Rewriting the Books : Treasurer Moorlach Striving to Find Office’s Proper Balance

In the spring of 1994, John M.W. Moorlach carried his message to voters that disaster awaited the county’s investment pool unless then-Treasurer-Tax Collector Robert L. Citron’s strategy was abruptly halted.

The 39-year-old Costa Mesa accountant--Citron’s first serious challenger for treasurer in more than 20 years--was thumped by a ratio of 3 to 2, and for six months his warnings were largely forgotten.

For reasons he still does not completely understand, Moorlach’s message never resonated with business or political leaders, or with the media. “No one really listened,” he said. “I don’t know why people didn’t believe me.”

But now they listen, and they believe.

Since March, when the Board of Supervisors appointed him to fill Citron’s unfinished term, Moorlach has been slowly remaking the treasurer’s office, trying to restore its integrity and the public’s confidence.

“What happened,” he said, “must never happen again.”

The volume of work to be completed, and the issues yet to be resolved, have proved daunting, even for a confessed workaholic whose earnestness and hearty laugh have helped him win the praise of county officials and member of the Treasury Oversight Committee with whom he works closely.

“I think that John has been very conscientiously striving to meet the demands of the job, obviously taking it over at a very difficult time,” Supervisor Marian Bergeson said.

County Chief Executive Officer Jan Mittermeier is unstinting in her praise: “I like John and I think he’s done an excellent job. He’s a very open person. He has no hidden agendas.

“He’s been totally cooperative with this office even though he is holding an elected office and doesn’t work for me,” Mittermeier continued. “But he considers himself part of the county structure.”

After his appointment, Moorlach exercised a buyout clause in the accounting practice he shared and sold his stake to his partners under an arrangement that allows him to buy it back. Under the terms of the sale, he said, he will receive 10 annual payments, which he stashes in the bank.

But Moorlach enjoys being treasurer, so much so that he plans to run again for the office, which pays $104,000 a year, in the election next March. He had a fund-raiser scheduled, coincidentally, on Wednesday, Dec. 6--the first anniversary of the bankruptcy.

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“I like public service,” he said, “and I feel I have something very positive to contribute.”

But voters will also decide next March whether there will even be an elective office to fill. The Charter Commission recommended last week that the elected treasurer position be abolished, so that supervisors can appoint someone who would be answerable to the Board of Supervisors.

Former County Executive Officer William J. Popejoy captured the feelings of those who favor an appointive, rather than an elected treasurer, when he remarked in April:

“All you need to become treasurer in this county is more votes than the person you’re running against. You don’t need to know a damn thing about money management. It’s like saying, ‘Let’s vote for someone to be brain surgeon and, by the way, whoever gets the most votes has to go in and do the surgery after the election.’ ”

To some, the need for a treasurer with a genuine financial resume seems self-evident in the aftermath of Citron, who lost $1.69 billion of public money and had, by his own admission in court documents, no formal training in finance.

“I really think the treasurer should be appointed because [you can attract] someone with a real strong financial background,” said Blake E. Christian, a member of the Treasury Oversight Committee. “As it is, you can have someone with no financial background at all be treasurer.”

The fact that Moorlach has no experience operating a large fund led to a public falling out between Moorlach and Gary A. Pulford, who resigned from the oversight committee. At the moment, only two people in the treasurer’s office have any significant investment experience.

Pulford expressed his concerns about Moorlach’s lack of experience in a June 6 letter to the oversight committee and the Board of Supervisors.

“I sent a letter to John and drew out some issues that, until they were resolved, I did not want to see a penny of the money come back into the county,” Pulford said. “John saw that as a personal attack.”

In the letter, Pulford wrote: “John, you appear to be doing a better and better job each day, but I really wish that you would back off of this in-house money management issue until you get your operation in order.”

Moorlach said his differences with Pulford have been exaggerated. “We’re neighbors,” he said, “and I respect his advice.”

Meanwhile, Moorlach plunges ahead. Rebuilding the office has required almost constant attention.

When he’s not at work, which is rare, he is usually out speaking about the Orange County experience.

A dedicated family man who enjoys watching his children play soccer, Moorlach said the long hours required of him now often make him feel guilty about how much time he spends away from his wife and three children.

“If I’m not here, I’m home reading,” he said. “I’m not the world’s smartest man, I know that. I’m kind of dull. I’d really like to focus on my wife and kids a little bit more.”

When asked if he had any hobbies or outside interests, Moorlach said at first that he couldn’t think of any. But he called the next day to say he enjoys “studying California history” and serving on the state’s Sesquicentennial Commission.

The task of preventing another debacle requires Moorlach to spend most days hip deep in accounting and policy minutia (“All securities shall be held by a third party custodian” or “The approver signs the wire transfer log schedule”), much of it suitable, intellectually and temperamentally, to this certified public accountant.

