Regulating Future Bond Issues : New County Rules Offer Prudent, Conservative Guidelines

The newly adopted rules governing Orange County’s future bond issues should send the unmistakable message that the casino is closed.

Fourteen months after the county’s investment pool lost an incredible $1.64 billion, causing the nation’s largest municipal bankruptcy, the Board of Supervisors adopted sensible, conservative rules intended to assure the public that a similar disaster will not happen again.

The county’s chief executive officer, Jan Mittermeier, drafted the rules. A primary one bans issuing bonds to raise money simply to gamble on which way interest rates will go. Private speculators have made enormous amounts of money with such bets; others have lost equally large sums. The government has no business gambling with taxpayers’ money.

Former Treasurer-Tax Collector Robert L. Citron persuaded the county to borrow hundreds of millions of dollars in 1994 on the assumption interest rates would fall. They did not. Had Citron made the same bet a year later, he likely would have won. But the treasurer, who has pleaded guilty to six counts of fraud and misappropriating public funds, was wrong to borrow to bet at all.

The supervisors also agreed to establish a five-member panel of county officials and citizens to oversee any county debt issues. The panel also will have veto power. Whoever is chosen for the panel should not be reluctant to issue a veto if the need arises. Panel members also should be attuned to the business of municipal finance. Too many county officials have said they were unaware of what Citron was doing even when he did drop his usual veil of secrecy and share some numbers with them.

Another reasonable reform in the Mittermeier package was the requirement for outside lawyers and financial advisors to provide written assurances that county bond issues are legal and financially prudent.

Additionally, proper disclosures must be made to potential bond buyers. That is important because of allegations after the bankruptcy that buyers of Orange County bonds were not told of the risks they carried.

The county needs to be sure everyone understands the reforms and see to it they are implemented. With monitors inside and outside government, and clearly understood rules on the books, the county should be able to insulate itself from a financial calamity similar to the bankruptcy.