Panel: Civic Bankruptcies Still Likely

SACRAMENTO — Forget about blaming it solely on the bizarre behavior of one out-of-control treasurer in just one county.

A panel of politicians and others concluded Wednesday that the conditions that brought about near financial collapse of Orange County four years ago are still in place, presenting potential fiscal disaster for almost any county statewide.

Taking certain precautions would head off the next financial crisis in local government, but institutional inertia would have to be shaken up, and that is not likely, participants said.

“Obviously,” said Orange County Supervisor William G. Steiner, “conditions could exist, not only in Orange County, which is in good shape today, but other counties in California where events could come together to place counties at risk in terms of their fiscal health.”

In answer to the question Will Orange County’s plunge into financial crisis likely be repeated, there or elsewhere?, Los Angeles County Administrative Officer David Janssen said, “Yes, it is going to happen again,” probably triggered by economic recession or depression.

And the likelihood of that severe downturn, said panel moderator John Ellwood, a UC Berkeley professor of public policy, can be compared to the next California earthquake.

“It might happen tomorrow. It might be 29 years from now.”

The gathering of county supervisors, other government officials and experts on municipal investment financing, in addressing the panel, mostly took their cue from critical themes developed in a recent book on Orange County’s $1.64-billion plunge into bankruptcy in 1994.

Not only the misguided investment decisions of discredited, convicted former Treasurer Robert L. Citron led Orange County to seek protection by filing for bankruptcy in December 1994, said Mark Baldassare, author of “When Government Fails: The Orange County Bankruptcy.”

Baldassare told a meeting of the nonpartisan research group Public Policy Institute of California that three problems remain embedded in the workings of most county governments that often lead them into risky financial investments of public funds.

* County supervisors, other local officials and state regulators operate in an arena of “political fragmentation,” glaringly exemplified in the Orange County troubles by the ability of Citron, an elected official, to act on his own, Baldassare said.

More than 200 schools and government agencies joined the Orange County investment pool managed by Citron, noted Janssen, who helped avert a similar financial crisis when he was chief administrator officer in San Diego County.

In Orange County, Janssen said, with little communication between county supervisors and others in the pool, and without the services of an administrative officer--since installed--”it made it difficult to respond to the crisis, to say the least.”

* Voter mistrust of political leaders also steers counties into dangerous waters financially, many panelists said. An often repeated example at the meeting: County supervisors argue that with elected treasurers, counties easily could be led into the kind of near-ruin that Citron orchestrated. Yet, as an election following the debacle showed in Orange County, voters turned down a proposal to allow supervisors to appoint the county treasurer.

In his county, said Yolo County Supervisor Tom Stollard, for a board of supervisors to suggest an appointed treasurer “is to risk death by a thousand cuts” from the voters. Even when confronted with an incompetent treasurer, Stollard said, “people don’t want to give up the right to elect him.”

Los Angeles County, which has an appointed treasurer, has “never had a problem” with its investment pool, Janssen said.

* A third factor driving counties to gamble on investments, several panelists said, is that new funds from other sources have all but dried up. Whether in good economic times or bad, Janssen said, “counties no longer have the ability to raise revenue nor the ability to control expenditures.” A combination of state claims on property taxes and little discretionary spending allowed in budgets, he said, affects counties severely.

Steiner summed up the difficulties counties can expect:

“If there is an additional loss of local revenue because of a recession or shifting taxes away from local government, they will get into trouble.

“If there are adverse court rulings [such as a decision in Ventura county recently] where counties have to pay additional moneys into retirement systems . . . they can get into difficulty.

“And if they don’t have foresight for long-range fiscal planning, they can get into trouble.

“It’s a great challenge.”