MOORLACH UPDATE — We’re Out! Sort Of — July 2, 2017

The OC Register shouts out the good news that the County of Orange is burning its bankruptcy recovery mortgage! The County filed for Chapter 9 bankruptcy on December 6, 1994. This historical event dominated the daily headlines for many weeks and months; something that had not seen locally since World War II. The tradition continues, and it is only fitting, that the first piece below is on page one, top-of-the-fold.

Orange County exited Federal Bankruptcy Court with a Plan of Adjustment within 18 months. But, the long-term debt, since refinanced and shortened, was to linger for decades (see MOORLACH UPDATE — Start to Finish — June 30, 2017 june 30, 2017 john moorlach).

The piece mentions "marking to market." Tragically, the Government Accounting Standards Board (GASB) has historically been slow on the draw to address certain accounting standards. Had the requirement to mark to market been in place, it may have prevented Orange County’s investment debacle. Subsequently, GASB 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, was issued in 1997.

I claim GASB 31 as mine. Marking to market was one of the points I raised in The Wall Street Journal piece of April 15, 1995. As a BONUS, I’m including it at the bottom. And, following through on my promise, I immediately marked to market after being appointed Orange County Treasurer-Tax Collector on March 17, 1995.

In the second piece below, the OC Register opines on this historic event in the County’s history. It’s their second editorial in the Commentary Section and is a great lead-in to the third piece below. And, the BONUS piece validates the nostalgia that it invokes.

The Daily Pilot provides another installment on the local public employee defined benefit pension mess (see MOORLACH UPDATE — Addressing Pension Mess — June 24, 2017 june 24, 2017 john moorlach).

It would take until December of 2012 for GASB to finally address public employee defined benefit pension plans with GASB 68, Accounting and Financial Reporting for Pensions. But, it was thirty years too late! And, once again, all of the damage has been done. Now the mess needs to be dealt with. The third piece provides some of the local efforts that are being pursued.

Wishing you a Happy and Safe Fourth of July!

We’re out! Orange County pays final bankruptcy bill on July 1. The ride’s been wild

By Teri Sforza

1994: Orange County declares bankruptcy Orange County Treasurer and Tax Collector Robert Citron was a popular guy before 1994. Re-elected seven times, he seemed to have a knack for making a little money go a long way. In December, 1994, it became obvious why. Citron had over-leveraged the county’s money in high-risk investments that worked for a while but eventually backfired, causing losses of $2 billion. On Dec. 6, 1994, Orange County declared bankruptcy – becoming, at the time, the largest county in America to go bankrupt. Citron pled guilty to six felony counts and served five years of supervised probation.

John Moorlach ran against Citron in 1994, warning of the coming doom. He lost, but was appointed Treasurer-Tax Collector after his dire predictions came true. He went on to become a county supervisor and is now a state senator.

There was the homeless man in a miniskirt and fishnet stockings who stuffed oranges in his brassiere and wielded a plunger – a reminder that Orange County was going down the drain.

There was the eccentric forensic accountant who pushed recalls against officials who had already agreed to leave office, hordes of enraged anti-tax activists who shouted down county supervisors, “Killer Bees” – cities like Buena Park, Santa Barbara, Claremont and Montebello – who refused to tow the line.

Then there was Robert “Bob” Citron himself, self-proclaimed “master of the ship at the helm” and former Orange County treasurer, who had a strong affinity for Navajo jewelry, a collection of 300 ties that he rarely wore, authored 14-page odes to Chrysler automobiles, and consulted psychics and a $4.50 star chart as he managed a highly-leveraged investment pool with billions of dollars belonging to schools, cities and the county itself.

Citron bet wrong on interest rates. There was a run on the bank. His investment pool lost $1.64 billion. And county officials fled into federal bankruptcy court.

There have been other spectacular municipal bankruptcies, but none can claim the color of Orange County’s debacle, which was the largest ever when it was declared in 1994. That one of America’s wealthiest counties could go bust shocked the nation, and officials vowed to repay the public agencies that had lost money seeking Citron’s beefy returns. The county issued $1 billion in bonds to raise the cash to make that happen, and on Saturday, July 1 – 22 years and $1.5 billion later – Orange County’s final payment on that bankruptcy bond debt was delivered to bondholders.

Repayments averaged $68 million a year – money that could have funded street improvements, libraries, health care and myriad other public services. Its impact is a ghostly one, measured in shadows of what might have been.

