News Details

After 13th anniversary of county's financial downfall, political fallout over controversial treasurer gears up.

The Orange County Register

December 9, 2007

It was the largest municipal bankruptcy in the nation's history.

Thirteen years ago, Orange County politicians were busy telling the public that the county was bankrupt.

With more than $1 billion in losses, a handful of elected officials and top administrators saw their careers end. Others spent years clearing their names in court.

This anniversary week, elected officials had to break the news to the public that another investment problem, potentially affecting as much as 14 percent of the county's $6 billion investment portfolio.

Moody's Investors Service has announced that it may downgrade $105 billion in structured investment vehicles, including 11 in which Orange County has invested $460 million. A downgrade would reduce the securities' sale value. Orange County is the only major government agency in California to put public money into this controversial type of security.

Treasurer-Tax Collector Chriss Street – already embroiled in a series of controversies over his tenure as a bankruptcy trustee – broke the news to county supervisors at the tail end of their public meeting last Tuesday. By the end of the week, Street was privately visiting supervisors handing out a thick report explaining the situation.

"We have to be very cautious to not jump to a conclusion that this is a problem," said County Supervisor Bill Campbell noting that he would be studying Street's binder before casting judgment.

Yet given the county's history, the political fallout over this week's investment downgrade has already begun.

"It's awkward," said County Supervisor John Moorlach, "talking about something in the portfolio" referring to the bankruptcy anniversary.

Over the past few years, county supervisors and public employee unions have come under fire for more than $2 billion in unfunded liabilities for public sector pensions and benefits. And the memory of the1994 bankruptcy still stings the public budget, with loan payments of $90 million each year.

The county's largest, and most politically active public employee union, the Orange County Employees Association, is already calling for an immediate public hearing.

"There have been thorough public discussions and hearings on our pensions, which is considered good business," said OCEA general manager Nick Berardino.

Berardino, who was the union head during the bankruptcy and had to address myriad issues like layoffs in the wake, said any problems with the pool need full disclosure immediately.

"Silence is deadly," Berardino said. "Right now, the level of debate is minor and it appears to being managed in a way to control public opinion instead of soliciting it. So far, the board has refused to shine a major light on the issue and provide the amount of time necessary to have a thorough public hearing and secure experts on each side of the issue."

At least one supervisor agrees with Berardino.

"There is enough tension in the financial markets right now that I think their call is a wise one. I'm kind of mad at myself that I didn't call for it myself," Campbell said of the hearings idea.

The disclosure over the problems with the county's investments also comes at a bad time for Treasurer Street.

As part of a series of reforms following the 1994 episode, supervisors are scheduled to vote Tuesday on whether to continue delegating investment authority to Street. However, Campbell – who is traveling to Washington, D.C. this week – has asked that the vote be delayed.

Ever since Street assumed office, he has been under fire for a series of swirling investigations from the federal government as well as the local District Attorney over his tenure as a bankruptcy trustee. County supervisors were surprised earlier this year when they found out he had planned to spend nearly a million on an office remodel.

Under the county charter, supervisors are required to pass a resolution allowing the treasurer to invest the county's finances. Most years, that vote was non-controversial.

This year, it's a very different atmosphere.

Moorlach – who stood with Street in warning about county investments before the December 1994 bankruptcy filing and later endorsed Street's run as treasurer – now says his comfort level with Street has eroded. He advocates stripping Street of his investment authority.

The most telling statement coming from Moorlach – who was ignored in 1994 and now has a license plate that reads, "Sky Fell" – is about his level of comfort with Street.

"I didn't sleep well that night," he said. "I'm just trying to grasp what's going on here."
Moorlach, who ran a bitter campaign against public employee unions when he ran for supervisor in 2006, now has unusual company.

"In 1994 they told us not to worry and it was only a paper problem. I'm more worried in 2007 than I was in 1994," Berardino said. "When they say not to worry, it's time to start worrying because the last time they said that, the entire pool collapsed."

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