And it is the dull but significant job of reconciling the still-tangled accounts of pool investors, of obtaining new computer software, of installing modern cash management methods, of making sure that the “new and improved” Orange County treasurer’s office can actually determine the value of securities it owns on a daily basis.

Moorlach must also ensure the office can issue account statements with accurate balances and interest earnings upon request--instead of 10 days after the end of a quarter.

Even though most of his projects are still works in progress, the treasurer’s office run by Moorlach is a vastly different place than it was under Citron.

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For one thing, the once immense Orange County Investment Pool now consists of about $2.5 billion in plain vanilla bonds that belong to the county and local school districts--much diminished from the $7.5-billion pool that Citron leveraged to more than $21 billion for investment in some of the most exotic products on display in America’s finance bazaar.

Another significant change was the adoption of an investment policy forbidding the purchase of derivatives.

The treasurer’s office has also installed a modern accounting system and a host of internal controls that have been suggested and implemented following the recommendations of the Treasury Oversight Committee appointed by the supervisors. Other controls were recommended by the county’s internal auditor; by State Auditor Kurt Sjoberg; by the Orange County Grand Jury and its consultant, Kroll Associates; and the accounting firm of Arthur Andersen & Co.

Finally, by law, Moorlach now reports regularly to the Treasury Oversight Committee, which, in turn, reports to the Board of Supervisors.

Whether that committee will continue to exist has become one of the larger issues of Moorlach’s short tenure. Appointed by the Board of Supervisors before the state Legislature mandated such oversight committees statewide, the local members threatened to resign en masse unless the state law was amended to do away with a revolving-door provision.

The law, passed because of Orange County, bars oversight committee members from working for financial firms for three years after leaving the committee, a provision that local committee members say infringes upon their future earning potential.

Depending upon how the law is applied, it might exclude the entire committee, Moorlach and others say.

“We feel that the legislation emasculates the committee,” said Clyde E. Kendzierski, one committee member. “What they’re trying to avoid is [a conflict of interest] . . . [but] it prohibits professionals from serving on the committee.”

Moorlach said he hopes to persuade lawmakers to amend the law in January. Failing that, the county is considering appointing another oversight panel that would meet infrequently and allow the current group to become an advisory committee and continue its close involvement with Moorlach.

But some see that as an attempt to thwart the intent of the reform law.

“It’s not an idea that I actively endorse,” said Bruce A. Hughes, a member of the Treasury Oversight Committee. “I think that that tries to do an end-run around the bill. But we are running out of time.”

Mittermeier said the Board of Supervisors was still studying its options but leaning toward turning the current committee into an advisory body.

The other large and, in some ways, more contentious issue is whether the treasurer should resume investing the county’s money. Because of the bankruptcy, many county officials are understandably nervous about returning control of the county’s purse to the treasurer’s office.

Currently, Salomon Brothers Asset Management oversees the $2.5 billion that remains in the investment pool. The firm is paid roughly $100,000 a month for managing the account, and so far has been able to earn enough to cover its fee, said Steve Guterman, who heads the division.

From April through July, the pool earned about 0.5% a month, according to Salomon Brothers figures given to the oversight committee. Year-to-date earnings through July were 3.43% before fees, and 3.39% after fees were deducted. That rate of return was slightly higher than the national money market average for institutional government funds of 3.28%, according to the figures.

Although the county might someday invest a portion of its funds in securities that earn slightly more, Moorlach, Mittermeier and others say the county will likely never again see the high-flying days of 8+% that Citron raked in before his risky portfolio collapsed.

The result is that the county’s general fund will not see enormous multimillion-dollar injections of interest earnings from the pool.

Both Moorlach and county executive Jan Mittermeier believe the treasurer is nearly ready to resume investing the county’s money. In fact, Mittermeier said that could happen early next year.

“I think we’re fairly close,” Mittermeier said.

But others, like Supervisor Bergeson, are unsure. “I still have some concerns on the investments and presumably we will need professional help on this for the near future.

“We’d all like to see it move more quickly, but I think in the current situation it’s difficult to move too quickly,” Bergeson added.

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Mittermeier said that she would like to see the county test Moorlach’s internal controls by slowly shifting funds back to the county from Salomon Brothers, starting with perhaps $100 million at first. If all goes well, the balance would be shifted by next June when the county hopes to be completely out of bankruptcy, she said.

Sitting in the corner office Citron occupied for years, Moorlach surveyed the cardinal red carpeting specially ordered by his predecessor to match the school colors of his alma mater, USC, and shrugged.

A staunch Republican who said he believes strongly in the virtues of the marketplace, Moorlach said he thinks his office can actually save taxpayers money and achieve safe, modest returns on surplus funds, as the treasurer’s office was originally meant to do.

“I think there are some things that government can do to save taxpayers’ money,” he said. “And I’d like that chance to do it.”