On the up side, a great many lessons were learned that have benefited public agencies nationwide. Public accounting is far more transparent. Leverage – taking billions of public dollars, persuading elected officials to borrow against it, and then persuading Wall Street to lend money on the loaned money, thus generating enormous earnings to fund government operations – is no longer allowed. Many exotic investments are verboten for public treasuries. And public treasurers must “mark to market” – publicly disclose what their investments are worth now, as opposed to what they’ll be worth months or years down the road when they mature.


If Citron had been required to do any of those things, Orange County’s story may have ended much differently.

In another only-in-Orange County twist, there were criminal charges attendant to the bankruptcy, but not because anyone was lining his own pockets. Citron was actually lining the county’s pockets, trying to provide more and more money for public services.

Shortly before implosion, Citron had managed to leverage $7.6 billion in public funds into a $20.6 billion investment pool. Earnings had grown so astronomically high that his office was skimming money off the top – and reporting lower-than-actual returns to cities, schools and special districts – so as not to alarm them and trigger a run on the bank.

The skimmed money – $89 million – went into county coffers, and false accounting was the source of the criminal charges to which Citron ultimately pleaded guilty.

Citron died in 2013, long maintaining that the county had other options and never should have declared bankruptcy to begin with.

The saga’s impact on the day final bond payments are made prompted many to reflect.

“To me, the bankruptcy showed how disunited we are as a county,” said Fred Smoller, political science professor at Chapman University. “Citron did wrong, but O.C. voters wanted services they didn’t want to pay for, so he gambled with the funds in the investment pool. When he got outrageously high returns he was hailed by the supervisors and others as a genius. But when things went South, he was called an incompetent fool.”

Citron bet that interest rates would fall; the Fed ratcheted them up. Some savvy cities and water districts saw the disaster coming and quietly began withdrawing funds.

“Unlike the bank run scene in ‘Its a Wonderful Life,’ when Jimmy Stewart asks customers to put the community ahead of themselves so his civic-minded Savings and Loan could hang on, fund investors put self-interest over the county,” Smoller said. “Had we all hung in, ironically, the Orange County Investment Pool would have eventually recouped its loses when the Fed began lowering interest rates.”

If voters had approved Measure R – a half-cent sales tax to pay off bankruptcy debt that was soundly rejected – hundreds of millions in interest and fees would have been saved, Smoller said.

William Popejoy, the Newport Beach investment banker who volunteered to get the county’s financial house back in order immediately after the debacle and supported the sales tax hike, tried to tell everyone that.

“We said, you’ll pay one way or the other,” Popejoy said. “The money had to be repaid.”

Popejoy led the crippled county as it struggled to make ends meet in those early, chaotic days, when public meetings were full of rancor and blame and dragged on for what seemed like days. He clashed with county supervisors who resented his unvarnished assessments of their abilities and motives, and was ousted after five months. But he balanced a decimated budget and set the ship back on course.

“People still come up to me and say thanks,” Popejoy said. “There were a whole bunch of volunteers who put in very long hours, and I was impressed by the quality of the county employees. Top notch people. I don’t have any regrets. It’s one of the things I’m most proud of in my life.”

John Moorlach was an upstart CPA running against Citron in 1994, warning of the coming doom. He was scolded by officials for hurting investors’ confidence and dismissively dubbed “Chicken Little.” When his predictions came to pass, he was appointed Treasurer Tax Collector. His license plate says, “SKY FELL.”

“The bankruptcy dramatically changed my life,” said Moorlach, who went on to become a county supervisor and is now a state senator. “I sort of feel like I lived in a movie. I was an officer of the county when those recovery bonds were issued, and I wondered if I’d live long enough to see them paid off. It was a great turn-around opportunity. A lot has changed since then, and the county is better for it. It’s been nearly 23 years, and no one has been able to pull a stunt like this again. It’s a good day.”

Others feel justice wasn’t done.

“Just like the Wall Street meltdown starting in 2008, virtually no one (save house arrest for Citron) was held politically or legally responsible for what happened with the people’s money during the O.C. bankruptcy,” said Mark Petracca, political science professor at UC Irvine. “It’s pretty darn amazing and there is a very troubling ‘lesson’ here for any public officials who wish to play fast and loose on the taxpayers’ dime.”

