When Government Fails: The Orange County Bankruptcy

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"Orange County," writes Mark Baldassare, "is a place that is widely known but largely misunderstood." That's especially true of the bankruptcy proceedings the California county was forced to initiate in late 1994 after risky investments led to a $1.64 billion dollar loss. Baldassare's close analysis of the situation reveals that the crisis cannot, as popularly imagined, be blamed solely on the actions of unchecked financial management. Although the county treasurer's investment strategy was "an accident waiting to happen," Baldassare points to a two-decade trend of voter initiatives to simultaneously minimize tax increases and control the allocation of state tax funds, along with Orange County's political fragmentation, as contributing factors. He also points out that, contrary to its reputation as a stronghold of wealthy conservatives, the county is primarily made up of middle-class suburbanites of moderate political temperament. In other words, Orange County is a lot like the rest of America, and what happened there can happen again. Although When Government Fails, with its historical data, statistics, and surveys, isn't always a lively read, it's a useful one for anybody who is concerned about the future viability of government at the community level. --Ron Hogan


From Library Journal
How quickly we forget: Orange County declared bankruptcy on December 6, 1994. Baldassare (Trouble in Paradise: The Suburban Transformation and Its Challenges, Columbia Univ., 1986), a specialist in urban affairs, presents a scholarly account of how the debacle occurred. Up to this time, bankruptcy or default was considered a possibility only for large, urban New York and Philadelphia or for small, rural locales. Though the county treasurer could be viewed as the prime mover of the tumult, there was a high degree of complicity; local municipalities and school boards sought returns that were by all accounts "too good to be true." As might be expected, shock was residents' initial reaction, but, amazingly, this soon turned to complacency. Baldassare has also examined a number of other issues in this scholarly work of interest to economists, financiers, and politicians. While well written and perhaps the kernel of an interesting screenplay (Jack Nicholson as Bob Citron?), the audience is limited. Recommended for special collections only.?Steven Silkunas, Southeastern Pennsylvania T.A., PhiladelphiaCopyright 1998 Reed Business Information, Inc.


From Kirkus Reviews
paper 0-520-21486-2 A thorough academic study of the biggest government bankruptcy in US history. Baldassare, a scholar at the University of California, Irvine, likens the Orange County crisis to other recent municipal crashesup to a point. Despite its image as an affluent, lily-white enclave, Orange County fell victim to several problems: increased costs from rapid population growth, including an influx of poor immigrants who were especially heavy users of services; postProposition 13 financial constraints which precluded county government from raising taxes commensurate with the voters' desire for services; and the recession of the early '90s, which caused the state government to reduce aid to counties. To this familiar mix was added an exceptionally large measure of malfeasance. Attempting to provide more for less, the county treasurer (whose activities received virtually no oversight from other elected officials) pursued a highly risky investment strategy that led to a severe shortfall and, ultimately, the December 1994 bankruptcy filing. A special election to raise the sales tax resulted in a ringing (and predictable) defeat. County leaders then developed a plan that depended on drastically cutting services, especially for the poor. Although the bankruptcy officially ended within a year, the ultimate resolution depends on speculative litigation against a number of financial institutions with which the treasurer did business, and Orange County's credit may be diminished for years to come. Since politicians in suburban counties across the country are under similar pressures to raise revenues without raising taxes, the Orange County scenario could recur, and Baldassare devotes his closing chapters to a discussion of lessons learned and recommendations for policy changes. Although Baldassare writes clearly, he makes no concessions to the general reader; surely the fact that the treasurer took financial advice from psychics deserves more than passing mention. But the book is directed at ``policy makers and scholars,'' for whom it should be illuminating. Sober and sobering. (86 tables, one map, one line figure) -- Copyright ©1998, Kirkus Associates, LP. All rights reserved.


About the Author
Mark Baldassare is a Senior Fellow at the Public Policy Institute of California (PPIC) and Professor and Chair of Urban and Regional Planning at the University of California, Irvine. He is also founder and Director of the Orange County Annual Survey, and the author of numerous books in urban politics.


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