State Senate Panel Urges Speedy Action on O.C. Recovery

With the Legislature gearing up for its final month of work, a state Senate special committee urged lawmakers Friday to support recovery efforts for bankrupt Orange County--but to prepare to order a state takeover if necessary.

In a 45-page report, the Senate Special Committee on Local Government Investments also recommended that Gov. Pete Wilson, who has already vetoed two key bankruptcy bills this year, do a better job of letting lawmakers know what solutions he supports.

The committee, which conducted six public hearings after the county suffered $1.7 billion in investment losses and declared bankruptcy, also issued a litany of 16 recommended changes in state law to help prevent similar problems in the future.

Among the suggestions, nearly all of which have been incorporated into legislation now under consideration, are limits on certain types of investments implicated in the Orange County debacle, and restrictions on borrowing by local governments purely for investment purposes.

Many of those preventive measures are bottled up in the Assembly, but members of the Senate panel are eager to see at least the key restrictions get to the governor’s desk.

The report also points fingers at a wide range of officials in the government and private sectors for causing the problem. It suggests the debacle was not simply a result of errors by former Treasurer-Tax Collector Robert L. Citron, but was instead “reflective of system problems and a breakdown of the established governmental process in Orange County.”

Although Citron violated basic principles of investing, the report suggests that the major municipal rating agencies, the Board of Supervisors, other county officials, brokerage houses, underwriters and even municipal investors share the blame.

The panel’s findings come as the county and participants in its fallen investment pool enter the final stages of hammering out a recovery plan. The plan is expected to include requests for funding shifts that will require action by state lawmakers, a task that is given added urgency because the Legislature has only four weeks of session left before it shuts down until January.

“For many members of the Legislature, this hasn’t even been on the radar screen,” said Craig Reynolds, a spokesman for Sen. Lucy Killea (I-San Diego), co-chairwoman of the panel. “We’re trying to provide one source for information rather than force them to rely on a four-foot stack of newspaper clippings or what some lobbyist tells them.”

Aside from asking Wilson to be more forthright on where he stands, and urging the Legislature to support the recovery plans designed by Orange County, the Senate panel urged state lawmakers to continue preparing alternatives.

Among other possible solutions eyed by the committee are redirecting the county’s property tax revenues to refinance local bond debt, tapping other revenues such as Measure M transportation funds, and possibly placing county finances under the control of a state authority.

Although Wilson has already vetoed a bill that would have given him the power to order a state takeover, the committee said the Legislature should be prepared to again push such a measure.