John Moorlach ran against Citron in 1994, warning of the coming doom. He lost, but was appointed Treasurer-Tax Collector after his dire predictions came true. He went on to become a county supervisor and is now a state senator.

There was the homeless man in a miniskirt and fishnet stockings who stuffed oranges in his brassiere and wielded a plunger a reminder that Orange County was going down the drain.

There was the eccentric forensic accountant who pushed recalls against officials who had already agreed to leave office, hordes of enraged anti-tax activists who shouted down county supervisors, Killer Bees cities like Buena Park, Santa Barbara, Claremont and Montebello who refused to toe the line.

Then there was Robert Bob Citron himself, self-proclaimed master of the ship at the helm and former Orange County treasurer, who had a strong affinity for Navajo jewelry, a collection of 300 ties that he rarely wore, authored 14-page odes to Chrysler automobiles, and consulted psychics and a $4.50 star chart as he managed a highly-leveraged investment pool with billions of dollars belonging to schools, cities and the county itself.

Citron bet wrong on interest rates. There was a run on the bank. His investment pool lost $1.64 billion. And county officials fled into federal bankruptcy court.

There have been other spectacular municipal bankruptcies, but none can claim the color of Orange Countys debacle, which was the largest ever when it was declared in 1994. That one of Americas wealthiest counties could go bust shocked the nation, and officials vowed to repay the public agencies that had lost money seeking Citrons beefy returns. The county issued $1 billion in bonds to raise the cash to make that happen, and onSaturday, July 1 22 years and $1.5 billion later Orange Countys final payment on that bankruptcy bond debt was delivered to bondholders.

Repayments averaged $68 million a year money that could have funded street improvements, libraries, health care and myriad other public services. Its impact is a ghostly one, measured in shadows of what might have been.

On the up side, a great many lessons were learned that have benefited public agencies nationwide. Public accounting is far more transparent. Leverage taking billions of public dollars, persuading elected officials to borrow against it, and then persuading Wall Street to lend money on the loaned money, thus generating enormous earnings to fund government operations is no longer allowed. Many exotic investments are verboten for public treasuries. And public treasurers must mark to market publicly disclose what their investments are worth now, as opposed to what theyll be worth months or years down the road when they mature.

If Citron had been required to do any of those things, Orange Countys story may have ended much differently.

In another only-in-Orange County twist, there were criminal charges attendant to the bankruptcy, but not because anyone was lining his own pockets. Citron was actually lining the countys pockets, trying to provide more and more money for public services.

Shortly before implosion, Citron had managed to leverage $7.6 billion in public funds into a $20.6 billion investment pool. Earnings had grown so astronomically high that his office was skimming money off the top and reporting lower-than-actual returns to cities, schools and special districts so as not to alarm them and trigger a run on the bank.

The skimmed money $89 million went into county coffers, and false accounting was the source of the criminal charges to which Citron ultimately pleaded guilty.

Citron died in 2013, long maintaining that the county had other options and never should have declared bankruptcy to begin with.

The sagas impact on the day final bond payments are made prompted many to reflect.

To me, the bankruptcy showed how disunited we are as a county, said Fred Smoller, political science professor at Chapman University. Citron did wrong, but O.C. voters wanted services they didnt want to pay for, so he gambled with the funds in the investment pool. When he got outrageously high returns he was hailed by the supervisors and others as a genius. But when things went South, he was called an incompetent fool.

Citron bet that interest rates would fall; the Fed ratcheted them up. Some savvy cities and water districts saw the disaster coming and quietly began withdrawing funds.

Unlike the bank run scene in Its a Wonderful Life, when Jimmy Stewart asks customers to put the community ahead of themselves so his civic-minded Savings and Loan could hang on, fund investors put self-interest over the county, Smoller said. Had we all hung in, ironically, the Orange County Investment Pool would have eventually recouped its loses when the Fed began lowering interest rates.

If voters had approved Measure R a half-cent sales tax to pay off bankruptcy debt that was soundly rejected hundreds of millions in interest and fees would have been saved, Smoller said.

William Popejoy, the Newport Beach investment banker who volunteered to get the countys financial house back in order immediately after the debacle and supported the sales tax hike, tried to tell everyone that.

We said, youll pay one way or the other, Popejoy said. The money had to be repaid.

Popejoy led the crippled county as it struggled to make ends meet in those early, chaotic days, when public meetings were full of rancor and blame and dragged on for what seemed like days. He clashed with county supervisors who resented his unvarnished assessments of their abilities and motives, and was ousted after five months. But he balanced a decimated budget and set the ship back on course.

People still come up to me and say thanks, Popejoy said. There were a whole bunch of volunteers who put in very long hours, and I was impressed by the quality of the county employees. Top notch people. I dont have any regrets. Its one of the things Im most proud of in my life.

John Moorlach was an upstart CPA running against Citron in 1994, warning of the coming doom. He was scolded by officials for hurting investors confidence and dismissively dubbed Chicken Little. When his predictions came to pass, he was appointed Treasurer Tax Collector. His license plate says, SKY FELL.

The bankruptcy dramatically changed my life, said Moorlach, who went on to become a county supervisor and is now a state senator. I sort of feel like I lived in a movie. I was an officer of the county when those recovery bonds were issued, and I wondered if Id live long enough to see them paid off. It was a great turn-around opportunity. A lot has changed since then, and the county is better for it. Its been nearly 23 years, and no one has been able to pull a stunt like this again. Its a good day.

Others feel justice wasnt done.

Just like the Wall Street meltdown starting in 2008, virtually no one (save house arrest for Citron) was held politically or legally responsible for what happened with the peoples money during the O.C. bankruptcy, said Mark Petracca, political science professor at UC Irvine. Its pretty darn amazing and there is a very troubling lesson here for any public officials who wish to play fast and loose on the taxpayers dime.

While the bonds are finally paid off, theres still another $19.7 million that must be paid before all bankruptcy-related bills disappear. The Killer Bees or class b-13 claimants refused to sign on to the payback plan agreed to by everyone else. These 11 agencies from Atascadero, Buena Park, Claremont, Milpitas, Montebello, Mountain View and Santa Barbara sued separately andgot their own repayment deal. Theyll get their final payment late next year.

And then what?

Despite the checks and balances now, and a commitment to strategic planning, there is always the chance that institutional memory will fade as time goes by and as leadership changes, said William Steiner, who was appointed to the Board of Supervisors the year before the fall. The county has essentially fared well over the years despite the bankruptcy. Still, millions of dollars have been diverted from other important county departments and priorities.

Steiner expects parks and recreation programs to get a significant bump in revenue now that the bonds are paid off.

Todd Spitzer was elected to the Board of Supervisors in 1996, as the county was adjusting to the new normal. He went on to serve in the state Assembly, then was re-elected supervisor in 2012.

The entire time the focus has been one of incredible belt-tightening and difficulty because of the huge whopping amount of dollars that were being paid to pay off the bankruptcy, Spitzer said. My biggest fear is that, as the bankruptcy gets more and more in the rear view mirror, supervisors are going to have lost perspective of what it means to operate under the guise of a very, very, very difficult financial situation.

To UCIs Petracca, it ends not with a bang, but a whimper. He said few people even those whose lives weredramatically impacted by cutbacks in socialservices spending will recall anything about the bankruptcy.

As it is said towards the end of The Untouchables, when Eliot Ness leans over Al Capone, Here endeth the lesson,' Petracca said.

Updated 10:45 p.m. with Spitzer comment

Link:

We're out! Orange County pays final bankruptcy bill on July 1. The ride's been wild - OCRegister