While the bonds are finally paid off, there’s still another $19.7 million that must be paid before all bankruptcy-related bills disappear. The “Killer Bees” – or “class b-13 claimants” – refused to sign on to the payback plan agreed to by everyone else. These 11 agencies – from Atascadero, Buena Park, Claremont, Milpitas, Montebello, Mountain View and Santa Barbara – sued separately and got their own repayment deal. They’ll get their final payment late next year.

And then what?

“Despite the checks and balances now, and a commitment to strategic planning, there is always the chance that institutional memory will fade as time goes by and as leadership changes,” said William Steiner, who was appointed to the Board of Supervisors the year before the fall. “The county has essentially fared well over the years despite the bankruptcy. Still, millions of dollars have been diverted from other important county departments and priorities.”

Steiner expects parks and recreation programs to get a significant bump in revenue now that the bonds are paid off.

Todd Spitzer was elected to the Board of Supervisors in 1996, as the county was adjusting to the new normal. He went on to serve in the state Assembly, then was re-elected supervisor in 2012.

“The entire time the focus has been one of incredible belt-tightening and difficulty because of the huge whopping amount of dollars that were being paid to pay off the bankruptcy,” Spitzer said. “My biggest fear is that, as the bankruptcy gets more and more in the rear view mirror, supervisors are going to have lost perspective of what it means to operate under the guise of a very, very, very difficult financial situation.”

To UCI’s Petracca, it ends not with a bang, but a whimper. He said few people – even those whose lives were dramatically impacted by cutbacks in social services spending – will recall anything about the bankruptcy.

“As it is said towards the end of ‘The Untouchables,’ when Eliot Ness leans over Al Capone, ‘Here endeth the lesson,’” Petracca said.

Still learning lessons of 1994 bankruptcy

AP Photo/Rich Pedroncelli

State Sen. John Moorlach, R-Costa Mesa, listens as lawmakers debate a bill Thursday, June 2, 2016, in Sacramento, Calif. AP Photo/Rich Pedroncelli

By The Orange County Register Editorial Board

If you heard fireworks July 1, it might not have been people overanxious for Independence Day. They might have been celebrating the fact that the county made its final debt service payment to bondholders stemming from the 1994 bankruptcy. This marks an important milestone, and should serve as a reminder of the pitfalls of unaccountable government spending.

“The bankruptcy was a painful chapter in the county’s history, and recovering from it has presented many challenges,” Chairwoman Michelle Steel, Second District Supervisor, said in a statement. “Through meeting our financial challenges and fulfilling our bankruptcy debt obligation, the county is well positioned to continue our mission of making Orange County a safe, healthy and fulfilling place to live, work and play.”

But while Orange County is unlikely to repeat its risky investment-fueled downfall, the county is not without its financial challenges. Unfunded pension liabilities remain a major cause for concern — not just for the county, but across the state. According to the State Controller’s Office, the unfunded liability of California’s pension plans surpassed $234 billion in 2015, the most recent year available.

Yet, many still seem to think government debt doesn’t matter — until it does. Pension-fueled insolvency in the cities of Stockton, Vallejo and, closer to home, in San Bernardino, prove that spending and debt have consequences.

State Sen. John Moorlach, R-Costa Mesa, sounded that warning again in a recent Bond Buyer interview.

“There is something brewing in the state,” Moorlach told the trade newspaper. “If we didn’t have Silicon Valley, we would be toast. We have job growth, but not in high-paying jobs. And we have cities scrambling right now trying to figure out how they are going to pay next year’s pension contribution.”

Moorlach sounded the alarm in 1994, too. It proved to be a politically unpopular prognosis that lost him the election for Orange County treasurer-tax collector, and earned him the nickname “Chicken Little.” But by the next year, the county’s municipal bond portfolio was in ruins and Moorlach had been appointed to fill the vacated position he had sought. His license plate still reads: “SKY FELL.” We didn’t believe him then; maybe we should believe him now.

Local cities’ pension payment plans draw optimism and doubts

By Hillary Davis, Luke Money, Ben Brazil and Bryce AldertonContact Reporters

It’s a start. But is it enough?

Some observers endorse plans by local cities to open the fiscal valves in an effort to bring down growing unfunded liabilities for public employees’ pensions. Others say those plans might be insufficient.

Local cities are paying above and beyond required payments to the California Public Employees’ Retirement System, or CalPERS. Newport Beach is tacking about $9 million a year to its payments, Costa Mesa about $500,000 a year and Fountain Valley and Huntington Beach about $1 million. Huntington also will pay additional contributions from a pension rate stabilization trust, and Newport is considering doing the same.

