O.C. Treasurer Thrust Into Spotlight Over Risk Claims : Investments: Robert Citron, facing his first contested election in 24 years, points to high returns to rebut critics.


After toiling largely in obscurity for 24 years, Orange County Treasurer-Tax Collector Robert L. Citron uncomfortably finds himself at the center of a highly visible and somewhat one-sided debate over the risks he takes with billions of dollars in taxpayers’ money.

Known for making Wall Street deals that many of his peers cannot, or will not make, Citron concedes he takes risks but insists they are prudent ones. To rebut his critics, he points to the higher-than-average returns he has earned on his investments, returns that even his detractors acknowledge are among the best in the country.

Gesturing toward the telephone on his desk, Citron says that, despite the negative publicity he’s received in recent weeks, virtually all of the 185 cities and government agencies that have entrusted him with their funds have called with reassurances. The message, he says, was invariably the same: “We’re with you, Bob.”

As treasurer, Citron is responsible for investing billions of dollars in county tax revenue. Because Citron in recent years has consistently matched or outperformed the managers of rival state and county investment pools, practically every city and school district in Orange County relies on Citron to manage their surplus funds.


Until this year, it was a job that Citron had kept winning, without a challenger at the polls, ever since 1970. For the first time in more than two decades, however, he has drawn a political opponent this year, and his challenger’s camp has been the principal source of the criticism that Citron has been getting.

“It’s a political situation where my opponent is making aspersions against my investment ability, and that’s the way politics is,” Citron said, adding that the “feedback I’m getting from the community is they aren’t buying it.”

Although Citron publicly minimizes the political fallout, the much-chronicled dispute has shaken the only Democrat holding elective office in county government, a man who so loves his job he routinely forgoes vacation to spend hours on the phone at work with traders and dealers to talk the talk of Wall Street.

Few would dispute that Citron has earned a national reputation as a shrewd, assertive money manager who invests big with public funds and, at least so far, wins big.


Whether his luck is about to change, as his political opponents assert, is another question.

By his own admission, Citron’s investment strategy relies heavily on using the investment pool’s U. S. Treasury bills and bonds as collateral to borrow short-term at low interest rates, and investing the borrowed funds in mid-term corporate bonds and securities that pay a higher rate of return. This kind of investment strategy can yield large returns while interest rates remain low and stable. But it can also backfire when interest rates rise, as they have since the beginning of the year.

In recent weeks, Citron has received “collateral calls” that forced him to pony up an additional $215 million in collateral, because the value of the securities he used to borrow money has skidded as interest rates have climbed. His assistant, Matthew R. Raabe, said he expects yet more collateral calls, but he is not worried because the county’s $7.5-billion investment pool has about $1 billion in liquid assets.

Although Citron has averaged a 9.03% return over the past decade--nearly double that of some comparable investment pools--the last 24 months have seen a steady erosion of those returns, which are now approaching 7%. While that is still higher than average, his political opponent, accountant John Moorlach and his supporters, are sounding the alarm.

“When you borrow short and you invest intermediate in a period of rising interest rates, you’re going to be hurt and you’re going to be hurt bad, for the simple reason that the principal value of what you buy goes down significantly,” said Larry T. Smith, an accountant, investor and Moorlach supporter.

“He’s done well because he’s been riding a time of sliding interest rates. His program is a dream come true in a period of sliding interest rates. But we are in a period of rising interest rates. And from everything I’ve read we’re going to have that for several years.”

Citron and Raabe disagree. They believe interest rates will inch up for a short time and level off. If they are wrong, they say they have a contingency or “exit” plan, although they are unwilling to share the particulars.

Raabe said the only way the county could get into trouble is if “short-term interest rates are going to continue to go up and . . . we don’t react. But that’s not going to happen.”


