MOORLACH UPDATE — 3P, Cities 49 to 96 and Holding to Maturity — November 12, 2019

Public-Private Partnership Intervention

The Log has a mystery writer of letters-to-the-editor who referred to blocking the sale of the toll roads; that is something I did 20 years ago (not 10 as the writer stated in his letter).

It was an interesting chapter where I derailed a highly questionable transaction that would have enriched the developers of the 91 Express Lanes unbeknownst to most other people all because of a well-placed question by a reporter to me.

The story is a long one, but a good place to get a synopsis is found at MOORLACH UPDATE — Daily Pilot — December 15, 2009.  In short, elected leaders have got to pay attention to issues regarding public rights of way so that neither the government nor public-private partnerships get away with abusing the system. That’s what I have spent 25 years working hard to do.

The link provides a piece by LA Times columnist Dana Parsons, “This Time I’ll Be Listening, Mr. Moorlach,” that evaluates my actions and results.  Consequently, the mystery writer is inferring that someone may not be around when a problematic private-public partnership transaction needs to be better scrutinized in the future.  At least one that this letter writer opposes. In the opening paragraphs, Parsons even refers to my warnings of the bankruptcy:

If there’s a patron saint for guilty columnists, it would have to be Orange County treasurer John Moorlach.

At least, he’d be mine.

That’s because my biggest regret in nine years at this post was not listening to the lanky Moorlach when he ran for treasurer in 1994 and warned against incumbent Robert Citron’s investment strategies.

What galls me is that I had actually planned a column on the Citron-Moorlach campaign, even though it was just going to be one chastising Citron for being so haughty in answering Moorlach’s challenges. But I put it off and put it off and it never got done.

How was I to know Moorlach really was on to something?

That’s ancient history.

Moorlach has kept kind of a low profile since taking over in 1995, but he’s gotten a lot louder lately.

And I’m all ears.

Cities 49 to 96

The next group of cities on my list of cities’ financial positions includes four from Orange County, Laguna Niguel (60), Dana Point (83), Lake Forest (87), and Laguna Woods (94).  Two of the cities are in the 37th Senate District.

The distinguishing characteristic is that all four are contract cities that outsource their public safety functions to the Orange County Sheriff’s Department (County of Orange) and the Orange County Fire Authority (OCFA).  Therefore, the pension liabilities are reflected on the balance sheets of the County of Orange and OCFA. However, do not think that there is no cost or long-term liability, it just reveals itself at other places on the cities’ ledgers.

Rank City Pop. UNP 2018 (Thou-sands) UNP/ Capita 2017 Rank Rank Change
49 East Palo Alto 30,917 $40,774 $1,319 58 9
50 Biggs 1,913 $2,397 $1,253 73 23
51 Arcata 18,398 $22,999 $1,250 53 2
52 Portola 2,161 $2,511 $1,162 47 -5
53 Avenal 13,053 $15,121 $1,158 29 -24
54 Woodlake 7,786 $8,824 $1,133 57 3
55 Lafayette 25,655 $29,007 $1,131 60 5
56 Buellton 5,291 $5,824 $1,101 71 15
57 Tulelake 977 $1,032 $1,056 54 -3
58 Rancho Palos Verdes 42,723 $44,168 $1,034 64 6
59 Signal Hill 11,749 $12,128 $1,032 67 8
60 Laguna Niguel 65,377 $67,450 $1,032 56 -4
61 La Mirada 49,590 $51,143 $1,031 37 -24
62 Camarillo 68,741 $68,801 $1,001 63 1
63 Williams 5,465 $5,201 $952 66 3
64 La Habra Heights 5,454 $5,164 $947 68 4
65 Hercules 26,317 $24,579 $934 52 -13
66 Hawaiian Gardens 14,666 $13,552 $924 48 -18
67 West Sacramento 54,163 $49,603 $916 248 181
68 Rio Dell 3,348 $2,988 $892 113 45
69 San Carlos 29,897 $26,567 $889 90 21
70 Woodside 5,623 $4,784 $851 83 13
71 Cupertino 60,091 $50,458 $840 69 -2
72 Poway 50,207 $41,227 $821 72 0
73 Parlier 15,493 $12,550 $810 80 7
74 Tiburon 9,648 $7,709 $799 61 -13
75 Thousand Oaks 130,196 $104,018 $799 70 -5
76 Loyalton 757 $596 $787 124 48
77 Calipatria 7,488 $5,765 $770 196 119
78 Tulare 65,982 $50,783 $770 84 6
79 Live Oak 8,781 $6,723 $766 96 17
80 Loomis 6,824 $5,191 $761 85 5
81 Stockton 315,103 $238,421 $757 99 18
82 San Joaquin 4,119 $3,022 $734 78 -4
83 Dana Point 34,071 $24,965 $733 89 6
84 Colfax 2,150 $1,549 $720 123 39
85 Portola Valley 4,767 $3,411 $716 75 -10
86 Rio Vista 9,188 $6,457 $703 101 15
87 Lake Forest 84,845 $59,234 $698 86 -1
88 Los Altos 31,361 $20,429 $651 76 -12
89 San Dimas 34,507 $22,371 $648 82 -7
90 Walnut 30,457 $19,113 $628 141 51
91 Yucaipa 54,651 $33,975 $622 79 -12
92 Menlo Park 35,268 $21,915 $621 92 0
93 Rancho Cordova 74,210 $45,023 $607 106 13
94 Laguna Woods 16,597 $9,937 $599 100 6
95 Del Mar 4,322 $2,550 $590 318 223
96 Santa Monica 92,416 $54,401 $589 170 74

