Orange Country Optimism: 70% Chance Schools Get Their Money

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Contributed by Chriss Street. Newport Beach, CA.

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?

Cross-posted from Chriss Street’s blog

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