COMMENTARY ON THE FISCAL CRISIS : With Some Creative Hard Work, There Can Be a 100% Solution : Cities need all their money back from Orange County’s failed investment pool--and here are some ideas for making it happen.

There has been a lot of discussion about the county returning 100% of the money that school districts invested in the ill-fated Orange County investment pool. Orange County cities believe that all investors in the pool must be made whole.

The public funds invested in the pool are needed to maintain police, fire, maintenance, recreation and other services required for the community’s health and safety. The county’s economic recovery is partly dependent on public investments in freeways, local streets, new schools, flood control facilities, commercial area revitalization projects and affordable housing.

To accept anything less than 100% for all participants will rob the community of critical services.

The county has a fiduciary responsibility:

Public agencies placed their funds in the Orange County investment pool because the county investment policy stresses “safety and liquidity” and because state law specified such deposits as a “trust.” The law protected all pool participants from “impoundment or seizure by any county ‘official’ or ‘agency.’ ” Clearly, the county treasurer and the Board of Supervisors are county officials who accepted their fiduciary responsibility to manage the Orange County investment pool in a safe and responsible manner. They are also prohibited from seizing participants’ funds.

The question then becomes how the participants will be repaid and how the county will raise funds for that repayment. Some participants will need all funds restored immediately. Others can be repaid over time. Any negotiated settlement could involve the sale or lease of certain enterprise assets as security for a repayment plan.

To create a 100% solution, the county must commit itself to a number of difficult actions.

Consider services cities or combined agencies could provide:

There are now 31 cities in the county. Less than 6% of Orange County residents (140,000 residents out of the county’s 2.5 million total population) live in unincorporated county areas.

Cities can provide municipal services to unincorporated areas that are within their sphere of influence either through contracts with the county or the private sector. The county should remove obstacles that prevent or hinder annexations and incorporation.

A combination of special districts for solid waste management and sewer service, as well as water delivery, should result in considerable savings to taxpayers.

Local agencies can band together and through joint powers authorities or other mechanisms provide services on a regional or subregional basis. Examples include police and fire-paramedic dispatch or response and personnel functions.

The county should review its assets and responsibilities to determine if any can be sold or transferred to provide more efficient, less costly operation without reducing the county’s revenue stream. John Wayne Airport, the Dana Point Marina and the El Toro Marine Corps Air Station reuse process exemplify the types of issues to consider.

Restructure the county organization and build in accountability:

The county organization has not significantly changed since 1889. The elected Board of Supervisors should continue to set policy and legislate, but the county also needs a strong chief executive officer to manage daily operations. The current chief administrative officer has responsibility but no authority. Department directors must report to a chief executive officer who has the power to hire and fire. We need to eliminate most elected department directors. There is minimal accountability when a department director is elected and reports to no one on a day-to-day basis. Additionally, all financial functions should be consolidated under one appointed chief financial officer.

Most city councils are similar to corporate boards of directors that set policy and provide oversight. Mayors and council members are part-time elected officials. City managers serve as chief executive officers and have the authority to manage the day-to-day operations. Since city managers hire and fire department heads, these department heads are accountable to city managers. City managers are accountable to the city council. This is a system residents can access and influence.

These organizational changes for the county may require a charter to be approved by the voters. Since cities will be affected by any changes, cities must be involved in the restructuring effort.

“Right-size” and become more competitive:

In the past five years, most Orange County cities have “right-sized” and reduced the cost of municipal government. With less tax revenue due to the recession and state take-aways of property tax, Orange County cities have been forced to focus on priorities, eliminate positions, reduce administrative overhead, streamline management and generally become more competitive. Where appropriate, cities have privatized services and contracted out for activities. Some cities are even selling services to other public agencies. It’s time for the county to do the same.

Advocate for state reforms in discriminatory funding formulas and reduction in mandates:

Most of the county budget is related to state-mandated health, welfare and justice services. The governor and Legislature can make a big difference by eliminating these mandates and free funding for the county. Let those public officials closest to the people identify priorities and design programs. An “unfunded mandates” relief bill has been passed by the U.S. Senate and is considered certain to be signed into law this session. Similar legislation is needed at the state level.

Government code restricts the types of services that can be privatized. Federal prevailing wage law adds significantly to the cost of publicly financed projects. Removing these restrictions will allow the county to choose the most cost-effective and efficient means of providing services to residents.

The county’s cities will actively support and advocate these legislative changes.

Involve the cities and other investors as partners in making tough decisions:

There are other tough decisions ahead for the Board of Supervisors. In all likelihood, the county must restructure over time its existing debt as well as issue new debt. Financial markets will not respond unless the county dedicates some existing revenue or assets. At this point, all options must remain on the table for discussion. All the cities and all our residents are dependent on a functioning county government.

The League of Cities suggests that the Board of Supervisors open up the process and involve Orange County cities as full partners.

It won’t be easy for the county to create a 100% solution. However, it can be done and Orange County cities will help. We are all committed to the same residents and businesses.