Tough Love for an Errant Orange County


Gov. Pete Wilson may have sounded like a Christmas Scrooge, but it turns out he was speaking for virtually all of Sacramento when he said last week of bankrupt Orange County: “We are not in a position where we can bail out bad judgments.” He well could have added, Nor should we.

“Not a nickel,” Assembly Democratic leader Willie Brown of San Francisco says when asked whether state government should spring for a cash bailout.

“What are you going to use to bail with?” asks Sen. William A. Craven (R-Oceanside), chairman of a new Special Committee on Local Government Investment Practices. He’s referring to the fact that Sacramento is borrowing $7 billion just to keep its own books afloat. And this still will leave a $2.8-billion hole unless Washington coughs up the immigration money Wilson demands.


Orange County Sen. Rob Hurtt (R-Garden Grove) notes that Sacramento has a special, legal obligation to keep schools open, but asserts: “Why should the state come up with the cash? Make the county come up with the cash.”

Wilson also chimed in Tuesday on schools, saying “there’s a considerable difference” between a district that merely deposited surplus funds in the county’s investment pool, and a district that did “the egregious thing of betting on the come” by borrowing money to place in the pool. “That’s like taking the milk money and playing bingo with it.”

One influential Orange County Republican, who asked not to be identified, predicted a gradual county “meltdown,” but declared nonetheless: “There shouldn’t be any state bailout.”


So that’s pretty much the attitude in California’s Capitol: The state essentially is broke itself and even if it were sloshing in money, why should any of it go to cover gambling losses?

That doesn’t exactly mean “drop dead.” It’s more like the attitude of a strapped parent whose son has just left his tuition money on a craps table in Las Vegas. There’s outrage, astonishment and concern.

The kid is reined in, advanced monthly payments, given a co-signature on a bank loan and perhaps even lent some of the family’s meager savings. But there is no freebie gift of bucks. There’s lots of advice and new rules. And the student is forced to cut back and/or find more income.


For government, there are not many ways to increase income. Certainly, wagering on future interest rates is too risky, as Orange County found. The traditional way is to raise taxes, although supply-siders argue that this does more harm than good.

“There absolutely won’t be a tax increase,” vows Orange County Supervisor-elect Marian Bergeson, who is vacating her state Senate seat to replace Chairman Thomas Riley on the board.

Others are not so certain. Says Sen. Craven, whose committee holds its first hearing Monday:

“The communities of Orange County are going to face an extremely large financial loss. They are going to have to cut their public services or raise additional revenue. There is no way around that. We may need to cut them some slack to allow either unusual service cuts or unusual tax increases, as they prefer.

“Either way, we’re talking about something seriously painful here.”


To the embarrassed county’s credit, it isn’t asking for a cash bailout. “I don’t think we should look to the state or the federal government to solve our problems,” Bergeson says. “We’re in good economic position in Orange County.”

But she believes the Wall Street brokerages that played dealer in the county’s gambling binge now should offer a line of credit.


Although there is only contempt at the Capitol for how Orange County--specifically resigned Treasurer Robert L. Citron--parlayed its investment pool into a 27% loss, there is growing respect for the way it is trying to minimize the damage.

Nobody in power here is saying, It’s your mess, get out of it. For one thing, the debacle could further damage the state’s credit rating. “We’ve got the worst paper in the country right now,” laments Senate leader Bill Lockyer (D-Hayward). “We’re at the bottom of the sack.”

Also, there is fear that other counties may have been playing fast and loose with their investments and that’s being investigated.

It’s probable that the governor and the Legislature will rein in the investment authority of local governments--after loosening it through the deregulatory 1980s--and require more oversight. They’ll advance payments to Orange County and its victims and consider loan guarantees; perhaps even loans, although Wilson tends to oppose that.

Sacramento wants to help. But it also wants to send a message: Gamble at your own risk.