NEWS ANALYSIS : Complexity of Debacle Hamstrings Supervisors : Bankruptcy: Leaders concede economic woes are baffling. But some observers praise corrective actions taken so far.

One is a child-care expert who last owned a bond in World War II. It was a savings bond. Another is far more familiar with writing an arrest report than a collateral call.

A third is a former aide to Los Angeles Mayor Sam Yorty, a career politician and women’s activist. Another is a college instructor. The last is a retired Marine Corps brigadier general in declining health.

They are the members of the Orange County Board of Supervisors. None of them knows much, if anything, about reverse repurchase agreements or interest rate swaps--the types of exotic financial instruments that have plunged the county into the largest municipal bankruptcy filing in U.S. history.

If ever there was a time when the county needed strong leadership, it is now. But some members of the community wonder whether the board, with its lack of expertise in the securities market, can adequately guide Orange County out of the fiscal debacle that now threatens more than 185 school districts and governmental agencies in the county and across the state.

“I feel so damn incompetent in responding to some of this,” said Supervisor Thomas F. Riley, 82, admitting that much of the county’s economic problems are beyond his comprehension. “I’m used to saying, ‘Damn it. This is the way we’re going to do it.’ I can’t do that with this challenge. I’m not qualified.”

“There has been a lack of leadership,” said Tom Rogers, an activist in south Orange County who has battled developers for years and opposed tax measures for transportation projects. “The reason behind this can be boiled down to two words-- arrogance and accountability . They have plenty of arrogance and no accountability.”

Some community and political leaders believe that the board has at least embarked on the right track by hiring bankruptcy attorney Bruce Bennett and former state Treasurer Thomas W. Hayes as its main adviser. Hayes also worked as Gov. Pete Wilson’s finance director for two years.

They also praised the county’s decision to sue the Wall Street firms that have sold $11.4 billion in bonds they held as collateral on loans to the county’s investment portfolio managed by former Treasurer-Tax Collector Robert L. Citron.

“Hiring Hayes is a good step. So is suing the investment banks,” said developer William Buck Johns, a member of the Lincoln Club, perhaps the wealthiest, most influential Republican organization in Orange County. “They are doing the right things. They needed to get someone in there who understands this.”

Yet Johns said of the collapse, “You wonder what government is doing.”

For more than a week, the board, county officials and their consultants have been grappling with the wreckage of Citron’s bond investment strategy, which was undermined by a rapid rise in interest rates this year. On Tuesday, county supervisors decided to seek protection under Chapter 9, a rarely used section of the U.S. Bankruptcy Code designed for governmental agencies.

They have spent days on end, some without sleep, trying to keep county government afloat while dealing with Wall Street and nervous investors who fear that they have lost tremendous amounts of money needed to run their operations.

How the board performs could affect county government in the long run and determine the political futures of the supervisors, including two who will take office Jan. 5--former Huntington Beach City Councilman Jim Silva and former state Sen. Marian Bergeson. Riley, the retired Marine, and Harriett M. Wieder, who used to work for Yorty, are retiring.

Some doubt whether any of them, including the newcomers, are up to the task, given that the supervisors were responsible for overseeing the treasurer’s office in the first place.

“They just don’t care,” Rogers said. “They won’t be critical of their own kind. There has been no dissenting voice on that board for years. All they do is put the blinders on and raise a protective umbrella.”

Amid the county’s worst financial crisis, the board has been criticized for failing to take action sooner against Citron even though watchdog agencies have repeatedly pointed out problems with the treasurer’s office.

Orange County grand jury reports in the mid- to late 1980s were critical of some aspects of Citron’s operation and called for more oversight, but county supervisors either ignored those reports, inadvertently overlooked them, or viewed them as being unimportant. But Citron’s investments were doing well at the time, Orange County bonds had high ratings, and there were no clear signs of pending disaster.

Stronger warnings came in 1993, when county Auditor-Controller Steven E. Lewis issued a highly critical report of the operation of Citron’s office in 1991. Lewis concluded that the treasurer was making risky transactions, avoided oversight of his dealings and had violated government codes to maximize return.

The report was sent to the Board of Supervisors and the Orange County district attorney’s office.

“It would be incredible malfeasance if the board didn’t make themselves aware of the investments Citron was making,” said Irvine attorney Christopher Mears, a local political activist. “They have a central role to make sure the money was invested properly. What did they do to assure themselves of that? Not much apparently.”

If the public perceives a failure of the supervisors to rigorously oversee Citron’s operations, it could reflect on the board at election time. Incumbents Gaddi H. Vasquez, Roger R. Stanton and William G. Steiner might be vulnerable, as well as Supervisor-elect Bergeson, whose legislative record in the state Capitol includes bills that helped Citron indulge in the kind of risky investments that led to his undoing.

