Board Wants Moorlach as New O.C. Treasurer : Bankruptcy: Advice to seek other candidates rejected. Accountant who forecast fiscal debacle eager to get job.

TIMES STAFF WRITERS

Rejecting the advice of top county staff members, a majority of Orange County supervisors said Wednesday they are prepared to appoint accountant John M.W. Moorlach as the county's next treasurer-tax collector, possibly as early as next week.

At a special board meeting, the supervisors dismissed recommendations from acting Treasurer Thomas E. Daxon and interim Chief Executive Officer William J. Popejoy to establish a committee that would launch a comprehensive search for a candidate to replace former Treasurer-Tax Collector Robert L. Citron. Citron resigned Dec. 4, two days before the county declared the largest municipal bankruptcy in U.S. history.

A majority of the supervisors said a search is unnecessary because Moorlach has earned their respect--and the post.

"I personally am looking at one appointee here and that is John Moorlach," said Supervisor Roger R. Stanton. "That's something that, as far as I am concerned, is a given."

Moorlach, who ran unsuccessfully against Citron for the office last June, is credited with sounding the first warnings about the county's risky investment strategy.

Moorlach said he would accept the job immediately if it is offered.

"I'm mentally prepared for the job," he said. "I've been eating, drinking and sleeping Orange County treasurer for a year and a half now."

While supervisors discussed who would lead the treasurer's office, there were other developments in the county's ongoing financial crisis Wednesday.

* Popejoy announced a sweeping reorganization of the former county administrative office, laying off 25 employees and virtually eliminating an entire division dedicated to policy research and planning. He revealed that another 38 positions will either be transferred to other departments or soon eliminated.

The cuts continue the dramatic downsizing of the department formerly headed by recently ousted County Administrative Officer Ernie Schneider from 108 employees to about two dozen. The department also lost workers in a layoff in December.

Popejoy said the budget ax would begin swinging in all county departments Tuesday.

"Knowing that large layoffs are inevitable in county government in the next days and months ahead, I felt it important to set an example by beginning the redefinition of county government with the organization that most closely reports to me," Popejoy said in a prepared statement.

* A day after Popejoy promised to vigorously pursue lawsuits against investment houses the county partially blames for the financial debacle, the county dropped its $1-billion lawsuit against Nomura Securities International, a Japanese brokerage.

The lawsuit, filed in U.S. Bankruptcy court Dec. 9, claimed that the brokerage unlawfully liquidated about $900 million in collateral underpinning the county's reverse repurchase agreements. Voluntarily dismissing the action, county lawyers said that because the investment pools were liquidated after the lawsuit was filed, "the need for these actions has been reduced."

County bankruptcy attorney Bruce Bennett said the county may reinstate its claim against Nomura once the bankruptcy court rules on legal issues in the county lawsuit against Merrill Lynch, which seeks more than $2 billion.

* In Sacramento, state Sens. Tom Hayden (D-Santa Monica) and Quentin Kopp (I-San Francisco) called on a private sector panel advising lawmakers on the investment debacle to toughen a list of recommended changes in state law, saying "the Wall Street practices which sucked Orange County into the black hole of bankruptcy must be addressed."

In a letter, the two lawmakers urged the panel to consider tougher restrictions on risky investments, fuller disclosure to investors in government portfolios and an outright ban on campaign contributions to local government officials from investment banking firms.

Hayden and Kopp said loopholes in current laws allowed Merrill Lynch broker Michael Stamenson to contribute $1,000 to Citron the day before the Board of Supervisors approved a controversial $600-million bond issue underwritten by the firm last summer.

* At a luncheon held by the Orange County Chamber of Commerce, Supervisors Stanton and Gaddi H. Vasquez railed at "critics" who contend they're not doing anything about the county's financial situation.

"Most people I've talked to who have been involved in these types of calamities in the private sector have suggested to me that we have moved with significant speed to address these issues," Vasquez said.

Stanton added that he too had heard from financial experts that the county is moving more quickly than expected. "The fact is, we're moving with great dispatch, but that doesn't seem to be news," he said.

* Attorneys updated about 50 school board members and school superintendents gathered at Orange County Department of Education headquarters Wednesday night about efforts to recover 100% of the $1.1 billion schools sunk into the failed county investment pool. Educators were urged once again to demand a full return of their money from the county, which is currently proposing to give back 90%.

"Our goal is 100 cents on the dollar, nothing less for our children," said attorney Merrill Francis, who represents county schools in the bankruptcy proceedings. "It's going to be a total disaster without it."

