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When Government Fails: The Orange County Bankruptcy
When Orange County, California, filed for Chapter 9 protection on December 6, 1994, it became the largest municipality in United States history to declare bankruptcy. In the first comprehensive analysis of this momentous fiscal crisis, Mark Baldassare uncovers the many twists and turns from the dark days in December 1994 to the financial recovery of June 1996. Utilizing a wealth of primary materials from the county government and Merrill Lynch, as well as interviews with key officials and players in this drama, Mark Baldassare untangles the causes of this $1.64 billion fiasco.
He finds three factors critical to understanding the one, the political fragmentation of the numerous local governments in the area; two, the fiscal conservatism underlying voters' feelings about their tax dollars; three, the financial austerity in state government and in meeting rising state expenditures. Baldassare finds that these forces help to explain how a county known for its affluence and conservative politics could have allowed its cities' school, water, transportation, and sanitation agencies to be held hostage to this failed investment pool. Meticulously examining the events that led up to the bankruptcy, the local officials' response to the fiscal emergency, and the road to fiscal recovery―as well as the governmental reforms engendered by the crisis― When Government Fails is a dramatic and instructive economic morality tale. Eminently readable, it underlines the dangers inherent in a freewheeling bull economy and the imperatives of local and state governments to protect fiscal assets. As Baldassare shows, Orange County need not―and should not―happen again.
He finds three factors critical to understanding the one, the political fragmentation of the numerous local governments in the area; two, the fiscal conservatism underlying voters' feelings about their tax dollars; three, the financial austerity in state government and in meeting rising state expenditures. Baldassare finds that these forces help to explain how a county known for its affluence and conservative politics could have allowed its cities' school, water, transportation, and sanitation agencies to be held hostage to this failed investment pool. Meticulously examining the events that led up to the bankruptcy, the local officials' response to the fiscal emergency, and the road to fiscal recovery―as well as the governmental reforms engendered by the crisis― When Government Fails is a dramatic and instructive economic morality tale. Eminently readable, it underlines the dangers inherent in a freewheeling bull economy and the imperatives of local and state governments to protect fiscal assets. As Baldassare shows, Orange County need not―and should not―happen again.
340 pages, Paperback
First published May 2, 1998
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Displaying 1 - 3 of 3 reviews
December 2, 2015
"Three factors are at the heart of the Orange County fiscal crisis: the political fragmentation in local government, voter distrust of local government officials, and the condition of austerity in the state government. These are not unique factors ... " (16)
"This was not the usual bankruptcy scenario of a troubled central city with declining revenues and rising expenditures. The local governments in Orange County were considered highly creditworthy up until the very end. Their downfall was the result of an overwhelming desire to live beyond their means by increasing their local revenues. They could not say no to the interest income that was gained through risky investments." (88)
"This was not the usual bankruptcy scenario of a troubled central city with declining revenues and rising expenditures. The local governments in Orange County were considered highly creditworthy up until the very end. Their downfall was the result of an overwhelming desire to live beyond their means by increasing their local revenues. They could not say no to the interest income that was gained through risky investments." (88)
August 3, 2024
CAN A COUNTY GOVERNMENT DECLARE BANKRUPTCY? HERE'S THE STORY…
At the time this book was written in 1998, Mark Baldassare was a Fellow at the Public Policy Institute of California. He has also written books such as 'The Coming Age of Direct Democracy: California's Recall and Beyond,' 'California in the New Millennium: The Changing Social and Political Landscape, 'A' California State of Mind: The Conflicted Voter in a Changing World,' etc.
