Commentary

The Public Has Forgotten, Forgiven


By Mark Baldassare, research director, Public Policy Institute of California
This opinion article appeared in the Orange County Register on December 5, 2004

A decade ago, Orange County entered the record books by becoming the largest municipal government in U.S. history to declare bankruptcy. This crisis stemmed from the county's inability to pay back billions of dollars in debts incurred by the county treasurer. A risky investment strategy that was supposed to provide interest income for cash-starved local governments had badly backfired. Left without viable alternatives - and with both state and federal officials ignoring their pleas for help - Orange County government officials decided to file for Chapter 9 bankruptcy on Dec. 6, 1994.

What followed was a roller-coaster ride for county residents. They faced the threat of massive layoffs of public employees and disruptions of essential local services and watched the county's credit rating fall to junk status on Wall Street. A county previously known for its affluent lifestyle and fiscal conservatism suffered a body blow to its sterling reputation and became the object of jokes and ridicule in the national media.

One year later, a bankruptcy escape plan was filed in court. Orange County government officially emerged from U.S. bankruptcy court protection on June 12, 1996.

What are the repercussions of this traumatic episode on the county's psyche? First, there is collective amnesia when it comes to recollections of this painful event. Today, eight in 10 county residents say they remember little or nothing about the dark days of the 1994 county government bankruptcy, according to our latest Orange County annual survey taken last month. Even the long-time, older residents have mostly dim memories of this fiscal fiasco.

Moreover, most Orange County residents do not think that the government bankruptcy has had negative consequences for the local economy or quality of life. Even among the one in five residents who say they recall "a lot" about the bankruptcy, most are also quick to discount its importance to Orange County today.

Beyond residents' remembrances of things long since past, the results from our 2004 Orange County survey indicate that the county has recovered soundly from the deep funk that set in after the bankruptcy filing. Comparing public opinion today to our first post-bankruptcy survey, positive ratings of the county's overall quality of life (90 percent from 68 percent) and the county's economy (69 percent from 19 percent) are both up sharply from what were historic lows.

Other signs of the county's solid economic recovery include the relative optimism evident in the local consumer confidence index today, and the fact that perceptions of the housing market have improved markedly from a decade ago.

Perhaps most surprising to those of us who observed first-hand the bitter disappointment and anger of residents post-bankruptcy is the dramatic turnaround in approval ratings of county government.

In our polls taken right after the bankruptcy, three in four residents admitted to being "angry" at the actions of local officials. Moreover, they blamed both the county treasurer for making foolish investments and the members of the county board of supervisors for not minding the till. Half of the voters said they favored the recall of the county supervisors in office when the bankruptcy began. Their disapproval was loudly heard on June 27, 1995, when voters rejected the "Measure R" half-cent sales tax that was designed to bail the county out of bankruptcy.

Today, county residents are nearly twice as likely as they were in our first post-bankruptcy poll to rate their county government as doing an excellent or good job at solving problems (49 percent to 24 percent). Moreover, solid improvements are evident in residents' perceptions of the county government's efficiency in spending tax dollars and in the belief among residents today that county leaders pay attention to what the people think. The positive feelings toward local government extend to a wide array of services - including police protection, streets and roads, public schools, and parks and recreation - all of which took funding hits in the wake of the bankruptcy.

Is Orange County government in better shape today than it was a decade ago?

Both the state and county governments learned important lessons from the near-calamitous mistakes that led to the bankruptcy, and they took actions that led to a more responsible approach to municipal investments. The state government outlawed the use of the risky investments that had resulted in the bankruptcy and increased the monitoring of the county treasurer's activities by other local officials. In Orange County, the new county treasurer restored confidence with the public, local governments and Wall Street lenders through fiscal transparency, an oversight committee, and solid investments.

Orange County was the recipient of awards for its efforts to reinvent county government in the wake of the bankruptcy. The restoration of a good credit rating was also achieved. In an era when local governments throughout California are being forced to confront the reality that Orange County faced a decade ago - managing fiscal survival without help from the state government and local voters - the Orange County bankruptcy serves as a cautionary tale for struggling municipalities.

Orange County has hit something of a rough patch of late. Over the past three years, two big increases in pensions for county employee groups have led to concerns about the county government's long-term debt, and mismanagement in the county planning department has brought sharp criticism of county executives. Still, the problems do not rival the fiscal crisis the county faced a decade ago.

With the bankruptcy now in the rearview mirror in Orange County, the bigger challenge for the next decade comes from another milestone that coincides with this 10th anniversary. Orange County became a majority-minority county this year - whites are now under 50 percent of the population - and Latino and Asian immigrants and their children will continue to increase in the decade ahead. The new Orange County majority will demand more local services - including public health and public schools - while Orange County's predominantly white voters will prefer to shrink local government.

How Orange County chooses to respond to this demographic shift will ultimately determine if we can look back in 10 years and say that the quality of life and economy has improved, and if we will heap praise on local governments for meeting the challenges of the future.

Publications

PPIC Statewide Survey: Special Survey of Orange County, December 2004

PPIC Statewide Survey: Special Survey of Orange County, December 2003

When Government Fails: The Orange County Bankruptcy