County Must Cut Investment Return

The success of Orange County’s post-bankruptcy investments has led Treasurer John M.W. Moorlach to create a new investment fund that will earn a lower rate of return needed to comply with federal tax rules.

Federal regulations say the county cannot invest tax-free money from government agencies, schools and special districts to make an excessive profit.

Specifically, under the county’s bankruptcy refinancing plan, the county cannot earn more than 6.21858% on about $350 million out of a total of $1.6 billion invested. The county is allowed greater leeway with money set aside for a “reasonable working capital reserve amount,” according to the plan.

Moorlach said Tuesday he didn’t know about the yield restrictions until late March, when he was told by two county finance officials. The county’s two investment pools as of Monday were earning returns of 6.211%, he said.

“I was a little surprised,” Moorlach said. “I said, ‘OK, fine, let’s figure out how to deal with it.’ ”

County Executive Officer Jan Mittermeier followed up with a letter to Moorlach outlining the problem and suggesting the third fund for the yield-restricted investments. The details of the fund haven’t been determined.

Supervisor Todd Spitzer complained Tuesday that Mittermeier didn’t send copies of her letter to the board, and that at least three supervisors didn’t know about the potential investment problem.

“With something this significant, the decision should come from the Board of Supervisors after a full discussion of what it means to open a third investment pool,” Spitzer said. “[Lack of communication] is how the bankruptcy occurred.”

Moorlach said board members needn’t approve the new fund because it doesn’t involve a change in county policy.

The county is still carrying about $1 billion in debt from the bankruptcy that occurred in 1994. It has paid back about $300 million in debt in the past year.