This Time, a Course That’s Safe and Sure : Agencies’ Future Investments Should Be Kept Simple
A host of brokerage firms, money managers and investment gurus are knocking on doors at city halls across the county these days, hoping that the ill wind of Orange County’s bankruptcy blows some good their way. Despite the come-ons, most cities and districts appear to be taking the sensible course and taking a long, hard look before deciding where to put their money. The motto needs to be “safety first.”
The salespeople know that the cities and special districts have received billions of dollars in payouts from the county’s failed investment pool under the terms of an agreement approved by U.S. Bankruptcy Judge John E. Ryan. The representatives of investment firms and money managers want the chance to invest that money for the various agencies--for a price, of course.
The county’s new treasurer, John M.W. Moorlach, wants to do business also, but he has one of the tougher selling jobs around. Moorlach lost last year’s election to incumbent Robert L. Citron, who went on to leverage the investment pool past the breaking point as interest rates rose and the pool collapsed. The county declared bankruptcy Dec. 6, having suffered a $1.69-billion loss in the fund.
Citron leveraged the fund up to three times its value and pursued a risky investment strategy that included complex securities. He has since pleaded guilty to six felony counts, including the misappropriation of the funds he managed for the nearly 200 cities, school districts and other public agencies.
The Board of Supervisors appointed Moorlach to replace Citron as treasurer and tax collector. The new officeholder has promised a prudent course. Moorlach said he wants to establish four types of funds, with the main difference among them being the maturity of the bonds each fund holds. Here again, the aim is safety. Cities could just plunk the money in a vault, but inflation would reduce its value. The governments count on earning enough interest to keep up with inflation.
School districts are required to invest in the county’s fund, so Moorlach will have some money to invest. He also makes a good case for other districts and municipalities to return to the fund, saying it will be scrutinized so thoroughly that it will have to be safe. A five-member oversight committee has already been established to monitor the fund. The new treasurer also plans to let investors know how much they have in the fund based on its current market value. That’s a welcome change.
The frenzy to handle money was illustrated graphically when the Orange County Transportation Authority announced it was seeking bids to manage its billions of dollars. More than 50 money managers expressed interest in handling the business for the OCTA, which was the biggest investor in Citron’s fund. Irvine, too, found the phone lines flooded with calls from money managers looking for business.
Moorlach has “vanilla” investments, but ones that pay competitive rates. Officials in a number of cities said that whoever handles their money, they want financial dealings kept simple. Their watchwords are safety of principal, no derivatives, no inverse floaters, no structured notes that are so complex as nearly to defy understanding. Several cities have also promised to involve residents as monitors, a good idea.
The county’s new treasurer presented a realistic assessment in saying that “Once you lose credibility, it takes time to regain it.” The pool’s losses and Citron’s guilty plea hammered taxpayers’ confidence in their elected officials.
Government is a public trust, and the treasurers must be stewards of the public’s money.
