Good Budgeting, No Substitutes : A lesson in Orange County--fancy investments won’t suffice

Orange County Treasurer Robert L. Citron’s resignation Monday amid mounting pressure stemming from massive losses in the county’s investment fund offers food for thought on investment practices for any public agency.

The county now needs prudent new investment leadership. Assistant County Treasurer Matt Raabe, named to replace Citron until January, might hold the fort a few weeks but a fresh start is desirable for the long term.

Only last spring, Citron rode the expressed confidence of Wall Street and the satisfaction of pool investors to easy reelection amid isolated, partisan opposition to his strategies, which had consistently reaped generous returns. On Monday there were suggestions that the crisis might be bigger than imagined last week when the county acknowledged it had lost $1.5 billion. Investigators from the Securities and Exchange Commission were asking whether the portfolio might have been subject to fraud. The City of Irvine announced that it is withdrawing $25 million from the fund. How could what had seemed so right turn out to be so wrong?

Clearly, better oversight of investments involving public money is needed in the future. But those crossing their fingers and hoping financial wizardry will keep city services going need to change their expectations, too. Counties and localities have been under the gun as state and federal sources of revenue dried up. What seemed to be prudent investing fell far short when it was tied to higher interest rates.

Many public agencies had come to depend on the sweepstakes in their agonized struggle to meet rising costs as revenues dwindled. To keep finances in order, they must rely on more conventional and painful ways of balancing budgets, without using the financial markets to wish upon a star.