Markets Give Reminder on Perils of Over-Optimism : County should reaffirm prudence in financial policies
While the Asian markets were faltering and before stocks tumbled on Wall Street last week, Orange County got several pieces of favorable news that suggest a promising future for the local economy. One came from an economic forecast, and the other came in a report from the Orange County tax assessor.
The findings in these reports are some of the very “fundamentals” in the economy that experts were citing during Wall Street’s dramatic “correction” last week. As Orange County stocks leaked along with the rest of the world and then bounced back on Tuesday, it was telling that local observers took the long view.
Orange County has led Southern California out of the recession, so as it goes, so goes the region. The forecasts, at least before the turmoil in the markets, gave reason for long-term confidence.
Cal State Fullerton economists found that home and business resales, as well as new building, have added more than $4 billion to the county’s property tax rolls this year. Also, a higher number of homes being sold at higher prices is resulting in higher assessed values, and with those, higher property taxes.
This is likely to benefit local government agencies, which have been struggling to recover from the county’s bankruptcy in late 1994. It means that local cities and school districts can accomplish more than they have been able to.
The county is especially fortunate to be adding 34,000 jobs this year, with similar increases projected for next year because of the expansion. The economists expected that the value of high-tech exports could grow to $9 billion by fiscal year 1998-99. The forecast determined that the continued growth, especially aided by the recovery in Los Angeles County, should be sufficiently strong to hold off against an anticipated slowdown in the national economy next year. The region was late in joining the national recovery, but the strength of the local growth has caused a broad rebound in manufacturing, construction and service sectors, as well as foreign trade and tourism.
In this bright picture are a couple of possible negatives. The most obvious from recent days is the foreign currency devaluation that shook the world markets on Oct. 23, and its ripple effects on world markets. Another is the fear of inflation resulting from rising labor costs. Also, the nervousness of recent days reminds us of lessons learned in hard times in the early 1990s. This is significant for those planning what government can and cannot do.
While the indicators are for continuing expansion and strength, the current period poses a special challenge to local and county agencies to plan wisely and not bank on an ever-expanding pot of revenue.
A reminder of the perils of over-optimism came during the same week as the earliest market turmoil. Former Treasurer-Tax Collector Robert L. Citron was released after having his jail sentence shortened on bankruptcy related charges.
The bankruptcy showed the danger of expecting unbridled growth, and the risk that many agencies were willing to undertake in the hope of receiving higher returns to fuel pet programs and projects.
The county is paying dearly for that attitude. It currently is committed to turning over nearly one-fourth of its discretionary spending for interest and principle repayments on nearly $1 billion worth of bonds issued to get out of bankruptcy. This is a painful indicator of the high cost of relying on financial markets to meet ambitious expectations.
The county in a sense has a second chance now that recovery has been so healthy. It must resolve to manage its finances more prudently in the future and also to protect the public interest through careful investments and spending policies.
