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When Government FailsThe Orange County Bankruptcy$

Mark Baldassare

Print publication date: 1998

Print ISBN-13: 9780520214859

Published to California Scholarship Online: March 2012

DOI: 10.1525/california/9780520214859.001.0001

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The Orange County Setting

The Orange County Setting

Chapter:
(p.33) Chapter 2 The Orange County Setting
Source:
When Government Fails
Author(s):

Mark Baldassare

Publisher:
University of California Press
DOI:10.1525/california/9780520214859.003.0002

Abstract and Keywords

Orange County is a place that is widely known but largely misunderstood. Many see it as vastly different from other U.S. communities. In fact, Orange County has a lot in common with many other regions, though admittedly this was more true in the years leading up to the bankruptcy. By focusing on the facts surrounding Orange County, we can better understand why the fiscal crisis happened in this place and the reasons it can happen in other locales throughout the nation. Orange County, California, has a variety of images in the national media. It is best known as the home of Disneyland, the self-proclaimed “Happiest Place on Earth.” Conservative politics has a large role in the public's image of Orange County. This chapter looks at Orange County's rapid economic growth and social diversity, economic recession in the 1990s, middle class, fiscal conservatism and voter distrust, the weak structure of local government, similarities with other county governments, local governments, and local focus and regional apathy.

Keywords:   Orange County, California, bankruptcy, fiscal crisis, Disneyland, politics, economic growth, economic recession, social diversity, fiscal conservatism

Orange County is a place that is widely known but largely misunderstood. Many see it as vastly different from other U.S. communities. In fact, Orange County has a lot in common with many other regions, though admittedly this was more true in the years leading up to the bankruptcy. By focusing on the facts surrounding Orange County, we can better understand why the fiscal crisis happened in this place and the reasons it can happen in other locales throughout the nation.

Orange County, California, has a variety of images in the national media. It is best known as the home of Disneyland, the self-proclaimed “Happiest Place on Earth.” Then there is the “Gold Coast” of Newport Beach, where boat rides take tourists near the million-dollar homes of Hollywood’s rich and famous. A few miles inland is Irvine, offering a middle-class suburban paradise equipped with greenbelts, swimming pools, tennis courts, and artificial lakes in what is the largest and best-known example of a comprehensively planned community in the United States. Those who travel to Orange County arrive at the John Wayne Airport, where they are greeted by a giant statue of the famous cowboy star who once called Orange County his home. In many ways, the Orange County that people are familiar with is larger than life.

Conservative politics also have a large role in the public’s image of Orange County. It is the birthplace of Richard Nixon, the location of his presidential library, and the place where cheering supporters (p.34) welcomed back the former president after Watergate disgraced him. The county’s voters gave another Republican from California, Ronald Reagan, two landslide victories in the 1980s. In an earlier time, Orange County had gained notoriety as a headquarters for the John Birch Society and its radical-right philosophy of fierce anti-communism and conspiracy theories. Today, Rev. Lou Sheldon has made Orange County known as a headquarters for Christian political activists. On the national stage, former U.S. Congressman Bob Dornan’s speeches have helped to extend the image of Orange County as a breeding ground for ultra-conservative ideas.

Now the Orange County that is admired by some and criticized by others also has a fiscal image. Along with its reputation as fantasyland, home of the rich and famous, suburban paradise, and right-wing haven, it is now in the record books for having the largest municipal bankruptcy in U.S. history.

Rapid Growth and Social Diversity

Local governments in Orange County were affected by several demographic trends in the early 1990s. They were confronted with one of the largest and fastest-growing populations in the United States. A large foreign immigration was also changing the age, race, and ethnic composition. These trends placed fiscal pressures on local governments by challenging them to provide both more and different services. Local officials responded by seeking more interest income from the county treasurer.

Orange County has a short but dynamic history. It is a geographic area of 790 square miles located on the California coast to the south of Los Angeles and to the north of San Diego. It was incorporated by the state legislature in 1889, when it became separate from Los Angeles. At the time, Orange County had fewer than 20,000 residents. In the not so distant past, then, this was an agricultural county with large ranches and farms. As recently as 1950 Orange County had fewer than a quarter million residents.

