Countywide : Treasurer Candidate Reiterates Concerns

Completing his analysis of county Treasurer-Tax Collector Robert L. Citron’s investments of public money, political challenger John M.W. Moorlach on Thursday reiterated his claim that Citron has been pursuing an overly risky strategy and has left the county’s investment pool vulnerable to rising interest rates.

“After reviewing the portfolio, it becomes clear that the possibility of loss is real,” Moorlach said. “I don’t think that anyone could come to a different conclusion.”

Moorlach, a Costa Mesa certified public accountant, had been studying the county’s management of a $7.5-billion portfolio for several weeks after obtaining treasurer records requested under the California Open Records Law. The portfolio contains contributions from more than 180 government agencies.

Citron is facing his first challenge in 24 years to the elected post of county treasurer, and Moorlach has waged an increasingly contentious campaign against him in recent weeks as the June 7 election nears.

Citron was unavailable for comment, but Assistant Treasurer Matthew R. Raabe said the candidate’s conclusions differ little from his past criticisms of Citron’s investment management strategies.

“He has the right to say what he wants,” Raabe said. “But there are plenty of people who think that what we are doing is exactly the right strategy. He’s been making the same claims for the past six weeks. I thought he would have something different to say by now.”

Moorlach’s recent review again takes issue with Citron’s frequent use of “reverse repurchase agreements” to enhance investment returns.

The strategy relies heavily on using the county investment pool’s U.S. Treasury bills and bonds as collateral to borrow short term at low interest rates, and investing the borrowed funds in corporate bonds and securities that pay a higher rate of return. This can yield large returns while interest rates remain low and stable. But the strategy can also fail when interest rates rise, as they have in recent months.

Since January, Moorlach said, the county has had to post an additional $300 million in collateral because the value of the securities used to borrow the money has declined as interest rates have increased.

Raabe confirmed Moorlach’s findings but indicated that the office was not concerned about the developments because the county investment pool is protected by about $1 billion in liquid assets.

Moorlach, however, said county officials are ignoring a potential problem.

“If rates continue to soar, couldn’t the size of the calls top $1 billion?” Moorlach asked rhetorically. “My problem is, why aren’t people making a connection here? I have not been screaming fire in a theater. I have legitimate concerns.”