Questions Stretch Across the Nation : Broad impact of Orange County’s bankruptcy

As the dust settles on Orange County’s breathless passage from a worried community to a bankrupt one, what the public still does not know looms large. To date, officials at the center of the storm have done little to clarify matters or provide perspective.

On Wednesday, the day after Orange County filed for protection under Chapter 9 of the federal Bankruptcy Code, county officials still were trying to come to grips with the consequences of the risky investment strategies employed by Treasurer-Tax Collector Robert L. Citron, who resigned Monday.

A SHAKEN MARKET: It is understood that officials are caught up in a struggle to cope with the crisis, but the fact remains that this financial disaster has its roots in a lack of public explanation and understanding. Addressing the public’s need to know the extent of the problem, and how it happened, is paramount.

The declaration of bankruptcy has undermined the confidence of the entire bond market. Meanwhile, government workers in Orange County are wondering whether they will be paid, and the municipal and school agencies that employ them are scrambling to figure out what all this means for them. It is imperative that the county government come completely clean if it means to fully address the problem and enlist community and national support in moving forward.

Information has been harder to find than an eager new investor in a county bond. Orange County has been dispensing it in dribs and drabs, much as office gossip might leak out around the water cooler.

Wall Street, a continent away, has turned out to be the only real source of information on the county’s earlier efforts to liquidate its holdings and possibly avoid bankruptcy. With Wall Street sources reporting that losses may be even greater than the $1.5-billion figure given last week, there still has been no full accounting from Orange County. And it remains unclear what the actual value is now for the investment-pool fund that Citron operated.

SOONER THE BETTER: And there are more questions:

On what basis, and on whose advice, did Orange County become the largest municipality in U.S. history ever to file for bankruptcy?

People on the street, investors and school and other public officials wonder whether less drastic action was considered. If so, why was it rejected?

And how was Citron was able to operate without oversight? The Board of Supervisors must answer that one.

All these questions have national implications. One of the attractions of bonds has been their relative stability, based on support by the taxing power of local governments. If governments suddenly and unexpectedly can declare bankruptcy, this important economic assumption may vanish for all municipal bond investors.

Orange County officials must understand that their fiscal affairs are now a matter of national importance, perhaps even urgency. The sooner all the facts are public, the better.