Without taking action, Newport Beach’s projected unfunded pension liability for the new fiscal year, which starts this weekend, would balloon to $353 million, compared with $46 million 10 years ago. Costa Mesa’s unfunded liability is projected at $246 million for fiscal 2017-18, up from an estimated $46 million 10 years ago. In Huntington Beach, the latest number is $363 million, compared with $79 million a decade ago.

Devin Dwyer, who served on the Huntington Beach City Council from 2008 to 2012, said that city’s prepayment plan is a good idea but is not the answer.

“It won’t make a big enough dent,” he said.

Dwyer believes pension plans should be replaced with 401-k programs, which have defined employee contributions. New hires would be brought in under the 401-k system, and existing employees would transfer to the plan, with their promised pensions covered through the years already worked.

Dwyer said state legislators are the only ones who can enforce that transition, so cities need to band together to put pressure on them.

“I am not real optimistic,” Dwyer added.

Former Newport Beach Mayor Rush Hill, who was on the City Council from 2010 to 2014, said Newport is on the right path. He said pensions make for an important, volatile issue that needs constant focus.

Government often doesn’t react until there’s a crisis, he said, and aside from recent pension reform bills proposed by state Sen. John Moorlach — a Costa Mesa Republicanwhom Hill, a former staff member for Ronald Reagan, praised as Reagan-esque — legislators seem unwilling to touch the issue.

“I would say the only group that’s hard to convince there’s a problem is the California Legislature,” Hill said.

Former Newport Beach Mayor Rush Hill thinks the city is on the right path in its approach to unfunded pension liabilities. (File photo | Daily Pilot)

Newport Beach has the resources to make the hefty additional payments, Hill said. But if monumental reform ends up relieving the system of some of its burden, Newport could essentially end up subsidizing that with its large shares. There’s also a risk of paying too much too fast and losing that investment if the market crashes.

“You have to reach a sweet spot,” he said.

According to CalPERS, about 62% of its income is the result of earnings from investing employer and employee contributions in stocks, bonds and real estate. If investment returns fall, as happened with the financial crisis of 2008, local governments have to pay more toward pensions to make up the difference.

In 2008, CalPERS investments lost 3%. Losses swelled to 24% in 2009, according to the Los Angeles Times.

Fred Seguin — who retired from the Costa Mesa Fire & Rescue Department after a 30-year run that included stints as acting chief, deputy chief and battalion chief — said he thinks CalPERS is fundamentally “still a good system and strongly funded.”

“I would say, as we all look back in hindsight, if we didn’t have that market crash, none of us would be talking about it now,” he said.

In Seguin’s mind, the Great Recession opened some eyes and inspired CalPERS to make less-aggressive investments. Another positive development in the aftermath of the crash, he said, was the passage of the California Public Employees’ Pension Reform Act of 2013, or PEPRA. That law essentially lowered new hires’ future retirement benefits by capping how much of their compensation can be factored into calculating their pensions.

Seguin, whose pension is about $156,000 a year, said he thinks Costa Mesa is taking appropriate steps to reduce its unfunded pension liability.

In addition to budgeting $500,000 per year for added payments to CalPERS, the city is annually prepaying CalPERS for employee bargaining groups and using the savings from a prepay discount — more than $250,000 per year — to make additional payments.

“It’s at least a step in the right direction,” Seguin said.

Hill said Newport has always been open with its unions about the mathematical realities of pensions. He remembers meeting at former Councilman Keith Curry’s house seven years ago with employee representatives to talk about it.

“We sat around the kitchen table with pastries and coffee and said, ‘Here’s the deal. Here’s the reality,’ ” Hill said. “And the union heads acknowledged they wanted to be part of the solution, not part of the problem.”

Newport lifeguard Battalion Chief Brent Jacobsen was at that breakfast meeting. Around that time, the city approached his unit with potential layoffs. Instead, the permanent lifeguards group — about a dozen year-round, full-time guards — offered to start contributing to their pensions to preserve jobs.

City public safety employees currently pay 9% of their salaries toward retirement, but in the 1980s, the city started making that contribution on their behalf in place of raises, Jacobsen said. By taking that commitment back, the lifeguards essentially took a 9% pay cut.

Starting this month, they will pay 13.6% toward their retirements.