Disneyland opened its doors in the early 1950s, and with that the era of rapid suburban development was to begin. The county gained about million residents between 1940 and 1990, and 1 million of these arrived between 1970 and 1990 (see Table 2–1). Within four decades Orange County’s land was transformed from rural-agricultural to residential-suburban to a commercial-industrial-residential form of urbanlized (p.35)

Table 2–1 Orange County Population Growth

Decade

Total Population

1990

2,410,556

1980

1,932,709

1970

1,422,372

1960

703,925

1950

216,224

1940

130,760

1930

118,674

1920

61,375

1910

34,436

1900

19,696

SOURCE: California Department of Finance (1996a).

region. In the mid-1990s the county population was about 2.5 million residents.

As of 1992 Orange County was the fifth most populous county in the United States. Only Los Angeles, Cook (i.e., Chicago area), Harris (i.e., Houston area), and San Diego counties are more heavily populated (see Table 2–2). Orange County ranked seventh in terms of population increase, with a gain of 551,868 residents between 1980 and 1992. In previous times, the source of growth was migration from the eastern United States. The recent growth of the county, however, is the result of foreign immigration from Asia and Latin America.

By 1990 Orange County had some of the largest concentrations of Hispanics and Asians in the United States. Orange County ranked fourth in Asian population, with nearly a quarter million Asian residents, many of Vietnamese descent. To place these numbers in perspective, Orange County had more Asian residents than San Francisco. Orange County ranked sixth in Hispanic population, with over a half million residents and more Hispanics than the Bronx. Most Hispanics in Dade County are of Cuban heritage, so, as indicated in Table 2–2, Orange County has the fifth largest population of Mexican heritage.

The trend of racial and ethnic change is evident when we compare the 1980 and 1990 censuses (see Table 2–3). The percentage of the Orange County population that is white and non-Hispanic declined from 78 percent to 65 percent. This group includes 1.55 million residents. Meanwhile, the percentage who are Hispanic increased from 15 to 23 percent, and the percentage of Asians doubled from 5 to 10 percent. The (p.36)

Table 2–2 Orange County Ranking in Population

U.S. Counties with the Largest Populations, 1992

1. Los Angeles, CA

9,053,645

2. Cook, IL

5,139,341

3. Harris, TX

2,971,755

4. San Diego, CA

2,601,055

5. Orange, CA

2,484,789

U.S. Counties with the Largest Asian Populations, 1990

1. Los Angeles, CA

954,485

2. Honolulu, HI

526,459

3. Santa Clara, CA

261,466

4. Orange, CA

249,192

5. San Francisco, CA

210,876

U.S. Counties with the Largest Hispanic Populations, 1990

1. Los Angeles, CA

3,351,242

2. Dade, FL

953,407

3. Cook, IL

694,194

4. Harris, TX

644,935

5. Bexar, TX

589,180

6. Orange, CA

564,828

SOURCE: US Bureau of the Census (1994)

Table 2–3 Orange County’s Racial and Ethnic Composition

1980

1990

White and non-Hispanic

78%

65%

Hispanic

15

23

Asian

5

10

Black

2

2

SOURCE: U.S. Bureau of the Census (1994).

black population remained stable, and relatively small, at 2 percent. The ethnic and racial shifts that are taking place in Orange County’s population are explained by the different rates of growth and migration within each group. The white and non-Hispanic population grew by only 3 percent in the 1980s. In contrast, the Hispanic population grew by 97 percent, the Asian population by 177 percent, and the black population by 60 percent.

(p.37) The census figures indicate that the Asian and Hispanic populations are largely composed of immigrants. Orange County has been a major site for foreign immigration since the 1980s. One in four county residents is foreign born, compared with one in twelve U.S. residents. As a result, Orange County ranks seventeenth in foreign-born population among all U.S. counties. Sixty-four percent of the growth of the minority population in Orange County between 1980 and 1990 can be directly attributed to foreign immigration. As of the 1990 U.S. census, 78 percent of the Asians and 48 percent of the Hispanics in Orange County were foreign born (see Baldassare, 1996). Also indicative of the large immigrant population that has recently arrived is the fact that one in three Orange County households in 1990 had a language other than English spoken at home. For the most part, these households were speaking Spanish, although some were speaking Asian languages. In the United States as a whole, only about one in seven households speak languages other than English at home.