In 1994 I tried to wake up the county with one last editorial submission that, regrettably, was not published.  I’ve pulled it out of the archives as we reflect on the 25th anniversary since the County of Orange filed for Chapter 9 bankruptcy.  For the introduction and the first chapter, see
MOORLACH UPDATE — Constitutionally Flawed Legislation — November 5, 2019  and MOORLACH UPDATE — Business, Electricity and Top 48 Cities — November 7, 2019, respectively.  

25th Anniversary Look Back

Here is Chapter 2, where I lay out what would happen in the near future to the County’s investment scheme as it was a major bet, an epithet that would be applied to Mr. Citron’s strategy in the years that followed:


The “hold to maturity” argument would be valid if our Treasurer were managing only his personal funds.  He’s not.

    1. The County invests the reserves and the daily “float” for itself. Should the reserves be needed for an anticipated or unanticipated project, the respective investments would have to be sold to meet the liquidity requirements.

The major “fly in the ointment” is that the majority of the bonds and derivatives purchased have a maturity of four years or longer.  If you “hold to maturity” you may have to wait until 1998 to get your money.   

    1. The County also invests for over 180 municipalities in and around the County.  Orange County only has about 87 municipalities and not all of them invest in the County’s “risky” portfolio.  That means we have over 100 municipalities outside of the County that were seduced into the portfolio by Citron’s higher returns.

Citron has no control over outside investors.  If they went in for higher yields, then they will leave if they can obtain higher yields elsewhere.  Because Citron’s portfolio is designed to produce a higher yield as rates decline, it is highly probable that certain investors will seek an investment opportunity where yields are increasing as interest rates increase.  This will create a significant liquidity problem.

    1. The portfolio is the collateral for the lenders of the $14 billion.  Their equity has decreased by fifty percent. They need to protect their interests as well. Accordingly, they have already demanded over $300 million in additional collateral.

If interest rates continue to rise and, inversely, bond values continue to decline another 17 percent, then the portfolio has value equal to its debt.  Any observant lender would step in and demand all of the collateral. If this happens, Citron’s participants will have lost all $7.4 billion of their investments in the blink of an eye.

Again, Citron has no control over the direction of interest rates or the resolve of his lenders.  His major bet on interest rates declining will have been lost and all of the funds for the some 180 municipalities will have been history.

Letters/Online Comments

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RE: “Desalination: Poseidon still trying to plant its trident into Huntington Beach” (Oct. 4-17)
Yes, drought inevitable. Yes, Poseidon is attempting to take advantage of the discounted power from AES as we were duped into exempting them from natural gas taxes during the Enron debacle. Every other entity in HB pays the tax. Imagine how much revenue the city loses now and how much it will sacrifice as power for this energy intensive process is fed to Poseidon without benefit (in water or tax revenue) to the municipality most impacted by infrastructure.

That incredible scenario is exemplary of the private-public partnerships where public always seems to be outmaneuvered by appropriately profit seeking capitalists. No desire here to staunch capitalists – just concern that taxpayers always get the bill. That’s not hard earned profit– its arbitrage – leveraging taxpayers for risk free returns.

Ok, set those dynamics aside. Given the risk free nature of the project (Poseidon can, after all, simply go bankrupt if we refuse to rescue it from purchasing agreements that do not yield profitability) and the demands of a growing population that guarantees our water districts will maintain the output (reclamation could do the same thing but that’s a whole other issue) why would the additional expense and far lesser environmental impacts of a subsurface system like that proposed for South County desalination project be a non-starter for Poseidon? See points above and sense a much shorter-term perspective on this public-private “partnership” from the private side. I’m just an avid news reader with a memory. It was only 10 years ago that Moorlach and others put the kibosh on the contrived sale of toll roads on public lands from private investors to a non-profit entity– presumably because profits were not coming fast enough for the private investors. Will Moorlach and his kind be around to shut down similar maneuvers in the future? It will likely be necessary. A technologically feasible sub-sand surface water sourcing system will at least protect local HB beaches while the finance battles rage on. Oh, yeah, what to do with the output from desalination? Reclamation has that solved with current waste stream output. Reclamation is – by demand and billing – scalable, in place, environmentally proven and completely publicly owned, operated and financed with zero risk that taxpayers will get duped by impatient but God-bless-America-we-definitively-need-’em profit oriented capitalists. Let’s just recognize they need to play in separate sandboxes…or beaches!



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