A Tale of 2 Cities: Novel Treasurers Avoided Chapter 9

Public officials often don’t want to talk to the media, and who can blame them? Questions, questions, so many questions.

Yes, they almost always return our phone calls, but we usually get the feeling we’re on their “Things to Do” list, just beneath calling the repair shop for the fender estimate or the dentist to schedule that much-delayed root canal.

And yet, I had this funny feeling that Anthony Andrade and Cynthia Pendleton would be more than happy to talk this week.

And they were. Not only that, but they’d be happy to take calls from every one of their constituents.

As city treasurers in Garden Grove and San Juan Capistrano, respectively, Andrade and Pendleton represent the only two cities in Orange County that stayed out of the county investment pool that is imploding. Never even got their feet wet. Given that the pool’s misfortunes have led the county to declare bankruptcy, cost Treasurer-

Tax Collector Robert L. Citron his job and caused consternation among its 185 participants, Andrade and Pendleton are two of the few financial managers around here who don’t have to wear paper bags over their heads when they go to work in the morning.

What did Andrade and Pendleton see that others didn’t? In the midst of what must have been some pressure to reap the higher returns that the fund was generating over the years, why did they resist?

Pendleton said she thinks San Juan Capistrano first considered the Citron pool a few years ago, during David Bentz’s tenure as treasurer. “We were invited to earn higher interests rates (in the pool), and we requested a copy of the investment portfolio,” Pendleton said. “Neither of us was comfortable with a couple different things. The reverse purchase agreements that they used to generate those nice returns had maturities that weren’t matching, and also the county statute that required 30 days to withdraw funds. So, we thought those type of investments were riskier than we would want to invest in, and the 30 days to withdraw funds was kind of cumbersome.”

Then, two years ago, Pendleton, who had since become treasurer, reviewed the Citron fund again to see if she wanted to commit any of the $15 million that the city averages in its investment portfolio. “We looked at it again, got a copy of the (Citron) portfolio again, and the same things were true that were there two years before. Everything was the same.”

She knew that nearly all of her colleagues throughout the county praised the fund and that, about the time she was reviewing it, the local water district dived in for the first time. Similarly, some people at City Hall applied mild pressure, but Pendleton held firm. Driven in part by the fact the city simply didn’t have the time to study Citron’s complex investment strategy, Pendleton concluded that participation “was too risky.”

Andrade, the Garden Grove controller since 1980, said the city doesn’t permit the kind of speculating inherent to Citron’s investment strategy, or as he says, “What I would call gambling on interest-rate moves, because no one can consistently forecast interest rate moves. As a result of that, it’s speculation. We try to match our cash flow to our investments, and we do not leverage our investments.”

Since other municipal finance managers presumably know the same things he does, I asked Andrade, why did so many opt to go with Citron? “I think they think they can get a higher yield,” he said.

But Andrade said the issue also revolves around “what your training and beliefs are.” Andrade said his philosophy is that the safety of the principal is the paramount concern, especially when investing public funds. “Secondary is liquidity, and third is yield.”

Neither Andrade nor Pendleton was gloating over their decisions to avoid the fund. Pendleton said she breathed a “sigh of relief” that she had stayed out, and Andrade said, “We feel bad because of the tragedy. I feel bad for Bob and especially for this county. Believe it or not, we’re in this county too. It’s not like we’re in Nova Scotia. But I feel good about that fact that we have no money in that pool and can show we have yields over all those years that are very competitive (with the county’s pool).”

At a time when a lot of people are applying hindsight, Pendleton and Andrade deserve kudos for their foresight. When their peers were unwilling to resist temptation, they did.

I was prepared to sound the trumpet for him, but Andrade made his actions sound so simple:

“To tell you the truth,” he said, “all we did was do our job.”

Dana Parsons’ column appears Wednesday, Friday and Sunday. Readers may reach Parsons by writing to him at The Times Orange County Edition, 1375 Sunflower Ave., Costa Mesa, Calif. 92626, or calling (714) 966-7821.