The bad memories of the 1994 Orange County bankruptcy came to mind in the controversy over managing Orange County’s $17 billion investment portfolio. In December, the Board of Supervisors took away from Treasurer-Tax Collector Shari Freidenrich control of the county’s $17 billion investment portfolio. Then on Feb. 11, the Register reported, it took the first step “toward transferring investment authority to the county’s chief financial officer,” Kimberly Engelby.
Another bankruptcy? The expert is John Moorlach. In 1994 he was an accountant in private practice. He ran for treasurer-tax collector, warning incumbent Bob Citron’s soaring returns on the county’s $8 billion investment funds were too risky. Moorlach lost. That December, Orange County declared Chapter 9 bankruptcy, costing $1.6 billion.
Citron resigned and pleaded guilty to six felony counts, spending a year in prison. The board appointed Moorlach to the post. He restored the county’s finances. He’s currently recounting the history of those days on his blog, MoorlachUpdate.com.
Moorlach, with whom I served as press secretary when he was a state senator, told me, “There’s no interest rate risk, no market risk to speak of” in the current portfolio. That’s due to safeguards he put in place back in 1995 and recent prudential management. “So everything should be fine.”
I asked about the problem with Supervisor Andrew Do resigning last year and, in October, pleading guilty to bribery involving a nonprofit where his daughter worked. Moorlach said there’s a “wall” between county investments and anything Do did.
So what’s the problem? The Register reported ex-administrators “said in interviews that Freidenrich’s investments were too conservative and not generating adequate returns.” Well, we don’t want Citron 2.0.
The worst is former staff members allege a “toxic atmosphere” in the office from her “very aggressive management style, resulting in a 2022 warning from the county human resources department.” “She is basically a bully – everybody gets in trouble for every little thing,” Jennifer Burkhart, who resigned in January 2024 as director of tax and central collections, told the Register.
Freidenrich told the Register, “The performance of my duties is key and that is what I focus on.” And she is working with an executive coach.
At the Feb. 11 meeting, District Attorney Todd Spitzer said, “I am a department head, and there are billions and billions of dollars in that fund, and we do not understand why the board feels it’s necessary to” shift control to the CEO, whose office “couldn’t keep track of $10 million that Andrew Do squandered.” Spitzer’s experience is crucial because voters elected him a supervisor in 1996 to clean up the prior board’s mess.
I have two concerns: 1. The money. 2. Democracy.
On the money, Freidenrich’s performance with the portfolio has been exemplary for 14 years. State numbers show the fourth highest investment pool yield of 58 counties at 4.246% for fiscal year 2023-24. Although bankruptcy risk is low, as Moorlach said, a good return bolsters the country’s overall finances.
The finances, by the way, are not that great under the current bord. According to the Annual Comprehensive Financial Report for fiscal 2022-23, which ended on June 30, 2023, the unrestricted net deficit was a negative $1.4 billion. That’s $438 owed by every person in the county.
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The portfolio should be returned to Freidenrich. The next election in June 2026 is just 13 months away. Once more, if she runs again, let the voters decide her fate. The supervisors could campaign against her.
If something is working, and the memory of the 1994 nightmare remains green, why take a chance on a risky change? Meanwhile, the board should focus on balancing its own county budget.
John Seiler is on the Register editorial board
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