O.C. FINANCIAL CRISIS : Fund Crash Traces Back to State Law

The roots of Orange County’s ballooning financial crisis stretch back to a seemingly innocuous change made in state law more than a decade ago by a gaffe-prone local assemblyman at the behest of County Treasurer-Tax Collector Robert L. Citron.

Citron’s sales technique was simple. In pushing for the change, he repeatedly assured state officials in letters and memos that the legislation would simply codify what county treasurers had been doing for years--making a quick profit for the public by dabbling in repurchase and reverse-repurchase agreements, financial instruments known as “repos.”

Those are among the investments that have Orange County’s financial portfolio teetering at the abyss, prompting Citron to resign under fire as federal regulators scrutinize the troubled fund.

Few dreamed it would come to this when Citron and Orange County’s then-Assemblyman Chester (Chet) Wray pushed for the law authorizing repos back in 1979. Wray’s bill was supported by the County Treasurers Assn. of California, the city of San Francisco, the treasurers of Los Angeles, Kings and Inyo counties and the Municipal Finance Officers Assn. of California.

In a letter to then-Gov. Edmund G. (Jerry) Brown Jr., Citron made the proposal sound like a winner for all concerned. The change, he said, “would give increasing investment latitude to local treasurers to enable them to increase their interest earnings for the taxpayers they serve.” All the bill did, he said, was “to stamp into law what the local treasurers have been doing by practice for many years.”

It was one among several letters Citron dispatched during the course of pushing for the bill carried by Wray, a three-term lawmaker best known in the Capitol for mistakenly reading a speech twice on the floor, thus earning the lasting nickname “Chet Wray Chet.”

In 1979, Wray gaffed again during a bitter speakership fight. The Assembly’s Democrats were evenly split between Leo T. McCarthy (D-San Francisco) and Howard Berman (D-Los Angeles), but when a head count was taken it was learned that Wray had committed support to both men. Wray lost to Assemblywoman Doris Allen (R-Cypress) in 1982.

With Wray able to provide only limited clout in the Capitol, Citron proved instrumental in pushing the bill through the Legislature without a single vote against it on the floor. That’s illustrative of the way politics works in Sacramento. Amid the political hubbub, technically complex issues can get precious little review.

The only strong dissent to Wray’s bill came from powerful former state Treasurer Jesse Unruh, who expressed concern that the measure granted too much discretion to local treasurers lacking the sophistication to speculate on the ebb and flow of financial markets. Unruh declared that repos were “fraught with risk.”

Citron worked fiercely to turn Unruh around on the issue. In a letter to Unruh early on in the fight, he suggested that “it hardly takes any acumen” to do a repo. Citron also bluntly charged that Unruh opposed Wray’s bill because the influential politician, known as “Big Daddy” around the Capitol, wanted to ensure that local governments would continue to invest in the financial portfolio he managed for the state.

In the end, Unruh dropped his opposition, in part because Wray agreed to link his repo bill to a measure championed by the state treasurer.

Although Citron has often taken credit for writing Wray’s bill, former county employees familiar with the process used by Orange County officials during the 1970s to push county-sponsored legislation in Sacramento said its origin was more complex.

At the time, the county had a legislative planning committee made up of selected administrators that screened all state legislation proposed by Orange County. A bill’s final language was written by the county counsel and approved by the Board of Supervisors before the measure was handed to a legislator to introduce in Sacramento.

“Citron took credit for drafting this bill, but the process then was to have the county counsel work on the language and then the legislative planning committee approve it. Ultimately, the supervisors also had to OK it,” said Clayton Parker, who was with the county counsel’s office from 1959 to 1976.

Parker, who is now in private practice, also served as the county’s lobbyist in Sacramento in 1961 and 1963, when he monitored legislation in which county officials were interested.