Senate OKs Civic Finance Measures

Over the objections of State Treasurer Phil Angelides, the California Senate voted Wednesday to eliminate a safeguard enacted in an effort to prevent risky government financial investments like the one that bankrupted Orange County a decade ago.

At issue is how much oversight should be required for the $83 billion that local governments invest. Most of the invested money comes from taxes that have been collected but not yet spent on government services.

The law facing changes was created in 1984 after Montebello and San Jose lost significant amounts in bad investments -- $60 million in the case of San Jose. The law required cities, counties and school districts to inform local lawmakers and other oversight committees on how they are investing the money.

But since the law took effect, the Legislature’s dedication has ebbed and flowed between scandal and financial crunches. Legislators suspended the oversight requirement in 1990 during tough fiscal times, and then reenacted it in 1995, the year after Orange County’s bankruptcy, which was caused by aggressive investment strategies adopted by then-Treasurer Robert L. Citron.

But in 2002, facing another budget crisis, the Legislature suspended it again. Now, legislators are moving to make the reporting requirement optional as part of a larger effort to eliminate mandates that the state places on local governments.

“That law was a cornerstone of reform in 1995,” said Quentin L. Kopp, a former state senator who played a central role in reviving the law after Orange County’s bankruptcy. “Those who ignore history are destined to repeat the mistakes of history.”

Assemblyman John Laird (D-Santa Cruz), the author of the change, said most local governments already provide reports on their investments to city councils and county boards of supervisors. Providing the reports is estimated to cost $7 million, which the state is required to pay so long as it mandates them.

“Our take is this is something local governments should do anyway,” he said. “Most of them, if not all of them, are doing it. If it were funded, we would be paying for local governments to do something they are doing and should be doing.”

The change was made in two measures, which had already passed the Assembly. Both bills have to go back to the Assembly for a vote on amendments made by the Senate before they can be sent to Gov. Arnold Schwarzenegger.

Angelides said he feared that the changes could make it easier for misguided investment policies to be enacted without elected overseers being aware of them.

He said the changes would also weaken the California Debt and Investment Advisory Commission, which he heads.

The commission identifies investment policies that are not in compliance with state law.

Angelides said the commission would not be able to do so if local governments do not provide it with reports.

“What you want to be concerned about is not the 99% who are fastidious, but the 1% who are living at the edge,” Angelides said.

“I don’t see the justification for not requiring that tens of billions of dollars of public money be accounted for in public.”

He also disputed charges that the measure was a significant cost. “Any portfolio manager worth their salt should be producing these reports anyway,” he said.