In the period between 1990 and 1994, there is every indication that the trends of rapid population growth and racial and ethnic change were taking place. Overall, the population increased by about 170,000 residents. Most of the growth was driven by foreign immigration, as indicated by estimates of nearly 100,000 legal immigrants entering Orange County in the early 1990s (California Department of Finance, 1995). Between 1990 and 1994, it is estimated that the white and non-Hispanic population increased by only about 10,000, while the Hispanic population increased by over 100,000 and Asians increased by about 50,000. These most recent estimates of race and ethnicity place the white and non-Hispanic population at 61 percent, the Hispanic population at 26 percent, the Asian population at 11 percent, and the black population at 2 percent (California Department of Finance, 1996b).

Economic Recession

In the 1980s Orange County was a “job machine,” creating 377,000 new jobs. Employment grew at a faster rate than population (Baldassare and Wilson, 1995). By 1990 Orange County’s employment reached 1.3 million. Eight in ten employed residents were commuting to jobs inside the county, and more than 90 percent were commuting to work by automobile. New transportation infrastructure failed to keep pace with job growth. Many residents complained about their commutes and the state of the county’s freeways. As a result, public opinion surveys consistently (p.38) found that traffic was rated as the biggest county problem in the 1980s (Baldassare and Katz, 1994).

The Orange County economy slowed measurably beginning in 1990. The severe recession in Southern California was taking its toll. The sources included a decline in the aerospace and defense industries, downsizing of large companies, and a sharp decrease in housing prices and home construction. Between 1991 and 1993 Orange County’s economy shed 57,000 jobs. A weak recovery began in 1994 as the county gained back 11,400 jobs. Overall, though, the early 1990s was a period in which the Orange County economy was in a period of downturn (E & Y Kenneth Leventhal, 1996).

As an indication of the widespread nature of local job losses, 36 percent of Orange County residents in a 1994 survey said they were worried that they or someone in their family would experience job loss in the next year. Fewer than three in ten residents described the Orange County economy as being in excellent or good shape. Less than half expected the local economy to improve within two years (Baldassare and Katz, 1994).

Income growth also came to a halt in Orange County during the early 1990s. Between 1980 and 1990 the median household income in Orange County had increased in constant 1990 dollars by about 25 percent, while the nationwide increase was only about 6 percent (Baldassare and Wilson, 1995). The median household income stood at $49,000 in 1990 and dropped by 4 percent to $47,000 in 1994. Even though inflation was low during these years, the typical Orange County household was losing ground as many saw their incomes stagnate or decline (see Appendix B, Table B-1).

The economic recession and lack of income growth had a significant impact on consumer confidence. The number of residents who said their finances were better off than they were the year before declined from 50 percent in 1989 to 35 percent in 1993. The number who expected to be better off next year decreased from 56 percent in 1989 to 41 percent in 1993. Orange County’s consumer confidence was higher compared with the United States as a whole in the 1980s, but lower in 1992 and 1993 (Baldassare and Katz, 1993).

The housing market was adding to the economic malaise. In Orange County in the early 1990s, homeowners accounted for six in ten households. They were hearing about a steep decline in the value of local homes. Between 1980 and 1990 the median home value in Orange County increased by 52 percent in constant 1990 dollars. The median home value in the United States increased by 14 percent in constant (p.39) 1990 dollars (Baldassare and Wilson, 1995). The average or mean price of a single-family home in Orange County rose from $99,000 in 1980 to $257,000 in 1990. But when employment growth and household income growth stopped, so did the rise in home prices. Between 1990 and 1994, the average home price dropped by $41,000, from $257,000 to $216,000 (Orange County Register, 1996a). To many county residents, these lower home prices meant that their single largest investment was losing money. Clearly shaken, only 12 percent described owning an Orange County home as an “excellent” investment in a 1994 survey (Baldassare and Katz, 1994).

In the years leading up to the 1994 bankruptcy, economic trends were placing new fiscal pressures on Orange County governments. Business slowdowns and employment declines resulted in less tax revenue and more demands for public services from the unemployed. The lack of income growth reduced consumer spending, which led to lower sales tax receipts. The decline in housing costs meant that local governments could no longer rely on yearly increases in property tax dollars. In fact, a prolonged decline in housing prices meant that property tax collections would fall.

