by Chriss Street
The liquidity of the Orange County Treasurer’s Investment
Pool was hammered last week when the City of Tustin withdrew $40 million and
the State of California announced its intentions to soon pull out another $90
million. It was also reported that no other member of the
Auditor-Controller bureaucracy is willing to accept the head job,
following the resignations of County Treasury Oversight Chairman George
Jeffries and the exit of the Auditor-Controller David Sundstrom and Assistant
Auditor-Controller Shaun Skelly. In a move reminiscent of the listing
Titanic informing passengers after hitting the iceberg the band will continue
to play on deck for their enjoyment, the office of the Orange County Treasurer,
which manages local schools payroll and savings accounts, sought to reassure a
Friday meeting of school Superintendents that there was a “70% chance they
would be able to get their money and only a 30% they would not.”
The Orange County financial
crisis remained invisible until the State of California filed a
lawsuit to recover $73.5 million of property
tax revenue Orange County had appallingly been diverted from local schools
mid-November of last year. The county justified its grabbing the kiddie’s
cash as retaliation for the state shortchanging the county money in an
unrelated matter. It now appears the real motivation was to bailout the
Orange County Treasurer’s Investment Pool that was suffering a liquidity crunch
after the Treasurer surreptitiously bought $279 million of illiquid Orange
County Pension Obligation Bonds (POB) to fund a lucrative interest rate
wager. The maneuver initially allowed the county to cancel 490 emergency
layoffs and encouraged the Treasurer to buy $80
million more POBs to allow the
county to raise its bet to $518 million. But the lawsuit risks an
increased liquidity strain if the county has to return the cash.
Following the resignations of
the Jeffries and the exits of Sundstrom and Skelly, the Orange County Board of
Supervisors acknowledged at their Tuesday public meeting that Deputy
Auditor-Controller Jan Grimes declined the top position and no other senior
Auditor-Controller staff member seemed to want the high paying job. Board
Chairman John Moorlach stated that although “the Auditor-Controller
functions as the fiscal conscience of the County”, the elected
position is not “protected” by law and the Board could gain the authority to
appoint the Auditor-Controller by passing a countywide ballot measure.
Moorlach emphasized elected officials answer to the voters, while an appointed
department head reports to the CEO. He suggested: “It would be challenging for an appointed Auditor-Controller to
stand up to the CEO when it could cost the appointee’s job.” As
Supervisors prepared to hire another recruitment consultant, one Board member
bemoaned about the lack of job takers for the Orange County Auditor-Controller
position, “I support the recruitment,
but I don’t have much hope there.”
Perhaps the reason no insider
wants the Auditor–Controller’s top job is they fear the potential liability of
being the point person as the county approaches an expected cash crunch by the
end of June. Through a California Public Records
Act California Public Records Act demand, a
letter was produced from Assistant Auditor-Controller Shawn Skelly to county
CEO, Tom Mauk, dated two days before Skelly abruptly retired on
March 30, 2012. The document, entitled “Second Report – General Fund
Level Available Financing,” states that check-book-cash available to make the
county’s $65 million bi-weekly payroll will fall to $23.6 million by the end of
June. Skelly warned: “Any future use of reserves could potentially worsen
today’s difficult cash situation.” When the county filed its most recent
Comprehensive Annual Financial Report on December 16, 2011, Auditor-Controller
David Sundstrom warned that Orange County had a $30,146,000 shortfall in
“Reserves for Contingencies” according to
Government Finance Officer Association accounting guidelines,
Fifteen days later, he resigned.
Rumors have persisted for
months that the County of Orange was stretching out accounts payable to
vendors. This would be a dramatic departure from the County’s 2006-2011
strategy under the former Auditor-Controller of paying vendors in 10-12 days to
get favorable vendor pricing. It has now been confirmed that the January
payments for certain outside Board members of county agencies delayed until
April. To confirm the dollar amount of slowing vendor payments,
California Public Records Act demands were served on the Orange County
Auditor-Controller department last week and documents production is due in 10
days.
The klaxon horn is blaring in
Orange County as liquidity is pours out of the Treasury and observers expect
the Judge to soon pull the $73.5 million in dispute in the state lawsuit out of
the Treasury and into a safe keeping escrow account. The current travails
of the county have a familiar déjà vu. A week before Orange County filed
the largest municipal bankruptcy in American history on December 5, 1994;
county Chief Budget Officer Ronald S. Rubino also
reassured county executives, in an emergency meeting, that Treasurer Bob
Citron’s Investment Pool was safe. Rubino also estimated there was a 70%
chance the Treasurer would have enough money to fund operations and only a 30%
chance there would be a problem. Two years later and after spending a
million dollars on legal fees, Rubino agreed to plead no contest to settle two
felony indictments. Is it really surprising no insider wants to take the
Auditor-Controller’s job?
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Chriss Street’s latest book: “The Third Way”; now available on www.amazon.com If you would like to order a signed copy, contact The Forum Press at: www.theforumpress.com
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