Who's to blame for the largest bankruptcy in municipal government history? According to officials in Orange County, Calif., everyone is at fault but themselves. They've pointed an accusing finger at federal bank regulators, at the county's investment advisers and at the county's accountants. But now a state legislative panel has found a new culprit -- the elected officials of Orange County themselves.
Though the county's elected board of supervisors has the legal obligation to oversee investments, to audit the books and to receive monthly reports, it never happened. That Orange County could have lost $1.7 billion in high-risk bets in the bond market is directly the result of this irresponsible behavior on the part of elected leaders.
One reason for this lack of oversight may have been Orange County's heavy dependence on investment income. Robert Citron, the convicted county treasurer who masterminded the now-discredited strategy, wagered $12.5 billion in borrowed funds to bring in ever-higher returns to finance government programs. In the midst of an anti-tax revolt, supervisors refused to raise taxes to pay for the services being demanded by citizens in that affluent California county. The solution? Have Mr. Citron gamble county funds on Wall Street.
For years, it worked, to the point that the treasurer's investments supplied 35 percent of locally generated revenue -- far more than property tax receipts. But when the bubble burst, as was inevitable, Orange County found itself deep in debt and no way to pay the bills. When county voters angrily rejected an increase in the sales tax to cover the debt, the only way out was to file bankruptcy.
Now a bailout plan has been fashioned that imposes fiscal pain on virtually all parties. Orange County would pay off its debt over 15 years, without raising taxes. But cuts will be felt in parks and recreation, flood control work, redevelopment projects, bus service and road construction -- for years to come. Other local services will feel the pinch, too, as budgets shrink to pay off the debt. Meanwhile, the county's credit rating is in shambles.
The lessons from this debacle are clear. Elected officials cannot walk away from their legal and fiscal obligations. Financial oversight of government investments is a prime responsibility. And shifting the blame to other people and institutions doesn't work. The fault lies directly with those who were elected to guide Orange County's government -- and failed so miserably.