* The supervisors established a five-member committee of finance professionals to oversee future investments by the treasurer's office. The watchdog group will recommend and review investment guidelines. It also will file quarterly reports on the county's finances to the board.

Daxon also proposed that the oversight committee be used to help the board find the most qualified candidate to replace him when he leaves office this month. He said he believes Moorlach is "professionally qualified" for the position but told the board the oversight committee would make the selection a professional process, not a political one.

Popejoy also supported the formation of a selection committee for the treasurer's position. In a memo to board members two weeks ago, Popejoy warned the board against making a hasty appointment.

"I respectfully submit that it would be highly irresponsible to select an individual without the qualifications and abilities required for the task at hand and as a result compound and continue the problems of the office," Popejoy noted in his Feb. 17 letter.

But supervisors said they did not believe a lengthy review was necessary.

"Since there is already a rather predetermined decision on the part of the board that John Moorlach would be the heir apparent, if you will, it might be somewhat of a facade to go through a process where everyone had pretty much made up their mind," Supervisor Marian Bergeson said.

Supervisor Jim Silva said he also backs Moorlach.

"I think John Moorlach has had excellent insight and I could support Mr. Moorlach," Silva said.

Because Moorlach's appointment was not listed on the board's agenda, County Counsel Terry C. Andrus cautioned the supervisors not to continue with their discussion, suggesting they schedule the item for action at another meeting. Vasquez asked that the issue be considered Tuesday.

The selection of Moorlach would bring one of the most strident critics of the county's investment strategy to work with officials who are trying to map out a recovery plan. Though voters rejected Moorlach by a 3-2 ratio in last June's election, a Times Orange County Poll taken in January showed that 49% of respondents favored naming him to the treasurer's post.

His appointment, however, could have advantages and disadvantages for the supervisors. They will likely be praised for recognizing and hiring Moorlach, who had previously been rejected by the electorate. But they also may be criticized for failing to open the appointment process to other candidates who may have more investment experience than Moorlach.

After Wednesday's supervisors' meeting, Popejoy said he has no position on the appointment or Moorlach's qualifications. He said he had only recommended a process that he thought would best serve the county.

"There will be a number of things that I will propose that they may see differently," Popejoy said.

Moorlach said he believes his 18 years' experience in accounting and financial planning qualify him for the position. He added that a selection committee would be unnecessary if the supervisors already have their minds made up.

"Why go through all the hoops?" he asked. "Why go through an unnecessary exercise?"

If he is selected, Moorlach said, he will take office with a "100-day plan" aimed at restoring confidence in the treasurer's office.

While Moorlach was receiving good news about the possibility of joining the county's work force, employees in Popejoy's office were being told to pack their belongings because they were being laid off.

"Everyone's walking around like a deer in headlights," said Annette Diogostine, 31, a research analyst, whose last day of work will be Friday. "I just bought a new home two months ago in Fountain Valley. It's going to be hard. No job. Two kids."

The division gutted Wednesday also took the brunt of layoffs just after the crisis unfolded, when 21 people were laid off.

In the current layoff, managers were placed on paid administrative leave for two weeks, but lower-level employees were offered just three days' pay.

Of the 25 positions eliminated, the vast majority came from the division of policy, research and planning, which compiles the county's demographic information, monitors urban growth to ensure that it doesn't outpace the county's ability to provide services and acts as a liaison to all other local governments in the county.

Homeless issues coordinator Maria Mendoza's position also was eliminated. The services she provided may or may not be offered by another agency, county officials said. Thirty-eight other positions will be transferred out of the county administrative office and some may eventually be eliminated, they said.

Workers turned some bitterness toward Popejoy, who, they said, had little knowledge of what they do for a living.

"The guy has not even made 10 steps in the direction of where most of his division has been housed," one worker said. "It's pathetic that he's being allowed to operate this way."

Other workers expressed deep disappointment that they would not be around to help with the county's attempts at financial recovery.

"We were geared up to assist in the restructuring," said one 10-year employee who asked that his name not be used. "We had nothing to do with the problem, but we felt we could actively be part of the solution. There are a lot of qualified people here and we've just been benched."

Another longtime employee added: "It seems to me what they're doing is amputating first and diagnosing the patient later."

Times staff writers Eric Bailey, Mark Platte and Michael G. Wagner contributed to this report.

More Coverage: O.C. in Bankruptcy

* LEGAL BILLS RISE--County agrees to set aside $2 million for creditors' legal and other fees. A17

* VOWING TO STAY--Steve Lewis promises to remain auditor-controller despite pressure. A18

* LOSS TRANSFERS--Investors told county should bear at least $300 million more of pool loss. A20

* MORE STORIES: A17-20

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