Jacobsen said that if he and other public safety employees had known the market crash would gut the retirement system, they wouldn’t have sought to be included in the “3% at 50” plan, a pension formula that resulted from a 1999 state law. It allows some public safety employees to retire as early as age 50 with a pension rate set at 3% of their final year’s salary multiplied by how many years they were on the job.

When they signed on in the early to mid-2000s, the system was doing well, Jacobsen said.

“No one ever thought that PERS would go where it went,” he said.

Jacobsen, who is vice president of the Newport Beach Lifeguard Management Assn., said he plans to retire in the next four or five years but is eligible to leave now. More than half of the permanent lifeguards are, he said. If CalPERS were to fail, he would be out of luck.

He said he respects the Newport Beach City Council for getting ahead of the issue as best it can and trusts the strategies of top city leaders.

Rob Gagne, president of the Costa Mesa Firefighters Assn., said firefighters and other public employees “have a long history of being partners to find solutions to keep our city fiscally sound.”

“During the economic downturn, Costa Mesa firefighters shared in the cost savings burden — freezing wages and cutting personnel to help our city balance its budget,” he wrote in an email.

Some Costa Mesa officials, such as Councilman Jim Righeimer, have said retired public employees should take a cut in their pension benefits to help address unfunded liabilities.

Gagne rejected that notion. Firefighters, he said, “do not receive Social Security, so our retirement system is our only source of retirement income.”

“Cutting retired first-responder benefits and their families’ benefits, after they have already been living on a fixed income, is wrong,” he said.

Dwyer, the former Huntington councilman, believes the city ultimately will have to start cutting costs, like limiting the number of firefighters per truck.

Chad Stewart, president of the Huntington Beach Firefighter’s Assn., said the group is aware of the pressures heaped on governments and workers because of the pension issue. He said local firefighters have worked with city leaders to implement cost-saving measures. About 25% of the workforce will be on the lower-tier PEPRA pension plan by 2018, Stewart said.

“As our population has grown and our emergency calls for service have exponentially increased each year — with nearly 21,000 calls in 2016 — our staffing levels have stayed stagnant and we are constantly finding ways to do more with less for the people of our city,” Stewart said.

In Laguna Beach, the unfunded pension liability as of fiscal 2014-15, the most recent year for which data is available, was $53 million. The amount increased $6 million in five years.

Laguna resident John Thomas said pensions are “like a slow-motion train wreck.”

“You know it’s happening,” he said. “The question is, ‘What is the solution?’ ”

Without a significant improvement in safe investment returns, Thomas, a real estate broker and budget analyst, said cities have the following options: raise taxes or otherwise gain more revenue; cut services so more money goes to pensions; or get the rules changed statewide.

“If Laguna changes their rules and other cities don’t, then Laguna will have a tougher time hiring and retaining good people because they will be tempted to … work in cities with the old [pension] rules,” Thomas said.

When it comes to public employee pensions, perspective is important, Thomas said.

“We talk about the cost of the pension obligation, but no one talks about the value of a pension to an employee,” he said.

“When those guys walk out the door, they don’t get a gold watch,” Thomas said. “Someone handed them something worth 2 or 3 million dollars.”




Derivatives Roil California Political Race

By Earl C. Gottschalk Jr.

Staff Reporter of The Wall Street Journal

15 April 1994


LOS ANGELES — The use of derivative investments and other aggressive financial strategies to enhance returns is coming under intense scrutiny in a hot political contest in California’s Orange County.

By placing highly leveraged investment bets, Robert L. Citron, the county’s veteran treasurer, has generated returns that he says are some of the nation’s highest for county money managers. In 1993, he says, the money he manages for Orange County and 186 other California municipalities, school districts and governmental units earned 8.5%.

But more recently, he concedes, the value of his portfolio has been hit by rising interest rates, forcing him to come up with $140 million to meet "collateral calls" from brokers who lent him money.

Mr. Citron insists that he isn’t taking any undue chances with taxpayers’ money. "We do have a different strategy from most counties," the 68-year-old Mr. Citron says, "but we are aggressive within prudent limits."

Political opponents see it differently. Led by his challenger for the treasurer’s job in a June election, they charge that Mr. Citron’s strategies are way too risky and that the recent rise in interest rates has lost taxpayers a bundle.

"Leveraging public money makes me nervous," says John Moorlach, a certified public accountant and financial planner from Costa Mesa, Calif., who is Mr. Citron’s first challenger for the nonpartisan job in many years. "When you win, you win big," Mr. Moorlach says. "When you lose, you also can lose big."

