Exclusive: Street responds to allegations that he overcharged O.C. investors

Has John Moorlach created an Orange County Financial Crisis as Chairmen of the Board of Supervisors? That is what former Orange County Treasurer-Tax Collector Chriss Street told me when I asked him, via email, to respond to allegations that he “skirted county investment guidelines and overcharged investment pool participants, who are now owed an estimated $2.9 million rebate, according to interviews and county audits,” according to the O.C. Register.

Here is the rest of Street’s response – in his own words:

The Treasury Department during my tenure spent less money each year than the year before, and less than the Treasury Department’s budget that was approved by the Treasury Oversight Committee and the Board of Supervisors approved.

1. All participants in the Treasurer’s Investment Pool, including the schools which make up half the deposits, knew about the underspend and were ecstatic.
2. While I was Treasurer, the OC short term Investment Pool was upgraded to AAA by S&P.
3. While I was Treasurer, the County was upgraded to AA- by S&P, partially due to the performance of the Treasury Department.
4. Moorlach was angry, because he believed that the savings the Department was created was ruining his legacy as the former Treasurer.

This under-spend during my term resulted in approximately $5 million underspend, plus interest in the comingled pool. Under Government Code 47013 and the Treasury Investment Policy Statement (IPS), it was the responsibility of the Treasury Oversight Committee (TOC) to annually make adjustments for under-spends of budget and over-spends of budget:

1. The Treasurer is not a member of the TOC.
2. The Treasury Oversight Committee never allocated the savings and/or interest on the underspend savings.
3. Consequently, the money sat in the Treasury Pool and continued to generate interest earnings.

Tom Mauk and David Sundstrom rotated as Chairman of the TOC. They and failed to perform their duty under the IPS. Treasurer Freidenrich e-mailed Tony Savaadra at the OC Register that Street had “over-charged” the participants in the comingled fund and stated that she was going to ask the Board of Supervisors for a $2.9 million augmentation and that this would be charged against the County’s $100 million Reserve Fund.

1. Paul Gorman, Assistant Treasurer, has only calculated that there is $238,000 to distribute from 2006-07, and $600,000 under the 2007-08.
2. Paul Gorman told me that Treasury staff has not calculated the number $2.9 million.
3. I also know that the OC Auditor-Controller has never seen any of these calculations or performed any analysis to verify the “$2.9 million number.
4. Has Treasurer Freidenrich overspent her budget and is trying to get cover by blaming me.

It is very troubling that Treasurer Freidenrich would tell the OC Register that the $2.9 million would come out of the “County Reserve Fund”.

1. It would have been accounting fraud to “book” the entire underspend as “income to the County”, then transfer the income to the Reserve Fund.
2. The County is only approximately 1/3 of Investment Pool deposits, therefore only 1/3 of any underspend would be distributed to the County.

When I left in January of last year, the Reserve Fund was approximately $150 million.

1. If the Reserve Fund is down to $100 million, the 50 million drop means that Chairman Moorlach has spent down 1/3 of the County Reserves.
2. If the County now only has approximately three weeks of Reserves, then the County is approaching a Financial Crisis.
3. County may have been informed the Rating Agencies are considering downgrading the County Credit Rating.