Everybody Back in the O.C. Pool?

SANTA ANA — More than two years after his predecessor’s risky investment practices wreaked financial havoc on cities and school districts across Orange County, Treasurer-Tax Collector John M.W. Moorlach wants to reopen the county’s infamous investment pool to these same outside agencies.

Moorlach has quietly discussed the idea with several cities, and officials in at least two--Tustin and Costa Mesa--said they are seriously considering placing a portion of their investments with the county.

But Moorlach’s tentative attempts to lure back outside investors are already raising concerns among some county officials, including Chief Executive Officer Jan Mittermeier, who believes the county has no business managing other people’s money.

Orange County plunged into bankruptcy in 1994 after the county-run investment pool, brimming with deposits from 187 cities, schools and special districts, lost $1.64 billion on some of the most volatile securities sold by Wall Street. These outside investors, along with the county, have yet to recoup all their losses.

Mittermeier said that while she respects Moorlach’s work, she does not believe it’s in the county’s best interests to invest the funds of other agencies.

“At this point, I don’t consider it part of the county’s core business,” Mittermeier said. “It’s an added responsibility, and a potential liability should the philosophy of the treasurer’s office change with a new treasurer.”

Moorlach argues that opening up the pool to outsiders would improve strained relations with local cities and save the county money by spreading the pool’s overhead costs among more investors.

“I think it’s time we try it out and see if it can work,” Moorlach said. “I don’t want to deprive taxpayers of something that could help them in the long run.”

Officials in Tustin and Costa Mesa said they have discussed investment issues with Moorlach several times and have come away impressed by the county’s new conservative investment policies and, to a lesser degree, by the respectable yields the county’s pool has been earning. They said they have also been swayed by the AAA rating the Finch Investment Service recently awarded to the pool.

“I don’t think it’s right to be emotional about what happened two years ago, because things have changed,” said Costa Mesa Mayor Joe Erickson. “It’s a very safe, very liquid pool.”

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Accepting cities back into the investment pool would mark a major bankruptcy milestone.

After the December 1994 financial collapse, the county hired Salomon Brothers to invest its money. Moorlach assumed full control of the pool in January, managing county investments and those of Orange County school districts, which are required by state law to deposit their funds with the county.

While some of the cities that previously kept money in the county-run pool are now relying on a state-run investment pool, most are managing their portfolios individually, usually with the help of outside specialists, investment oversight committees, or in-house finance staffers.

Like the county, these municipalities have adopted strict investment guidelines that stress safety and liquidity over high returns. The exotic securities routinely purchased by former Treasurer Robert L. Citron, such as reverse-repurchase agreements and inverse floaters, are now ruled out.

Costa Mesa and Tustin officials are now reviewing the county’s rules to make sure they comply with their own. If they do, the issue of reinvesting with the county could go to the city councils for consideration. The Board of Supervisors also would probably have to approve any new pool investors.

Tustin Mayor Jeffery M. Thomas, who serves on the county treasurer’s oversight committee, said the county pool could offer cities another option for investing as part of larger diversified portfolio.

“A liquid pool with a triple-A rating would be very attractive to city treasurers who are looking for places to invest,” Thomas said. “In some ways, this is the safest place to put your money, because it has gone through all that has happened. It’s been cleansed.”

School officials who still invest their money in the pool attest to the changes. Michael Fine, finance director for the Newport-Mesa Unified School District, said Moorlach is far more receptive than Citron to investor oversight, suggestions and questions.

“We now get detailed monthly reports. When we have questions, they get answered. Before, there was no reporting, per se,” Fine said. “We are also getting a decent return.”

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Over the last year, the county pool earned monthly yields ranging from 5.4% to 5.8%--earnings slightly above other money market funds, according to data provided by the treasurer’s office. By buying exotic securities, Citron earned yields as high as 8%.

Moorlach, who raised questions about Citron’s investment practices before the bankruptcy, said he would like to start off by accepting the investments of one or two cities as part of a pilot program.

“This is not a hard sell,” he said. “We want to see if this makes sense. We want to be an alternative. . . .”

Mittermeier and other county officials said they don’t question Moorlach’s competence or dispute that he has vastly improved operations of the treasurer’s office. But they disagree with the treasurer over whether the county should invest the funds of other government agencies.

Mittermeier said that, in the wake of the bankruptcy, the county needs to reexamine its “core businesses” and determine whether it makes sense to handle such services as managing outside investments.

“We need to look at what businesses we want to be in, not just today but in 20 years,” she said. “We cannot base this on personalities or who happens to be in office at this time.”

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The CEO acknowledged that inviting outside investors into the pool might spread out some of the overhead costs incurred by the treasurer’s office.

“But I don’t think it’s a substantial enough benefit for us to engage in this additional responsibility,” she added. “If asked by the board, I would have to recommend that we not accept the deposits” of any investors not required by law to place money in the pool.

Board of Supervisors Chairman William G. Steiner also expressed concerns about opening the pool to outside investors, but said he hasn’t made a final decision on the issue.

“Under John’s leadership, the portfolio has never been safer,” Steiner said. “But after the bankruptcy, I really don’t have any desire for the county to serve as a bank to other public agencies.”

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Return of the Pool

Orange County’s investment pool is earning respectable yields despite new guidelines that stress safety and liquidity over high returns. Here is how the pool compared to five other rated money market funds for April 1997:

Fund: Janus Money Market Fund

30-day net yield: 5.55

Fund: Orange County Market Investment Pool

30-day net yield: 5.45

Fund: Provident Institutional Funds

30-day net yield: 5.42

Fund: Federated Prime Obligation

30-day net yield: 5.38

Fund: Dreyfus Cash Management

30-day net yield: 5.33

Fund: Fidelity Daily

30-day net yield: 4.94

Source: Orange County treasurer-tax collector’s office