. Those deferred interest payments are reflected in the price of the appreciating bond.

A series of testy memos between the two men show that Lewis, who has no qualms with Moorlach’s investment choices, thinks it may be unfair to some pool participants to base monthly pool payments on that future income.

Lewis contends that his preferred "cash accounting" system would be better because each pool participant would get paid exactly what they are due when the money comes into the pool. And while it is nice that pool investors under Moorlach‘s system can learn the amount of their income distributions quickly under Moorlach’s "accrual methods," Lewis thinks those distributions might be slightly different under his way. He has provided Moorlach no example, however, of any distribution miscalculations.

In his memos, Lewis basically says that returning to the "cash accounting" methodology, where income is distributed only after the pool has the cash in hand, is more equitable. He says what works on Wall Street might not work for municipalities. He worries that pool participants would be angry to know that there’s a potential for the pool to pay out income it hasn’t received yet under the current system.

"Keep in mind that your determination of materiality should not be based upon what is normally used for financial auditing purposes," Lewis wrote Moorlach. "Your intention of operating the Treasury similar to a mutual fund is admirable, but it should be justified in light of the business purposes of the various participants."

"Hogwash," would be a family version of what Moorlach thinks of that. Moorlach says Lewis is out of date by insisting that obsolete government methods must apply. If the wishes of Lewis prevail – and he leaves office next month after choosing not to run for re-election – Moorlach contends he’ll have to keep two sets of books, always a dicey situation. "It’s the natural conclusion" of Lewis’ request, Moorlach says.

The money for pool distributions that Lewis questions is in the investment pool. It’s just that some money comes via checks and some comes in the form of appreciated securities. So Lewis’ concern – that the one ledger item dealing with interest inflow possibly going negative – is negated by the fact that the pool also has unrealized gains on some bonds.

Moorlach says his staff is busily preparing a "white paper" on the entire issue so everyone from Lewis to the county supervisors to the CEO will understand what’s at hand. And it will likely say that, under the Lewis plan, pool participants would see income distributions delayed by a matter of weeks as they were under Bob.

Or, Moorlach bristles, the pool would only invest in overnight paper so its books would tidily add up each day.

"You could close out the fund today, and the county could pay off everyone and not lose one single penny," Moorlach says.

It certainly sounds like Lewis is dead wrong. What Lewis argues, making income stream – not investment values – paramount in county bookkeeping is exactly what created the old problems in the first place.

Turning government managers into "yield hogs," those who just watch bonds just for income, creates the urge to manage a pool for income’s sake – just what Bob did. Lewis seems shockingly indifferent to this weakness of "cash accounting" – that it could allow pool participants to sell their stakes at 100 cents on the dollar and get more money than they deserve because of changes in the underlying value in the pool’s assets. That’s exactly [sic] happened in the months before the old pool imploded in December 1994.

What’s additionally scary is that Moorlach is virtually a lone wolf with this accounting treatment; only two other counties in California have adopted Moorlach‘s "accrual accounting" philosophy.

You mean just about nobody’s learned a thing from Orange County’s debacle?

Lewis has already cost this county enough grief, no less money, by inadequately overseeing the early-1990s accounting shenanigans of Bob when he was running the pool. Remember, the district attorney sought Lewis’ removal from office for his shoddy work, only to have that case tossed by a judge saying the law didn’t work that way.

It is so sad that something that works so well for the citizenry – the mutual-fund bookkeeping methodology – can still be questioned in bureaucratic circles. In his final days in government, Lewis should not be allowed to mess up a key post-bankruptcy reform that goes a long way to restoring faith in the system.

Speaking of getting hammered in the Letters to the Editor section, the LA Times served up a couple as a result of Bill Lobdells piece (see MOORLACH UPDATE — Homelessness Review — December 19, 2013) in Treasurers Views Are Worrisome. It is amazing to see what some readers could pull out of Lobdells interview piece of a few hundred words and then project with their interpretations of what was said or not said. But, Lobdell was hoping for such reactions, and he got them.

While I’m certain that the congregation where Orange County Treasurer John M.W. Moorlach conducts his ministry is beaming with pride at the public declaration of his faith on your pages Dec. 19, Christians elsewhere may be cringing.

Moorlach finds it "amusing" that people worry about Christians, but I fear that his very conduct is leading to such worries, for it appears that his use of his Bible is very selective, guided by his own predispositions, selecting those passages that suit him and ignoring others less convenient.

Yes, this moral relativism is worrisome. He may rely on his Bible to provide valuable financial services to his followers and to conduct the county’s financial affairs, but it appears that he practices an Old Testament sensibility rather than the liberating teachings of Christ found in the New Testament.

Moorlach’s brand of Christianity and use of his Bible does indeed make Christians the "fair game" he lamented. This ilk of "fair game" Christian caters to followers, preaches to others in a shared work and social environment and regards with disdain those "politically inspired liberals" or those not in earshot.

I challenge Moorlach to return to his Bible and to shift his focus from counting references to money matters to those passages that guide one in living a Christ-like life. My Bible makes it clear that Jesus Christ had no use for the self-righteous and that he valued most a life governed by the spirit of Christianity.

ROBERT D. BROWN

San Clemente

John Moorlach says, "it’s OK to be a Christian."

Of course it is. It’s also OK, in this country at least, to be a Jew, a Buddhist, a Muslim or a member of any other faith.

Moorlach, who identifies himself as a Christian, claims that "People get bent out of shape" and are "worried" about those of his faith. "They are the guys you want living next door to you," he assures us.

What truly is worrisome is that if Moorlach believes Christians make the best neighbors, he might also believe they make the best employees. This is why laws regarding discrimination based on religious beliefs, gender and race–in both housing and the workplace–are in place.

Moorlach may consider this letter another case of Christian bashing. It is a strike, not against Christianity, but against any individual or group that favors the exclusion of those who do not share the same religious beliefs.

JESCINA A. TAYLOR

Irvine

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