The Honeymoon Continues
Illustration by Jack GouldOne of the juicier tidbits to emerge from Orange County's 1994 bankruptcy was that then-county Treasurer Bob Citron secretly relied on two Anaheim psychics and a $4.50 star chart to manage as much as $22 billion in taxpayer funds. Without a hint of embarrassment, Citron testified that the astrologers and their charts "predicted when large changes in the financial market would take place." A court-ordered psychological report later concluded that the treasurer's mental skills were "seriously impaired" and that he was possibly "brain-damaged."
Citron eventually went to jail and wary residents relaxed, believing that county funds were safe in the hands of his replacement, current Treasurer John Moorlach. Moorlach was, after all, the man who exposed Citron's wacky, high-risk investments. Unlike Citron, the straight-laced Costa Mesa accountant and onetime head of the ultra-right-wing Costa Mesa Republican Assembly guaranteed cautious investments and accountability (Citron was notorious for hiding county records). "Let's make it vanilla," Moorlach said of his investment strategy after the Board of Supervisors appointed him to replace Citron in March 1995.
As compensation for dismissing his prebankruptcy warnings, the local press has allowed Moorlach a scrutiny-free honeymoon of six years. But that love fest should have ended last month when the treasurer made several disturbing admissions.
First, the background: in September and December, Moorlach's office made two investments totaling $40 million in Edison International, the parent company of Southern California Edison. Normally, investments in public utilities are sure bets. But the treasurer gave Edison critical county education dollars at a time when the state's electricity market was crashing. Cash-strapped Edison was contemplating massive employee layoffs and bankruptcy and was unable to pay stockholder dividends for the first time in memory.
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Moorlach, who does not handle criticism well, has displayed split personalities in response to inquiries about the questionable investments. "It breaks my heart," he told a Los Angeles Times reporter on Jan. 17. But with an Orange County Register reporter the same day, he turned arrogant. Perhaps taking a shot at his predecessor, Moorlach told the reporter, "If I had a crystal ball, I would have avoided the [Edison] investments."
Ironically, the Edison investments were not risky. The utility company's executives—some of whom sit with Moorlach at Orange County Republican Party meetings—are politically connected in Sacramento. No matter how badly Edison screws up, the company owns politicians in both major political parties who will forward the company's outrageous bills to the public. A Sacramento bailout of the utilities now in the works will surely rescue the treasurer.
So, though he won't lose any taxpayer money on the deal, the Edison affair is nevertheless alarming for what it reveals about Moorlach's operation.
Moorlach has offered several contradictory explanations for the investments. In response to questions from county Supervisor Todd Spitzer, Moorlach claimed he isn't aware in advance of the investment moves his office makes; his aides decide where to invest. "The treasurer acknowledged that he did not oversee the purchases," Spitzer concluded. "I don't think many board members walked out of the meeting today and said, 'I'm comfortable.'"
Then Moorlach tried to argue that the investments were statistically insignificant—just 3.3 percent of the county's education fund. But $40 million in public funds isn't chump change under any scenario, especially in a county that has already strapped its taxpayers with 30 years of massive bankruptcy debt payments.
In yet another version, Moorlach claimed he knew about the investments in advance and approved them—but didn't know Edison was in the midst of its biggest corporate crisis ever. "All of our data showed things were still rather comfortable," Moorlach told supervisors.
That claim met with incredulity at the board. In a Perry Mason moment, Spitzer held up a four-page special report written by investment analysts Fitch Inc. The report was issued three weeks before Moorlach's first Edison investment, and it raised red flags about the financial health of California's utilities. Moorlach admitted he had not read the report and relied instead on his "gut."
Of course, the treasurer did not need to read Fitch's report to know what everyone else in the state knew. On Sept. 28, when Moorlach (or his aides) gave Edison the first $20 million, the Times carried a major article that concluded with a graphic image of Edison's financial health: "The house is on fire." On Dec. 7, when Moorlach's office made the second $20 million investment, the Associated Press carried a banner story with the headline "Power Crisis Hits California."
Moorlach's counterpart in San Bernardino County didn't wait for those headlines: he dumped $5 million worth of utility stocks more than a year ago when the energy situation first became precarious.
But Moorlach isn't going to accept responsibility. "Basically, what we are encountering in the finance world is the 100-year flood," he said, as if the crisis were an unexpected overnight calamity. He has, however, tried to blame his investment troubles on Democratic Governor Gray Davis and, at another point, on Fitch Inc. "Thank you very much, Fitch," he said, "for not being more proactive."
Moorlach's responses have so far raised more questions than they've answered. But the honeymoon continues. His supporter on the Board of Supervisors, chairperson Cynthia Coad, showed all the inquisitiveness of bankruptcy-era supervisors. Anger? Outrage? Even a meek request for an explanation? Nope. "John's got a handle on it," she said. The Orange County Register—another Moorlach ally —usually can't rant enough about bureaucratic bumbling but had only this to say on his Edison investments: "Why all the fuss?"
Spitzer, however, didn't want to hear the blame games or participate in cover-ups. "We have to be more insightful," the 3rd District supervisor said. "We have to be on top of our game all the time because we're talking about hundreds of millions of dollars."
The Moorlach debacle doesn't end there. In December, the treasurer formed what he called a "critically important" committee to secretly negotiate with Edison. He has refused to reveal the identities of the committee members or publicly disclose records of their association and dealings with Edison. Moorlach will only say that the committee is composed of other Edison creditors.
This marks a dramatic change for the treasurer. When he took office, he promised, "There is not going to be anything secretive." But six years have passed, and Moorlach isn't the wide-eyed newcomer anymore; now he's a powerful incumbent.
Even as he blocked public disclosure, Moorlach's spokesman Brett R. Barbre boldly said, "There aren't any questions we're going to run away from. Everything we do is wide-open and public."
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