Avoiding investment pool disaster

In Orange County’s conservative climate of unfettered free enterprise, the independently elected Treasurer Bob Citron was free to manage the California county’s investment pool “like a business” without governmental control and with a minimum degree of accountability.

Returning a higher percentage of interest than other investment funds for more than 15 years, Citron had developed a working relationship with the county’s Board of Supervisors that was governed by a “bottom line” mentality. While in a position to request an understandable accounting of the treasurer’s dealings, the board’s relationship with the treasurer nevertheless appears to have been “performance oriented.”

The board’s practice is in keeping with private sector calls for the adoption of business-like management principles in government – the call for delegation. The principle of delegation, and accountability for results, had operated successfully for many years in Orange County. Occasional warnings of dangerous financial management practices by the Securities and Exchange Commission and the county’s own auditor were largely ignored.

The question is to what degree the board should be held responsible for its lack of adequate control of the treasurer’s financial management practices. In its defense, organizations and individuals will rely on past performance to make decisions about financial investments.

Investors’ guides regularly publish past performance as an inducement to purchase shares in their particular funds. The success rate of the Orange County investment pool was attractive enough to draw contributions from 186 municipalities.

The response to the debacle will probably be an increase in calls for running government like a business, continued downsizing, savings through privatizing and continued obfuscation by government administrators about revenue shortfalls. Leadership that focuses on disclosure and openness will need to emerge.

To avoid the problems that sank Orange County, scholars of county government have long espoused the idea of appointing county department heads in lieu of independently elected officials, with the exception of district attorneys. The National Association of Counties (NACo), as early as the late ’60s, called for the restructuring of counties and the appointment of strong executives as managers.

NACo’s research, part of a Ford Foundation-funded program titled “New Counties,” led to the development of guidebooks and studies calling for revisions in the structure of county governments, particularly counties that had grown in population and had become urban communities.

NACo is recommending today what many cities already know – the best structure for local government is the appointed manager with authority to manage all functions of county government with an elected policy board to govern the county.

For Orange County, the structure required for the future is one with appointed department heads reporting directly to the county manager, who in turn would operate under the policy direction of the Board of Supervisors. Political and policy leadership should continue in the hands of the board, and management authority and responsibility should be in the hands of the appointed county manager.

The investment pool calamity possibly will fuel the political will to produce a change in the county’s government, but what is needed is control by professionals with the time, training and responsibility to manage a thriving urban county. A laissez-faire culture may exist in Orange County’s private sector, but it does not belong in Orange County’s government.