Of Goats, Heroes and Crisis Management : Clamping down on Orange County’s fiscal hemorrhage

Not surprisingly, a new Times poll has found Orange County residents really angry, pointing fingers and worrying about their future after investment losses prompted the county to declare bankruptcy. But even as that survey discerned little confidence in the county’s ability to manage its way out of the crisis, local officials to their credit were finally beginning to get a containment boom around the mess.

The big question, of course, is how much spilled oil will have gotten away before things are really under control. The county, however, has consolidated its response to the emergency and begun to display a belated but somewhat greater openness about the degree of its exposure. That has to be something of a confidence builder, however modest.

The county’s fiscal position remains thoroughly dicey, and the opportunities for decisions even now that make goats or heroes of their architects cannot be underestimated. At the same time, there is some evidence that the team the county has assembled to deal with the crisis is beginning to get a handle on the situation. This is a welcome change from having the Board of Supervisors oversee what amounted to a gambling casino operated with public funds.

Even the controversial moves now have a kind of logic. In the early days of the crisis, the county’s bankruptcy attorney, Bruce Bennett, had to decide whether to sue to block the sale by New York brokerage houses of billions of dollars of collateral covering unpaid loans. The wisdom of suing later rather than sooner will play out in the courts, but the strategy was apparently deliberate and gives evidence of designed crisis management. In addition to Bennett’s firm, Stutman, Treister & Glatt, the county has brought on board former state Treasurer Thomas Hayes, as a special financial adviser, and an advisory team from Salomon Bros. to unravel the county’s investments while trying to protect it from interest rate increases. A team of accountants from Arthur Andersen & Co. is led by Thomas E. Daxon.

On Tuesday, Hayes answered a big question hanging over this crisis by acknowledging that the amount lost from the beleaguered Orange County investment pool exceeded $2 billion. His recommendation that the Board of Supervisors launch an immediate restructuring program of county securities--but “not a fire sale”--was further evidence of resolve to deal decisively with the crisis.

The county had already curbed all but emergency spending, halted hearings on tax appeals and worked out an agreement to keep school funds in a separate account.

As the impact of this crisis affected investment funds across the country, as schools and transportation officials scrambled to ease fears and preserve services, the county has needed to send strong signals that it is getting its house in order. The recent Times poll shows the degree to which there was no confidence in the old regime; a full 86% of respondents had some fairly specific ideas indeed about who was responsible for the problem.

Orange County’s new spirit of disclosure and crisis management holds a message for other municipalities and states that may find themselves exposed by degree from their wrong bets on interest rates. Get a handle on the problem right away, go public with your plan and quickly spread out that containment boom. In the final analysis, you just can’t hide.