Sobering Lessons of City Hall Scandals : * Taxpayers’ Money Should Be Handled With Care

The “go-for-it” investment strategies that extended many businesses and individuals beyond their means in the 1980s have come home to roost. And the lesson is coming home hard to Orange County cities as well. Along with it comes a reminder of something that should have been apparent all along: Even trusted municipal employees are best subjected to a system of careful oversight.

The reckoning comes at a time when municipalities are trying to do more with less, their dollars stretched as never before to meet increasing demands for services. Some are finding out to their dismay that their nest eggs, such as they were, have not been tended all that carefully to serve them in a time of need. The city of Orange, for example, is out as much as $7.1 million in an alleged investment swindle orchestrated by a Newport Beach consultant. And in Newport Beach, a respected utilities director has been charged with siphoning off as much as $1.2 million.

Many citizens, already reflecting in opinion polls their wariness of public officials in general, are asking rightly whether anybody is minding the store. Nervous cities that so far have escaped embarrassment are wondering whether they are next. The scandal that squeezed the juice out of Orange also cut a swath across a number of cities in Southern California and other states. Nor is Newport Beach the first city ever to have placed its trust in a city official who allegedly breached that faith and took advantage of a privileged position.

There are some lessons to be gleaned from all this. Sound and prudent municipal money management is as basic as keeping the family food budget in line. This goes also for the responsibilities of local officials to oversee tax formulas for Mello-Roos districts, which in some cases have been controlled by developers in ways that have put unfair tax burdens on homeowners. The bottom line: Someone has to mind the store.

Prudent money managers know that there are different investment strategies for investors with different situations. For a city trying to protect its franchise, a premium must be placed on stability and security.

That’s because a city’s investments are not play money, to be rolled like dice in high-risk, high-yield ventures. Perhaps the excitement of realizing big returns clouded the judgment of some city officials in the years leading up to the Wymer scandal.

They ought to trade excitement in the future for the safer bet. The state treasurer’s office, for one, has called attention to the state’s Local Agency Investment Fund, which offers a place to invest that puts a premium on safety and liquidity. That kind of strategy is needed.

The kind of hit that Newport Beach took cannot always be avoided because a position of trust is also a position potentially to exploit. But better oversight can prevent many abuses.

Anaheim and Huntington Beach officials have been criticized by state auditors for allowing inflated salaries to boost pensions to the tune of more than $100,000 in disputed compensation. And managers of the Orange County Employees Retirement System were criticized for $5,000 in personal expenses incurred during a European trip.

All these episodes raise questions about trust in local government. Scandals only add to the public’s considerable wariness. One of the most important pieces of public business in the 1990s is to try and restore some of that trust. One good way to go about it is to tend to business in city hall.