David Lyon (CEO of the Public Policy Institute) wrote in the Foreword, "[the book] is a compelling account of how voters' fiscal conservatism and the pressure for high-quality public services came into conflict. This story is being played out in numerous local governments throughout California... As California legislators and administrators struggle with severe restrictions on their ability to raise local revenues... the temptation to search for 'creative solutions' will only intensify." (Pg. xiii) Baldassare says in the Introduction, "[the book] provides a comprehensive analysis of the Orange County bankruptcy... This book also discusses the larger lessons to be learned from the mistakes made in Orange County and offers policy recommendations for state and local governments to avoid future fiscal catastrophes." (Pg. 1-2)
He states, "I argue that several factors help to explain why the risky actions of [former Treasurer] Bob Citron were allowed and even encouraged to take place against a backdrop of increasingly dire warnings that his actions would lead to a financial disaster for local governments." (Pg. 15) Later, he adds, "The treasurer followed a risky strategy to increase the county's interest income to compensate for the declining state aid. The county leaders hoped that... they could avoid spending and service cuts or proposals for tax increases, all of which would have stirred anger among their fiscally conservative voters... The outcome was a financial disaster of historic proportions for local governments in Orange County by the end of 1994." (Pg. 87)
He observes, "There are some questions about the county pool that may never be answered... as ... the new country treasurer wrote, 'And, if the current Grand Jury transcripts are to be believed, Mr. Citron also utilized a mail order astrology service and a psychic.'" (Pg. 93) He adds, "[Citron] was not a financial wizard. He did not even have a college degree in business or finance... He was a county treasurer who had learned that the one way to make big money for the local governments was to bet on lower interest rates. The Federal Reserve Board's actions exposed his naive views." (Pg. 103)
He concludes, "Bob Citron and the Wall Street investors that lent him money were not the sole causes of the Orange County financial crisis. Bob Citron was the catalyst for this event. The bankruptcy was made possible by the political, organizational, and financial context in which these actors were operating... However, although these are the necessary conditions, they are not sufficient in themselves. Bob Citron did the damage. (Pg. 220) He adds, "There were many signs of hubris in the annual reports that were submitted to the Board of Supervisors in the 1990s... His lack of openness with elected officials and the press was inexcusable for a public official. Citron lured many local officials into the county fund with an irresistible sales pitch that was dishonest." (Pg. 227)
This is a detailed, sometimes dry, recounting and analysis of the Orange County situation, which---with cities such as San Bernardino, Stockton, Mammoth Lakes, and Compton declaring bankruptcy---is eerily pertinent to the current scene.
At the time this book was written in 1998, Mark Baldassare was a Fellow at the Public Policy Institute of California. He has also written books such as 'The Coming Age of Direct Democracy: California's Recall and Beyond,' 'California in the New Millennium: The Changing Social and Political Landscape, 'A' California State of Mind: The Conflicted Voter in a Changing World,' etc.
David Lyon (CEO of the Public Policy Institute) wrote in the Foreword, "[the book] is a compelling account of how voters' fiscal conservatism and the pressure for high-quality public services came into conflict. This story is being played out in numerous local governments throughout California... As California legislators and administrators struggle with severe restrictions on their ability to raise local revenues... the temptation to search for 'creative solutions' will only intensify." (Pg. xiii) Baldassare says in the Introduction, "[the book] provides a comprehensive analysis of the Orange County bankruptcy... This book also discusses the larger lessons to be learned from the mistakes made in Orange County and offers policy recommendations for state and local governments to avoid future fiscal catastrophes." (Pg. 1-2)
He states, "I argue that several factors help to explain why the risky actions of [former Treasurer] Bob Citron were allowed and even encouraged to take place against a backdrop of increasingly dire warnings that his actions would lead to a financial disaster for local governments." (Pg. 15) Later, he adds, "The treasurer followed a risky strategy to increase the county's interest income to compensate for the declining state aid. The county leaders hoped that... they could avoid spending and service cuts or proposals for tax increases, all of which would have stirred anger among their fiscally conservative voters... The outcome was a financial disaster of historic proportions for local governments in Orange County by the end of 1994." (Pg. 87)
He observes, "There are some questions about the county pool that may never be answered... as ... the new country treasurer wrote, 'And, if the current Grand Jury transcripts are to be believed, Mr. Citron also utilized a mail order astrology service and a psychic.'" (Pg. 93) He adds, "[Citron] was not a financial wizard. He did not even have a college degree in business or finance... He was a county treasurer who had learned that the one way to make big money for the local governments was to bet on lower interest rates. The Federal Reserve Board's actions exposed his naive views." (Pg. 103)
He concludes, "Bob Citron and the Wall Street investors that lent him money were not the sole causes of the Orange County financial crisis. Bob Citron was the catalyst for this event. The bankruptcy was made possible by the political, organizational, and financial context in which these actors were operating... However, although these are the necessary conditions, they are not sufficient in themselves. Bob Citron did the damage. (Pg. 220) He adds, "There were many signs of hubris in the annual reports that were submitted to the Board of Supervisors in the 1990s... His lack of openness with elected officials and the press was inexcusable for a public official. Citron lured many local officials into the county fund with an irresistible sales pitch that was dishonest." (Pg. 227)
This is a detailed, sometimes dry, recounting and analysis of the Orange County situation, which---with cities such as San Bernardino, Stockton, Mammoth Lakes, and Compton declaring bankruptcy---is eerily pertinent to the current scene.
May 27, 2025
Not bad just too academic for casual enjoyment.
Displaying 1 - 3 of 3 reviews