Orange County has had experience with pirates. Pirate Hipolito Bouchard plundered the San Juan Capistrano mission in 1818 while anchoring off what is now the city Dana Point (California Historical Landmark No. 189).
There is the Pirates of the Caribbean ride at Disneyland, where enjoying birthdays with our children when they were young at the Blue Bayou Restaurant was a fun tradition. Those taking the ride to watch pirates plundering would float by during the beginning of their journey while we were eating our lunch.
Orange County also has financial plundering stories. In the early 1990s, the Orange County Treasurer-Tax Collector made a big wager on the direction of interest rates. Robert L. “Bob” Citron did so well for such a long period of time that the city of Irvine even borrowed $62 million to invest in the Orange County Investment Pool (OCIP), just when everyone should have been making withdrawals.
Greed motivates a number of inappropriate behaviors. One would think that the days of plundering and gambling on the direction of interest rates were long gone here in Orange County, but not so.
In my June 1994 challenge of Citron, I clearly and precisely warned what would happen to the leveraged OCIP if Citron and the Board of Supervisors did not change course. But the band played on while the Federal Reserve Board continued to raise interest rates. By December of 1994, the County ran out of cash to meet collateral calls and was forced to file for Chapter 9 bankruptcy protection.
On March 17, 1995, I was appointed to replace the disgraced Citron and I immediately changed the OCIP into a money market fund with a very short weighted average maturity. I had two oversight committees. And I issued detailed reports every month within ten days of the conclusion of the previous month.
Orange County’s bankruptcy was international news and made significant changes to municipality investing around the nation. The Governmental Accounting Standards Board (GASB) would require reporting the values of investments at fair market value prices (marking to market) with GASB No. 31. Most municipal treasurers around the country would keep weighted average maturities well below 60 days.
So why do I provide all of this ancient history? Because thirty-two years ago, the Orange County Board of Supervisors was asleep at the switch. The nation was in the middle of a recession, and the County needed the extra interest income. It was a classic case of “greed kills.” But a similar situation may be occurring at this very moment, and right under the noses of the current Board of Supervisors.
The investing authority of the elected Treasurer has been taken away and is now in the purview of the County Executive Officer. The Oversight Committee has been unceremoniously eliminated. And the weighted average maturity has been extended to such a length that this information is no longer provided to the Board or the public. Can you say, “betting on the direction of interest rates,” again?
Why? One could assume that there is a difference of opinion on management styles with the current elected Treasurer-Tax Collector. But this is something that can be remedied with a little coaching.
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Once again we’re talking serious money and all I hear is crickets.
Something tells me that everyone is once again asleep and the pirates are on the move.
Maybe history does repeat itself.
John Moorlach served as a California state senator, Orange County supervisor and Orange County treasurer.
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