Middle-Class Residents

One of the misperceptions about Orange County is its reputation of being a very affluent suburban region. This popular belief is based partly on the national media focus on the more “glitzy” beach areas. In general, the county’s wealth has been overstated. The high housing costs work to counteract the higher-than-average incomes. The overall income picture has also changed as a result of the rapid growth of the lower-income immigrant population in the 1980s. The county’s economy also cooled off in the early 1990s. The local recession sent jobs, incomes, and housing values into a decline.

Compared with the nation on four of the social and economic indicators that typically reflect high social status, Orange County does not emerge as a highly affluent suburban region. As of 1990, 60 percent of households own their homes in Orange County, less than the 64 percent rate of home ownership in the nation. Twenty-eight percent of the adult population are college graduates, which is not that much higher than the 20 percent recorded for the nation. The median household income in Orange County is about $46,000, which is about 50 percent higher than the $30,000 average for the nation. But this higher income must be (p.40)

Table 2–4 Orange County’s Ranking in Social and Economic Status

Indicator

Orange County

United States

Percent of owner-occupied housing units, 1990

60.1

64.2

Percent of adults with a bachelor’s degree, 1990

27.8

20.3

Median household income, 1989

$45,922

$30,056

Median housing value, 1990

$252,700

$79,100

SOURCE: U.S. Bureau of the Census (1994).

weighed against a median housing value over $250,000, which is more than three times the $79,000 average for the nation in 1990 (see Table 2–4). Orange County does not rank among the top twenty-five counties in terms of home ownership, college graduates, or median household income. It does, however, rank eleventh in median housing value.

Most Orange County residents do not consider themselves to be highly affluent. When asked to describe their social class, 55 percent of Orange County adults say they are in the middle class, one in four say they are in the upper or upper middle class, and 18 percent describe themselves as lower or lower middle class. Over time, the percentage of those who describe themselves as middle class has been fairly stable.

When asked about their household incomes, half of the residents say they have just enough money to pay their bills and obligations. This is similar to national statistics. One in six say they do not have enough to make ends meet, while one in three report that they have enough so that they can save money and buy extras (see Appendix B, Table B-2).

Financial worries are also common among Orange County residents. Six in ten say they worry about money very often or fairly often, while four in ten say they do not often worry about money. These financial worries are tied to housing costs. Again, residents are paying some of the highest housing costs in the nation, and this seems for many to nullify their higher household incomes (Baldassare and Katz, 1992, 1996).1 (p.41)

Table 2–5 Orange County Population below the Poverty Line

Population

Percent of Total Population

1990

200,860

8.3

1980

138,585

7.2

SOURCE: County of Orange (1993).

The foreign immigration has also contributed to the lower social status. There has been a growth in the lower-income population in Orange County. As of 1990 there were more than 200,000 residents living below the poverty level. This amounts to about 8 percent of the total county population. Between 1980 and 1990, the size of the population living in poverty grew by more than 62,000. The poverty population grew at a rate of about 45 percent for the decade (see Table 2–5).

Thus, it is inaccurate to describe Orange County as a wealthy county that went bankrupt. It is a remarkably average U.S. suburban region, except for its high housing costs. Orange County is a suburban region that is predominantly middle class. Most of its residents have modest means and are struggling to pay their monthly housing bills. The recession in the 1990s shook their confidence. It is thus not surprising that residents would express concerns about raising taxes and would welcome efforts by the county treasurer to find nontax revenue sources to pay for middle-class services.

Fiscal Conservatism and Voter Distrust

How conservative is Orange County? Once again, the national stereotype is exaggerated. Voter registration records, election results, and public opinion surveys can be used to draw an accurate profile of the county that has become synonymous with political conservatism in modern-day America. In fact, it is not that extreme.

Before the bankruptcy struck, in November 1994, voter records indicate that Orange County was 5 2 percent Republican and 3 5 percent Democrat. Thirteen percent were registered as independents or belonged to other parties. There were nearly 650,000 Republicans, compared with 428,000 Democrats and about 164,000 independents and other party members, among the 1.2 million registered voters (see Table 2–6). Voter registration figures were similar in the 1996 election. (p.42)

Table 2–6 Orange County’s Political Party Affilation, 1994

Registration

Percent

Republican

648,996

52

Democrat

428,038

35

Independent/other party

163,744

13

Total

1,240,778

SOURCE: Secretary of State (1994).

