O.C. School Funds in Edison Bonds

Orange County invested $40 million in public school funds in Southern California Edison bonds only a few months and weeks before the utility neared insolvency over the state’s energy crisis.

The Edison investment came to light this week and has triggered a downgrading of the county pool’s credit rating.

County Treasurer John Moorlach conceded Wednesday that his office’s Edison investment was a mistake and that every school district in the county could lose millions from the investment.

The financial chief said the two $20-million notes--one bought on Sept. 28 and the other Dec. 7--were viewed as sound steps by his office at the time, even though there had been warnings of a possible financial meltdown of Rosemead-based Edison, the state’s second-largest utility.

The investments represent 3.3% of the $1.1 billion in the county’s educational investment pool, which holds excess operating cash for school districts.

Some school and county leaders expressed concern and even amazement that Moorlach had invested school money in Edison but said they had faith the notes eventually would be repaid.

In early 1994, Moorlach warned that the risky investments of former Orange County Treasurer Robert L. Citron could lead the county into financial collapse, which occurred in December of that year.

Art Montes, who sits on the Centralia School District Board of Trustees, said Moorlach, of all people, “should have seen [Edison’s problems] coming.”

If Edison files for bankruptcy, Orange County could find itself waiting in line as a creditor. In a worst-case scenario, the county would withhold interest payments to the school districts for five months to replace the lost capital. Any remaining interest would be distributed among the districts, based on the total amount each district has in the pool.

Moorlach said he learned of the Dec. 7 purchase of the Edison note a week after the investment was made. Moorlach said he hadn’t told his investment officers to steer clear of such investments because “my gut didn’t tell me it was necessary.”

“In hindsight, that would have been easy to do,” he said. “It’s breaking my heart to see this happen.”

Robert Fauteux, chairman of the Orange County Treasurer’s Oversight Committee, said that although his panel was unaware of the purchases, they did meet the guidelines of the county’s investment policy.

County Supervisor Todd Spitzer said he will ask his colleagues next week to quiz Moorlach during a public meeting on why his office bought the Edison bonds.

School officials across Orange County were warily monitoring the situation after having been alerted late Tuesday of the troubled investments.

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Staff writers Jessica Garrison, Monte Morin and David Reyes contributed to this report.