Although Citron professes to be only mildly annoyed by the unprecedented attention being given his first contested election in 24 years, those close to him say he is far more troubled by the heightened level of scrutiny than he lets on. In addition to news stories in the local media, articles questioning Citron’s investment tactics have appeared in the Wall Street Journal, which rarely covers such local stories, and a pair of trade publications, Derivative Week and The Bond Buyer.

“It’s like he walked down the street and someone just stepped in front of him and punched him in the stomach,” said R. A. Scott, the head of the county’s General Services Agency who has known Citron for 20 years. “This has taken him totally by surprise.”

When others in the investment field are questioned about Citron’s investing habits, they, too, point to his past accomplishments, not the possible predicament he finds himself in today. They start with the fact that, during the 1980s, Citron helped author many of the laws governing what county treasurers can and can’t invest in.

In 1988, Citron was singled out by a trade magazine, City & State, as one of the best county finance officers in the nation. Last month, the Orange County chapter of the American Society for Public Accountants announced that Citron had been given an “outstanding public official award” for his “exemplary contributions to government and the quality of life in Orange County.”

“I don’t think of him as being unsafe or wild or taking chances, but if you divide all of us into being aggressive or less aggressive, then he’s among the most aggressive,” said Donald Merz, treasurer-tax collector in Sonoma County.

Many of Citron’s colleagues around the state have declined to take advantage of some of the investment strategies Citron has helped to make legal for them, most notably an arcane transaction called a “reverse repurchase agreement.”

“There’s nothing wrong with it,” said Tony Andrade, controller and deputy treasurer for Garden Grove. “My investment policy here is just a little more conservative than what they have there in the county pool.”

Lee Buffington, treasurer-tax collector in San Mateo County, said his $800 million portfolio has earned rates “right around 5%" without relying on higher-risk investments.


“If you are a big pool with a lot of resources you can afford to take some gambles other people can’t,” said Buffington, current president of the California Assn. of County Treasurers and Tax Collectors. “Bob is really tuned into the marketplace, and that’s the secret of this business.”

While Citron is shy and prefers to labor in obscurity, he can be brash and outspoken.

When he first came into office as tax collector, he criticized the county’s data processing department and its director. County supervisors hired an outside firm, but a county grand jury rejected Citron’s claims that the director was guilty of malfeasance, and reprimanded Citron for causing such a fuss.

In 1977, he took on Sheriff Brad Gates, accusing him of engaging in “a con game” by asking for more money in his budget than he actually needed and also subjecting the county to costly legal settlements. Gates lashed back at Citron, saying he didn’t expect “someone who manages a very small operation, performing relatively simple and predictable tasks, to understand the dynamics” of running the Sheriff’s Department.

At times, Citron has appeared petty.

In 1977, he accused the county’s auditor-controller of shortchanging his salary by $12.66 a year. Citron, who was making $42,902 at the time, later admitted he was wrong, but only after officials pored over payroll records.

His self-confidence and occasional defensiveness have sometimes been construed as arrogance.

When county activist Shirley Grindle tried to persuade county officials to agree on campaign contribution limits, Citron, initially, was the only dissenter among department managers, she said. Eventually, he agreed to a limit of $1,000 per contributor per election.

“He’s one of our better administrators and I respect him,” Grindle said, “but I think he’s gotten a little cocky from all those years in office.”

His reputation as a financial wheeler-dealer is hard to reconcile with Citron’s other characteristics, which paint a man for whom the word stable is an understatement.

A third-generation Californian, Citron was born in Los Angeles and grew up in Burbank. Because he had asthma as a child, his family moved out of the smog into the town of Hemet. His father, Jesse, was a doctor. The elder Citron’s claim to fame: He treated the liquor-loving W.C. Fields and weaned him off Scotch. After a year, Dr. Citron got Fields to drop his consumption of Scotch from a quart to a teaspoonful a day.

When the good doctor billed Fields, Fields sued him. Fields lost and would later say Jesse Citron was one of the only men to ever beat him at anything.

Like his father, Citron is a devoted family man.

