Researcher Issues Bankruptcy Warning

A debacle similar to Orange County’s bankruptcy could happen again because many of the pressures that contributed to it are still in place, UC Irvine urban planner Mark Baldassare said Thursday.

Previewing a book on the bankruptcy that he has researched for a year, Baldassare challenged notions that the December 1994 bankruptcy, and subsequent loss of $1.64 billion in taxpayer dollars, was an aberration caused by rogue county Treasurer Robert L. Citron.

Instead, he said 14 other California counties had pursued less drastic versions of Citron’s strategy of investing in interest-rate-sensitive securities using borrowed funds.

Citron operated with virtually no oversight because Orange County’s political structure is fragmented into so many smaller cities, school districts and special districts, Baldassare said. Similar conditions prevail not just in the county but in suburban areas across America, he said.

Baldassare also said that, despite today’s improved economy, California counties are suffering from huge losses of property tax revenue as a result of 1979’s Proposition 13 and take-backs by the state during the severe recession of the early 1990s.

That pinch is compounded because so many voters distrust elected officials and believe government is wasteful, he said.

With the burden of welfare and other social programs shifting increasingly to counties, it’s possible the state could once again loosen restrictions on county treasurers, inviting the kind of speculation that doomed Citron’s treasury, Baldassare said.

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Admirable changes after the bankruptcy, such as the creation of a strong county chief executive, should be codified in a county charter so they cannot be undone in the future at the whim of the supervisors, he said. County voters have turned down one charter proposal since the bankruptcy.

Baldassare said he also will recommend changes to the state’s open meeting law so public officials can meet secretly in times of financial crisis as they can at times of natural disasters.

Restrictions on more than two supervisors meeting without advance notice snarled decision-making in the early days of the bankruptcy, county officials have said.

Baldassare took a year’s leave from UC Irvine to write the book under the auspices of the Public Policy Institute of California, a Northern California think tank funded largely by computer billionaire William R. Hewlett.

The book, titled “When Government Fails: The Orange County Bankruptcy,” is still under revision, Baldassare said. It is expected to be published late next year.