Mr. Citron says he has been using "reverse repurchase" agreements to leverage the $7.5 billion of funds he manages for Orange County and the various municipalities into a total investment portfolio of $19.5 billion.

In a reverse-repurchase agreement, a borrower delivers securities to financial institutions in return for cash, with the understanding he later will buy them back at a higher price. Meantime, the borrower invests the cash, hoping to get a higher rate than he has to pay under the terms of the reverse-repurchase agreement. In effect, it is a way to pump up the income generated by a bond portfolio by purchasing additional securities with borrowed funds.

Mr. Citron says he has been investing part of this $19.5 billion pool in two-year to five-year government agency securities issued by the Federal National Mortgage Association and Federal Home Loan Bank system, which pay higher yields than comparable Treasury securities.

In addition, Mr. Citron says, some 20% of the $19.5 billion is invested in derivatives, financial agreements whose returns are linked to, or derived from, the performance of some underlying asset, such as bonds, currencies or commodities.

Because they enable investors to take positions with little or no money down, derivatives can generate handsome returns when things go well. They can also cause big losses, and even the sophisticated financial professionals who design them can have difficulty understanding how these investments will behave in unexpected market conditions.

"In a period of rapid reversal of interest rates, individuals who have highly leveraged their position, and are using derivative securities, can’t accurately ascertain their duration," or sensitivity to interest rate risk, says Marshall B. Front, senior executive vice president at Stein Roe & Farnham Inc., a Chicago mutual-fund and money-management firm. "Many of those strategies have been proven to have been far more risky than they seem on the surface."

It has been difficult for bond professionals and other municipal treasurers to comment directly on Mr. Citron’s approach because he doesn’t make his investment portfolio public. However, Mr. Citron promises to disclose the details to Mr. Moorlach on Monday.

Meantime, Mr. Citron insists the derivatives he uses are conservative. "We don’t use any exotic stuff," he says.

Like other fixed-income investors betting on interest rates, Mr. Citron’s portfolio was hurt when rates rose sharply this year. He says that last month he had to give brokers an additional $140 million of collateral against losses in the value of his portfolio.

He says he has $1.5 billion in cash and is raising another $1 billion.

Unlike mutual funds, pension funds, hedge funds and most other money managers, who have to recognize losses and gains in their portfolios as market prices move, Mr. Citron says he doesn’t have to mark his portfolio to market values.

"I can hold to maturity," Mr. Citron says. "We don’t believe in taking paper losses and paper profits." Hedge funds are unregulated private investment partnerships that wager huge sums in global currency, stock and bond markets in search of quick profits.

Mr. Moorlach says he isn’t impressed by Mr. Citron’s comment. "Mutual funds and everyone else marks to market, and if I’m county treasurer, I will mark investments to market," Mr. Moorlach says. Not marking to market is just a way of concealing losses, he charges.

State laws vary, but many counties and other municipal units are prevented from using the strategies Mr. Citron has employed. In California, such approaches are legal, thanks to a legal revision that Mr. Citron says he helped write.

In the past, some cities and counties in various parts of the U.S. have run into trouble by using reverse-repurchase strategies. Similar strategies caused the collapse of numerous savings-and-loan institutions in the 1980s.

Whatever Mr. Citron’s portfolio reveals — or doesn’t reveal — the campaign is likely to be fierce all the way to the June 6 election. Although the treasurer’s position is nonpartisan, Mr. Citron is a Democrat, the only elected Democrat in conservative Orange County government. Mr. Moorlach, 38, a Republican, is assistant treasurer for the Orange County Republican Central Committee.

The controversy picked up momentum on Wednesday when the city of Tustin, Calif., one of the 187 municipalities in the Orange County investment pool, said it withdrew $4 million because it considered Mr. Citron’s policies too risky. "We made the change because we weren’t comfortable with the risks the county was taking," said Tustin City Councilman Jeffrey Thomas.

Mr. Citron charges that the move was "pure partisan politics," since Mr. Thomas is a member of the campaign finance committee of Mr. Moorlach.

Mr. Citron contends that his challenger is supported by a group of Orange County bond brokers who are unhappy that he hasn’t given them any business through the years and are out to smear his approach. He says he couldn’t use local brokers because "I can’t call up some local broker and tell him to place a $100 million trade."

Mr. Moorlach says he wants to study the brokers with whom Mr. Citron deals.


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