ORANGE COUNTY IN BANKRUPTCY : Bill Would Tighten Rules on Government Investing

An Orange County lawmaker on Monday introduced legislation designed to limit the sort of risky investment that fueled the county’s current financial crisis.

Assemblyman Curt Pringle (R-Garden Grove) said his bill would effectively reverse the decade-long trend that has seen the state pass increasingly lenient laws letting local governments put money in chancy investments.

“Over the years, the laws have been changed and it allowed Orange County to invest in riskier investments than they should have,” Pringle said. “There should be no gambling at all with taxpayers’ dollars. Unfortunately, the way the system is, that can happen. It’s got to change.”

Pringle’s measure would require local government portfolio managers to follow the strict requirements currently used by the Local Agency Investment fund run by the California treasurer’s office. The state investment fund holds the funds of 2,200 local agencies and has been lauded as a model of fiscal responsibility.

The Pringle measure would go even further than a bill recently introduced by Sen. Quentin L. Kopp (I-San Francisco), which would place restrictions on some high-stakes investment tools. Sen. Tom Hayden (D-Santa Monica) has promised to introduce a third measure calling for stronger oversight of local government investment funds, stricter reporting requirements and other prohibitions that are similar to those Pringle has proposed.

Pringle’s bill would limit derivative investments, reverse-repurchase agreements and other investment tools used in the Orange County investment portfolio. It would restrict derivatives to 5% of a fund’s portfolio and reverse repurchases to 10%. Currently, there are no limits on either.

The measure would also bar local governments from borrowing money solely to invest the proceeds in an investment pool. That tactic of borrowing money in hopes of gleaning a big investment return has caused problems for several school districts and cities in Orange County, which have seen their investments crumble and put their principle at risk.

Aside from restricting certain investments, the bill calls for greater disclosure of how government money is invested by a portfolio manager and the rate of return. It would require preparation of an investment plan showing how money has been distributed and what sort of return is being generated.

“If these restrictions had been in place, I don’t think Orange County would have been where it is today,” Pringle said. “With these types of protections, you can still invest the funds, receive a responsible return and protect the taxpayers’ money.”