Robert and Terry Citron have been married for nearly 39 years. They met in 1955 in a parking lot after she admired his gold and white Chrysler. They were married inside of three months and have lived in the same home for 22 years. He travels less than two miles from home to office and says he has no greater ambition than to do what he is doing right now.

A switch to private industry for more money? He’s not interested; he says his $100,339-a-year salary is more than enough.

A run at higher office? Not interested, though he says he has been asked.

In his position, he could easily justify flying back and forth to Wall Street to hobnob, but he has been to New York only once--to pick up an award as one of the five best government investors nationwide.

Though it was his first and only trip, he stayed only a day because, Terry Citron said, the “hassles” of travel don’t suit them.

Saturday and Sunday don’t suit him either, Terry Citron said, because he can’t go to work.

“He can barely stand the weekend at home,” Terry Citron said. “He can’t wait to get back. I think he’d go crazy without that job.”

His only boasts of frivolousness: he collects turquoise Indian jewelry, neckties and USC paraphernalia.

He makes no exotic investments with his own money, Terry Citron said, preferring lower-yielding but safer investments, such as savings accounts and certificates of deposit.

“He’s very serious about life and everything else,” said Robert Politiski, a Santa Ana attorney who has known Citron since their days at the University of Southern California. “He dedicates his life to his work and to be criticized is very hurtful.”

“He’s competitive, and if he returns a greater rate on short term money than most people, he considers that winning,” said Scott, who as GSA head is one of Citron’s peers in county government. “It’s pride. It’s being above average. When he’s trading, he’s all business.”

For now, Citron is blaming the entire controversy on the upcoming election. He is unequivocal about there being no basis for the criticism.

But it nonetheless has him running slightly scared. For the first time, Citron is even spending his campaign money on his own race.

Because he has run unopposed over the years, he has often diverted his campaign funds to other Democratic candidates, according to election records, including former Los Angeles Mayor Tom Bradley, Anaheim Mayor Tom Daly and state Assemblyman Tom Umberg.

It was his support of Umberg in 1990 that Citron believes earned him the enmity of Orange County GOP Chairman Thomas Fuentes.

Citron and Fuentes have been feuding ever since, and Moorlach’s campaign committee reads like a Who’s Who of the local Republican hierarchy: Reps. Christopher Cox, Dana Rohrabacher, Robert K. Dornan and Ed Royce; Assembly members Mickey Conroy, Gil Ferguson, Doris Allen, Bill Morrow and Curt Pringle, as well as state Sens. Marian Bergeson, John Lewis and Rob Hurtt--although Bergeson has subsequently withdrawn her endorsement in anger over some of Moorlach’s public statements she said might hurt the county’s credit rating.

In the face of such opposition and the controversy, Citron has become emotional and defensive of late. Two weeks ago, he said the campaign--tame by most standards--had taken such an emotional toll on him and his wife that he would not run again.

His friends say he sensitive. His critics say he’s overreacting.

“My golly,” said Smith, the investor working on Moorlach’s campaign, “this is the first time anyone has questioned him in 24 years and these questions are very legitimate.

“Nobody is attacking the man’s character. No one’s saying he’s a thief. They’re only asking if he’s being prudent enough.”

Profile: Robert L. Citron

Age: 69

Hometown: Los Angeles

Family: Wife, Terry, 39 years

Residence: Santa Ana, 22 years

Education: Attended USC

Hobbies: Collects neckties and turquoise jewelry

Resume: Finance manager and deputy tax collector before becoming county treasurer-tax collector, a post he has held for 24 years

Investment philosophy: Take carefully calculated risks to net better than average returns.

Best return on an investment: 16.9%, 1982

Why he’s not in private industry: “I’m not interested in money per se. I get a very adequate salary that allows me to live the lifestyle that I wish to live.”

Reaction to criticism: “It’s only human to be bothered by it, but I realize it for what it is for my many years in public life: It’s politics.”

Source: Robert L. Citron; Researched by JEFF BRAZIL / Los Angeles Times