Moorlach Gets to Dip a Toe in County Pool

Treasurer-Tax Collector John M.W. Moorlach said Friday that his office will soon begin managing a portion of Orange County’s investment pool for the first time since his predecessor’s risky strategies plunged the county into bankruptcy 18 months ago.

Announcement of the milestone came the same day the county said that it expects to complete the sale of $900 million in recovery debt by June 11 and officially emerge from bankruptcy on that day or soon afterward.

The county plans to issue certificates of participation and pension obligation bonds on June 6 and wire proceeds from the sale to bondholders, vendors and other creditors by June 11. The Board of Supervisors might hold a special meeting a few days later to finalize the process.

“It might not be the legal definition, but I would say [June 11] is the day we pay off our debts and . . . are out of bankruptcy,” Supervisor Don Saltarelli said.

“I’m really excited about it,” he added. “This is going to be a good day for Orange County. It’s going to make a difference psychologically as the problem is lifted.”

The December 1994 bankruptcy filing stemmed from $1.64 billion in losses suffered by the county-run pool, which were blamed on the high-risk investment strategy followed by longtime Treasurer-Tax Collector Robert L. Citron.

Ever since the firm was brought in to sort out the county’s finances after the bankruptcy was filed, Salomon Brothers Asset Management has handled the investment pool, earning more than $1 million a year for the service. The pool now contains about $2.8 billion, down sharply from a pre-bankruptcy high of $7.5 billion, because many government agencies pulled their money out.

Moorlach was appointed to the post after Citron resigned and in March was elected to fill out the three years remaining in the term. He said he is now ready to take control of investment management after spending more than a year instituting reforms and restructuring the office.

“It took a long time make everything fit. I think of the analogy of turning a battleship around,” Moorlach said. “Now we are saying, ‘OK, let’s bring a little money into the county and make sure all the new systems are working properly.’ ”

The transition will begin in mid-June when Moorlach begins handling $100 million in county investments. He could take responsibility for larger sums over the coming months as his staff becomes comfortable with the process and adjusts for any problems.

Moorlach and other county officials stressed that the policies and procedures at the treasurer’s office have changed radically since Citron’s departure.

The county now has two treasury oversight committees, one that advises Moorlach and another that monitors his investment decisions for the Board of Supervisors.

The board has also adopted strict investment guidelines that forbid the use of derivatives, a risky form of investing that played a role in the financial debacle. In addition, Moorlach said he has modernized the office and imposed internal controls.

“There will be a lot of differences in our approach,” Moorlach said. “We have a policy statement that is very conservative.”

Even with the cautiousness, Moorlach said, the county pool is earning yields of up to 5%, which he said are competitive with market averages. Using exotic securities, Citron earned yields of 8% or more.

For more than a year, county officials have been discussing when to turn over investment management to Moorlach. Within the last few weeks, County Chief Executive Officer Jan Mittermeier, as well the county’s internal audit department, signed off on the gradual transition.

The consensus was not always there. Last June, one member of the Treasury Oversight Committee, which was formed after the bankruptcy, said Moorlach was not yet ready to manage the pool and urged him to “back off” from the request until more extensive reforms were in place.

Some supervisors have said the bankruptcy made them wary about giving any one official control over the investment pool.

One of those supervisors, Marian Bergeson, said Friday that she was comfortable with allowing Moorlach to handle the $100 million in investments. But she said the board should carefully examine each request to expand the treasury staff’s role.

“I don’t think the board will ever be complacent after what happened in the past,” she said. “But I think the conservative investment policies ensure the least amount of risk.”

Moorlach said transition to treasury department control will eventually save the county money, noting that Salomon Brothers earns more than $1 million a year for managing the investments.