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John Moorlach: Orange County risks repeating history with investment strategy

August 11, 2026

One of the byproducts of the 1994 Orange County Chapter 9 bankruptcy filing was the adoption of Pronouncement 31 by the Governmental Accounting Standards Board issued in March of 1997.

It requires that municipalities report their investments at market value on their financial statements. Like when a new car loses its value the moment one drives it from the car dealership, an investment in cash equivalents and bonds loses value when interest rates rise. This simple requirement is known as marking to market, providing its fair market value.

It was an issue during my campaign for Orange County Treasurer-Tax Collector in 1994, against the incumbent, Robert L. “Bob” Citron. On April 15, 1994, The Wall Street Journal would explain the concern of rising interest rates and falling values:

“I can hold to maturity,” Mr. Citron says. “We don’t believe in taking paper losses and paper profits.”

Mr. Moorlach says he isn’t impressed by Mr. Citron’s comment. “Mutual funds and everyone else marks to market, and if I’m county treasurer, I will mark investments to market,” Mr. Moorlach says. Not marking to market is just a way of concealing losses, he charges.

Why do I bring this up? Because Orange County is facing this very dilemma as we speak. I warned about betting on the direction of interest rates back in March (see Is history repeating itself with Orange County finances? March 1, 2026).

The story is a simple one. The then Orange County CEO convinced the Board of Supervisors to remove the investment authority from the elected Treasurer-Tax Collector. She then put an unqualified and inexperienced CFO in charge. Thinking they could enhance the yield, they proceeded to purchase a significant amount of long-term bonds during the first six months of this year with the assumption that interest rates would go down and they would be holding higher yielding fixed income instruments.

However, interest rates went up. They were wrong and now it’s GASB 31 disclosure time, as the County’s fiscal year end is June 30, 2026. What has this errant brain trust created? A portfolio that is down some $50 million for these recent acquisitions as of the end of April. What a gift to Orange County residents that former interim CEO Michelle Aguirre left as she went out the door. And she did it with the full support of the Board of Supervisors. At least you can theoretically vote for these individuals. And one of the perpetrators is up for re-election in November.

Get ready to once again hear the well-worn patronizing phrase of “we can hold to maturity.” But not when so much of the Orange County Investment Pool is invested in long-term paper. With a cashflow that ebbs and flows between the property tax due dates of April and December, expect the potential necessity to liquidate some of the holdings, thus recognizing real losses.

The CEO, CFO and Investment Manager don’t have to fret. It’s not their money. It’s yours. And taxpayers can always fork over more money when municipalities over and/or misspend. The last time the County of Orange tried this, with Measure R in 1995, the voters not only said “no,” they said “hell, no.” They had enough of the fiscal incompetence. They should do the same this time as well.

All of this could have been avoided if the investment authority had not been pulled. It would be good to let your County Supervisor know your displeasure at their accomplishing what their predecessors did in 1994. And they paid a severe price.

Supervisors Roger R. Stanton and William G. Steiner were accused by the Orange County Grand Jury of “willful misconduct in office,” violating an obscure California Government Code Section for deliberately ignoring their responsibilities (see “ACCUSED — Grand jury indicts O.C.’s ex-budget chief — Bid to oust Stanton, Steiner, Lewis begins — FINANCIAL CRISIS: The panel charges the budget official with skimming funds and levels non-criminal accusations at the others” and “How prosecutors made their case — BACKGROUND: Little-known officials provided key testimony for relentless investigators,” December 14, 1995).

The solution is simple. Return the investment authority to the Treasurer-Tax Collector and let Shari Freidenrich do what she has done successfully for more than sixteen years: invest the funds safely and achieve competitive yields. In the meantime, let’s hope that the unrealized losses do not turn into recognized losses. Or the OC’s history will have repeated itself.

John M. W. Moorlach previously served in the California State Senate, on the Orange County Board of Supervisors and as treasurer of Orange County.

Orange County Register

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John Moorlach: Orange County risks repeating history with investment strategy

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