O.C. Planning Crisis Recalls ’94 Bankruptcy

A department suddenly bleeding millions of dollars. County supervisors blindsided. Finger-pointing over who should have known what and when.

This has been the scene at the Orange County Planning Department, which has lost $8 million over the last six months and in the last two weeks has laid off 20% of its staff and proposed hefty increases in building-permit fees.

To some officials, the situation bears a troubling resemblance to a calamity that county officials hoped was just a bad memory: the 1994 bankruptcy.

That collapse, caused by risky investments by then-Treasurer Robert L. Citron, resulted in a dramatic remaking of Orange County government that was supposed to emphasize audits, the hiring of a tough chief executive officer and stricter oversight of far-flung departments.

Now some wonder whether these reforms really worked.

“It’s deja vu all over again,” said county Treasurer John M.W. Moorlach, who raised concerns about Citron’s investments before the bankruptcy and was later appointed to replace him.

“You find yourself asking the same questions: How did the money disappear so fast? Where was the internal auditor? Where was the budget analyst? There are so many lines of defense that it seems inconceivable.”

Both the Board of Supervisors and top county executives came under harsh criticism after the bankruptcy for not monitoring Citron closely. In fact, supervisors often praised the treasurer for the high returns he got on the public’s money. They later discovered he was using risky investment schemes that resulted in a $1.67-billion loss.

Moorlach and others said the same failures are apparent eight years later in the Planning Department.

The planning director, Thomas B. Mathews, frequently won accolades for the efficiency of his shop and his ability to balance the interests of developers and environmentalists. But as the economy cooled in recent years, revenue from building permits dropped dramatically. Instead of cutting costs, planners predicted an uptick in development that never materialized.

In August, the Board of Supervisors made an emergency allocation of $8 million to keep the department afloat. But by this month, the department had exhausted the money and was losing up to $1 million a month. The latest blow came Friday, when a judge ruled that the department misspent $12 million, requiring officials to come up with money they don’t have to set things straight.

Mathews, 57, announced his retirement last week.

William Popejoy, the former business executive brought in to run the county after the bankruptcy, questioned why top county officials -- notably County Executive Officer Michael Schumacher -- didn’t intervene earlier, and why they didn’t question the Planning Department’s rosy forecasts.

“His office should have brought this to the attention of the supervisors early on,” Popejoy said. “Mike’s responsibility is to raise red flags with the supervisors and then go to the department and start to squeeze. It’s a problem of accountability. And frankly, the buck stops with the CEO.”

Schumacher, who wouldn’t comment for this story, unveiled a recovery effort for the Planning Department last week that included a full audit, a new interim director and the development of more accurate forecasts.

Still, some supervisors said they were blindsided by the problems at the Planning Department and still believe they don’t have all the facts.

“The whole thing should have been stopped months ago and rectified,” said Board of Supervisors Chairwoman Cynthia P. Coad. “The community needs to stay on top of this.”

To some officials, the reforms made after the bankruptcy might have exacerbated the problems in the Planning Department. To make the county run more like a business, the supervisors in 1995 created the position of CEO and ceded it much of the oversight of county departments. Now the CEO -- not the supervisors -- directly oversees budgeting, hiring and firing.

The setup, which was designed to depoliticize the bureaucracy, left department managers with more autonomy and less direct oversight, said Shirley Grindle, a longtime campaign-finance activist.

Tricia Harrigan, who monitors board meetings for the League of Women Voters, said the supervisors now face a critical choice: Either they take back greater oversight of county departments or demand that the CEO do more.

“This looks to me like a failure of the CEO system,” she said.

Moorlach said the bankruptcy has focused so much attention on investment issues that other issues go unchecked.

“When you have the majority of your police force focusing on one house, the burglars are going to go elsewhere,” he said.