Post-Bankruptcy, Accountability Remains Elusive at County Level

Nearly two years have passed since the fateful day that Orange County officials declared bankruptcy. Until that event, the performance of the Orange County investment pool was a source of pride to county insiders who were delighted to be “among the largest investors in America.”

The financial collapse quickly became news of national and international scope; the largest municipal bankruptcy in history. The sobering discovery that former county Treasurer-Tax Collector Robert L. Citron had magnified his $7-billion clout in the pool--with exotic derivatives and reverse-repurchase agreements--to bet another $14 billion on interest rates stunned observers in the financial world. The problem was even larger in magnitude; many public agency investors had also borrowed large amounts to invest. County residents were outraged: How could this happen? Who had authorized this risky strategy? And how could such enormous borrowings occur without open public debate and consent?

As Orange County slowly came to grips with a nearly $2-billion setback, many of us believed that something of value could be salvaged from the disaster. We believed that the county could solve its own problems, learn a valuable lesson (albeit an expensive one) and proudly rise from the ashes. Orange County’s public agencies would accept responsibility, atone for their transgressions and pull themselves up by their own bootstraps. For the $2 billion lost, residents and taxpayers could point to a new, streamlined and accountable county government, with safeguards that would ensure against future calamities.

Wrong! Two years of struggling have produced no accountability, few reforms and little streamlining. Fear of change, false pride, guilt and denial have yielded inertia at the county. Efforts at reform have been slowly strangled and enthusiasm for restructure deliberately deflated.

The cries for reform had been appeased partially early on by the selection of a Charter Committee and a Management Audit Oversight Committee. Dominated by insider interests, the Charter Committee eventually wrote Measure T, a ballot measure that in effect blamed residents and taxpayers for problems at the county level, and offered less democracy as a remedy. Voters rejected it soundly.

I was one of 19 original members of the Management Audit Oversight Committee, formed by Supervisor Marian Bergeson to commission an outside management audit of all county activities. The audit committee struggled with its mission, mostly disagreeing about just what a management audit is or should be.

In an early meeting, I proposed that we move forward with an already clearly defined government performance audit. Many committee members balked at the idea. Much later, the committee (with board approval) did contract with the accounting firm of Price Waterhouse for a “management” audit--our definition. Price Waterhouse began the work, but a few weeks later abruptly asked to be released from the agreement. They cited concerns about the scope of the work to be done at the price they had bid and noted a lack of cooperation and assistance from the county. The Audit Oversight Committee abandoned its raison d’etre; no other outside audit was attempted. The committee renamed itself the Government Practices Oversight Committee and dedicated itself to publishing a “fact book.”

Earlier, on a different track, in a Wall Street-pleasing but reform-suppressing sideshow, former county CEO William Popejoy dutifully floated the trial balloon of Measure R, the proposed sales tax increase for bankruptcy recovery. Voters who demanded substantial internal reform and restructuring before they would resuscitate the county with an infusion of new funds overwhelmingly rejected the measure; exit Popejoy.

Some improvements have come about. A better method of overseeing the activities of the county treasurer has been implemented. A new treasurer was appointed, and tighter investment guidelines are in effect. In fairness to Popejoy, he did some necessary housecleaning before he left. The county auditor/controller was demoted, the chief administrative officer was fired, and the chief county counsel’s contract was not renewed.

But many questions remain unanswered. Is it true, as one county insider suggested, that the county’s management information systems and basic accounting integrity are woefully inadequate or faulty? Could this explain the fear of an outside audit?

For two years, the county has managed to fend off several attempts to get to the bottom of these issues and require disclosure and accountability. The county “family” has been defiantly cohesive and unresponsive. Can we still force county government into the sunlight and fresh air, or will residents allow the window of opportunity for reform to be shuttered?