Red Ink Blues

Will bankruptcy force Orange County to act like Orange County?

Orange County. For the self-respecting liberal, the very name provokes a shudder. This sun-caressed Southern California expanse is, after all, the birthplace and final resting place of Richard Nixon. One of the few counties of any size, anywhere, to go for Goldwater. And the symbolic suburban heartland of Reaganism: Its voters, more than any others, helped propel the host of Death Valley Days to political stardom.

In America's political shorthand, the county's name has become a code phrase to describe a don't-mess-in-my-wallet mindset that admirers style libertarian, but sentinels of government deride as self-centered (as in, "How Orange County of you," said with a sneer).

Little wonder, then, that in the wake of Orange County's bankruptcy--the county is the largest government entity ever to enter Chapter 9--much of the media has seized on the debacle to try to discredit what the county is supposed to represent. Reaganism's sins are being visited on its children, runs the line. We're told that dread '80s-style "excesses" were on display in the Nathan Detroit-like investment practices of County Treasurer Bob Citron--as if Gamblin' Bob maintained a hotline to Ron and Nancy's Bel Air digs. The fact that Citron was the lone Democrat to hold a countywide elective office gets reported, but isn't allowed to soften the sermon.

Derivatives, complex financial securities that Citron employed, are tagged as culprits as well, and media calls for regulation win an ear even in the newly ascendant House Republican caucus. As it happens, the real daredevilism in the Citron strategy wasn't the investment vehicles but the leveraging. The county and many of the scores of local jurisdictions that invested with it borrowed big time in an effort to enhance their winnings. They didn't need derivatives to bet on interest rates with borrowed money; they just happened to use them. No matter: In a lot of the reporting, that fact isn't allowed to divert attention from the alleged need to crack down on innovative financial instruments.

For many journalists, Mr. Citron's sins pale next to those of the real heavies: Orange County taxpayers. They're tightwads, you see--all me, me, me. It's because they weren't surrendering enough of their take-home loot to local government that dedicated public servants had to resort to financial risk to make ends meet.

Columnist James O. Goldsborough of the San Diego Union-Tribune has the lyrics down well: "Citron, I believe, happened to Orange County because of the funny philosophy up there that government is bad, that taxes that go for good government are worse...."

Los Angeles Times economics writer James Flanigan fingers a "screwed up" tax system that starves the public sector: "One reason city managers were so unquestioning of the exaggerated returns in...[the] Orange County investment fund is that they needed the money."

Mark Lacter of the L.A. Daily News gives miserly Orange Countians a drubbing: "[T]he most remarkable aspect of the Orange County bond mess is how little they talk about raising taxes. Which is, of course, the one thing they should be talking about, at least as a stop-gap effort to generate some quick cash and avoid draconian cuts. What is it with those folks? How far can their tax-busting attitudes reach?"

Proposition 13, which was birthed in Orange County, is, as always, hauled in for blame. Its mild, porous restraints on tax increases helped trigger a "crisis in local government finance," reports USA Today.

Bracing rhetoric, no question. All that's lacking is a firm link with the facts. Mr. Goldsborough, for instance, apparently forgets that the sales tax in his own San Diego County, currently at 7 percent, stands a full 10 percent lower than the 7.75 percent levy in Scroogish Orange County.

The inconvenient truth is that tax dollars have been pouring into Orange County coffers with monsoon intensity for years. If local public servants still found themselves with cash-flow problems, it's because of their Niagara-force spending habits.

Two recent studies of taxing and government check-writing, one from Pepperdine University, the other from the California Taxpayers Association, lay it all out. Cal-Tax reports that revenues to Orange County--including all local taxes and fees--rocketed skyward over the past decade and a half, from $369 million in 1978 (the year Prop. 13 darkened the horizon) to $723.9 million in 1993.

Even when you adjust for inflation and population growth, the county's income has been rising. Revenue--in constant 1992 dollars--increased from $527 per person in 1978 to $623 a person 14 years later.

This robust expansion wasn't enough to appease bureaucratic appetites. Gary M. Galles, associate professor of economics at Pepperdine, charts an increase of more than 50 percent in county spending from 1978 through 1989, even with inflation and population growth factored in.

Juicy examples of spendthriftery abound: unneeded real-estate acquisitions, the usual generous auto allowances and other pampering of top officials, fevered payroll growth (a 45-percent increase in the number of county employees over the past decade, to nearly 18,000 today). This past summer, when county supervisors approved the addition of more than 900 new positions--even as the recession-wracked local economy was undergoing another spasm of contraction--the Orange County Register protested editorially. In response, County Administrative Officer Ernie Schneider accused the paper's editorial staff of residing in a "mausoleum," so out of touch were we with the need for expanded "services." And officials have shown a notable lack of interest in privatization and other economy measures that you'd think would thrive in a county of such conservative repute.

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