PERSPECTIVE ON ORANGE COUNTY : Bulletin: The Sky Isn’t Falling : The economy is sound, revenue is flowing in and there’s no need for a bailout; the East Coast media can stop gloating.
While the financial crisis in Orange County has been an unambiguous misfortune to Southern California, some East Coast commentators--who badly need a lift these days--see it differently. In fact, multibillion-dollar losses in Orange County’s investment portfolio have been a real shot in the arm to the likes of the New Republic and Richard Cohen of the Washington Post, who see the unfolding events as a morality play in which putative fiscal conservatives receive a deserved comeuppance.
Hoary stereotypes of an Orange County that is long gone (if it ever existed) provide the basis for pieces like Cohen’s recent commentary, “The Affluent Passing the Buck.” He pillories small-government Orange Countians, supposedly enamored of virtues like self-reliance and hard work, for an alleged unwillingness to accept personal responsibility for the losses. The New Republic, reveling in the thought of prosperous, Republican Orange County crawling to Congress for a bailout, asked whether conservatives will “let their mecca end up like Bridgeport, Conn. Or can we safely redefine a liberal as a conservative who’s gone bankrupt?”
For those who understand the facts, all this gloating makes the gloaters look foolish. Reports of Orange County’s demise are greatly exaggerated, as are reports of its desire for a federal bailout.
First of all, the fundamentals of the county’s economy remain unchanged, indeed are rock-solid. Our 2.5 million people are among the most hard-working and best-educated. If we were an independent nation, we would have the world’s 30th-largest economy--larger than Singapore’s and comparable with those of Portugal and Greece.
Our county tax base, on which our ability to refinance depends, is exceptionally strong. Today’s Orange County, unlike the straw man in the Washington Post editorials, is a diverse, high-tech manufacturing economy with growing trade connections to Asia and Latin America. Orange County already benefits more than Los Angeles from exports. As the Los Angeles Times recently wrote, Orange County is, more than anything, “like a Silicon Canyon, with business concentrated in computers and machinery, microchips and software and medical and scientific instruments.” We are ideally positioned to compete in the global economy of the 21st Century.
Nothing that has happened in the last few weeks has changed these realities. To the contrary, every serious financial expert who has spoken about the bankruptcy--and believe me, there are many--says the same thing: Seen in the context of Orange County’s strong economy, the $2-billion loss in the value of the portfolio is a very serious, very painful, short-term problem. But it is not a long-term or even a near-term threat to county prosperity.
Keeping our heads when all about us are losing theirs will determine whether ours is a painful but manageable problem or an uncontrolled panic. The danger is not just psychological: In addition to the anguish felt by the county, a loss of perspective could devalue the county’s securities, increasing the cost of our recovery for all of us. And it could lead to widespread anticipation of a tax increase, which in turn would produce taxpayer flight and an erosion of the now-solid tax base.
Accordingly, it’s important that the truth about Orange County be heard loud and clear. However painful the effects of this crisis in the short term, it will not derail the county’s future, which remains bright. The actual burden on the county is the annual cost of interest and sinking-fund payments that will be needed to refinance the loss--which should work out to hundreds rather than thousands of dollars per taxpayer. If government officials are willing to cut costs in that amount by downsizing county or local government, or by prudently liquidating some government assets, we can obviate entirely the need for a tax increase--let alone a bailout.
The county’s “irresponsibility” is another canard. Cohen himself wrote that voters cannot be responsible for analyzing “an investment policy centered on derivatives and based on heavy borrowing. This is the particle physics of finance.” Even closer to the point, there simply wasn’t enough public information for voters to know what county Treasurer Bob Citron was doing. And many of the public agencies whose funds were in the Orange County investment pool didn’t have any choice; they were required by law to invest there.
It’s a tribute to local self-government that despite the arcane subject matter, many ordinary Orange Countians did object to Citron’s high-risk investment strategy. His Republican opponent, John Moorlach, whose campaign I chaired, made Citron’s risky investments the central issue of his campaign. While we didn’t win, we rolled up a thoroughly respectable vote total.
At a more fundamental level, however, the charge of “irresponsibility” is not only false, it is the very opposite of the truth. The hallmark of responsibility is the willingness to accept the consequences of one’s actions. Orange County is doing exactly that. We are not demanding a state or federal bailout. We are not attempting to avoid the loss through higher taxes, passing the results of Citron’s mistakes on to county taxpayers. We will tackle this problem head on by reforming government because it’s the responsible thing to do.
Among East Coast exemplars like New York City and Washington, the traditional responses to municipal fiscal calamity are bailouts, tax hikes and red ink. That simply won’t wash in Southern California in 1995.
Yes, Orange County needs help to deal with this crisis. But we know that in the end, it’s our problem to solve. So to our detractors, current and potential: Sooner than you think, we’ll be back on our feet, and you won’t have Orange County to kick around any more.