Political organizations from low budget grass-roots groups to the gilded Lincoln Club have been trying to address the crisis. Most are trying to assess their options and what they can do to influence the situation. There has been some talk of a recall among some of the grass-roots organizations. So far no petition has surfaced.

But even in the face of the county auditor’s report that revealed critical problems with the treasurer’s office, the supervisors contend that they should not be held responsible for the crisis.

“Everyone that did assessments, audits or provided information on the investment funds plus 180-odd investors indicated that things were fine and that investments were going well,” said Vasquez, a former police officer. “There were no indicators that a problem of this magnitude was occurring.”

Board members say the public cannot expect elected officials who are not knowledgeable or sophisticated about the bond market to know when something is going to be a problem.

“This finance field, just like a brain surgeon’s field . . . just like anything that the average person can’t easily understand, really relegates the responsibility to somebody who knows,” Wieder said.

What is important now, board members say, is how county leadership reacts to the crisis. Wieder expects that her colleagues will push hard for reforms that will grant the board more power and oversight of the treasurer’s office. Other measures will be supported to prevent some of the risky investments Citron made.

“What lessons do we learn from this?” Wieder asked. “I think that in this case, under state law, the treasurer had too much freedom to manipulate county funds the way he was allowed to do.”

If there is blame to be assigned, Steiner said, it should be spread among the investors in the county’s bond portfolio. More than 185 governmental jurisdictions put money in the fund and all have elected officials, chief financial officers and auditors responsible for their financial interests.

As a result of the debacle, Steiner said, there will not only be reforms on the county level but “from Congress and nearly every governmental agency in California.”

To Riley, a 20-year member of the board, the bankruptcy filing has been his worst and most frustrating experience in government. Culpability? “That’s something we certainly have to look at,” he said. “But I believe that we followed the guidelines.”

The fact that there will be reforms in the county’s investment system seems certain. Whether the Board of Supervisors will lead the charge remains unclear.

“This is so much bigger than the board,” said Scott Hart, an Orange County political consultant. “They’re going to have wait and see if the SEC is going to step in. They may not have any choices here.”

Spotlight on the Supervisors

The decision to plunge Orange County into bankruptcy so its investment fund might be saved was made by the Board of Supervisors. The five officials preside over 18,000 public employees and a $3.7-billion annual budget. Each earns $82,000 in salary and is elected to a four-year term. All are Republicans.

Chairman Thomas F. Riley

Age: 82

Home: Newport Beach

Known in the Hall of Administration as “the general,” the former Marine is retiring in January as the longest-serving member of the board after two decades in office. He was appointed in 1974 by then-Gov. Ronald Reagan and--to the dismay of many south Orange County environmental critics--was a longtime supporter of pro-development efforts in the area.

Supervisor Roger R. Stanton

Age: 57

Home: Fountain Valley

A former college professor, Stanton upset an incumbent supervisor to gain election in 1980 and has since sought to build his record around management and budget issues. He recently forced an end to the county’s schedule of closing some offices every other Friday, arguing that it denied public access and didn’t end up saving any money.

Supervisor William G. Steiner

Age: 57

Home: Orange

The former director of Orangewood, a home for abused children, Steiner became the newest member of the board in 1993 when he was appointed by Gov. Pete Wilson to fill the seat left vacant by Supervisor Don R. Roth’s resignation. He recently negotiated a settlement with his former colleagues in the city of Orange over the expansion of the Theo Lacy Branch Jail.

Supervisor Gaddi H. Vasquez

Age: 39

Home: Orange

A former police officer, Vasquez rose to national prominence as a speaker at the 1988 GOP convention and was frequently mentioned as a rising Latino star in the party. Some politicos believe he may have missed his chance, passing up too many opportunities at higher office since then and publicly avoiding positions on such issues as Proposition 187.

Supervisor Harriett M. Wieder

Age: 74

Home: Huntington Beach

Wieder, a former aide to Los Angeles Mayor Sam Yorty, became the first woman elected to the board, in 1978. She retires from office next month, second only to Riley in length of tenure. She riled many in the local GOP by backing President Clinton in the 1992 campaign.

The New Supervisors

Supervisor-elect Marian Bergeson

Age: 69

Home: Newport Beach

After 16 years in the Legislature, she was elected unopposed to succeed Riley. The bond disaster has already forced her to do some political backpedaling: Last summer, she backed John M. W. Moorlach’s bid to unseat Treasurer-Tax Collector Robert L. Citron, but then switched sides. She says she feared criticism of Citron would taint the county’s reputation on Wall Street.

Supervisor-elect Jim Silva

Age: 50

Home: Huntington Beach

Silva, who left his Huntington Beach City Council seat and won a bitter race to replace the retiring Wieder, has been a high school economics and civics teacher for 28 years. He has had a long dislike for Citron, regarded him as arrogant, and wants to see the treasurer’s job change from an elected to appointed post.

Source: Times reports