Since the 1970s, as Orange County has been rapidly growing, Republicans, independents, and other party members have been surpassing the Democrats in terms of growth (Secretary of State, 1972, 1994, 1996).

Republican candidates for president in the 1980s enjoyed overwhelming support that went well beyond their party’s 5 2 percent registration in Orange County. Ronald Reagan won by 68 percent to 23 percent in 1980 and by 75 percent to 24 percent in 1984. George Bush won by 68 percent to 31 percent in 1988. Democrats, independents, and other party members were also attracted to the Republican tickets in these presidential elections.

The landslide of support for Republican presidential candidates in Orange County ended in 1992. George Bush received only 43 percent of the vote, compared with 3 2 percent for Bill Clinton and 24 percent for Ross Perot. Again, in 1996, overwhelming support for the Republican ticket failed to materialize. Bob Dole received only 51 percent of the vote, compared with 3 8 percent for Bill Clinton and 8 percent for Ross Perot (Secretary of State, 1980, 1984, 1988, 1992, 1996). These trends suggest that for Republican candidates to do very well in Orange County, they have to reach out beyond the Republican Party’s base and attract significant numbers of Democrats and independents to their causes. It was possible for them to find common ground in political orientation and policy preferences across parties in Orange County. The national Republican candidates who did well, such as Ronald Reagan, appealed to the popular themes of tax cuts and voter distrust.

Republicans running for elected office in Orange County have done very well in recent decades. They did so by articulating the popular views of fiscal conservatism, that is, maintaining middle-class services without raising taxes. All of the U.S. Congress members, state legislators (p.43) in the assembly and the senate, and members of the Board of Supervisors were Republicans as of November 1994.2 In fact, the only Democrat holding countywide elected office at that time was Orange County Treasurer/Tax Collector Bob Citron. He was a local politician who was promising to give Orange County voters more revenues to pay for more services without new taxes.

The political orientation of Orange County residents is not nearly as monolithically conservative as one might expect. When asked to describe their political orientation, six in ten adult residents place themselves in the middle-of-the-road to somewhat conservative categories. Only one in six in the 1994 survey claimed to be very conservative in terms of politics. There are sizable blocks of moderate to somewhat conservative voters in both political parties. Nearly half of the Democrats and two out of three Republicans describe themselves in these terms. Only 5 percent of Democrats and one in four Republicans say they are very conservative (see Appendix B, Table B-3).

The results from public opinion surveys indicate that many Orange County voters are “fiscal conservatives” (Clark and Ferguson, 1983). That is, they tend to be conservative on fiscal issues and liberal on social issues. There is a large element of voter distrust at the root of their political attitudes. In a fall 1994 survey for the Los Angeles Times Orange County edition, three in four residents agreed that “when something is run by the government it is usually inefficient and wasteful.” Eight in ten voters agreed that “poor people have become too dependent on government assistance programs.” Two in three voters said that “the federal government controls too much of our daily lives.” The Republicans and Democrats agree on these issues.

But there are also signs of liberal perspectives on nonfiscal issues. Three in four local voters agree that “there needs to be stricter laws and regulations to protect the environment.” On the high-profile social issue of abortion, a 1992 survey found that traffic percent oppose “a law that would prohibit abortion in most cases,” with only 29 percent in favor and 5 percent undecided (see Appendix C, Table C-1). The strong support for giving the individual a choice on abortion and other social issues has been a consistent finding in public opinion surveys in Orange (p.44) County. This trend is found among Democrats, Republicans, and others (Baldassare, 1984; Baldassare and Katz, 1986; Times Orange County Poll, 1989, 1996a).

There are also consistent signs of conservatism on fiscal issues across party lines in Orange County. Seventy-four percent said that “many people who are currently on welfare are not really eligible” (Baldassare, 1985). Fewer than half agreed that “the government should guarantee every citizen enough to eat and a place to sleep” (Times Orange County Poll, 1994b). Sixty-eight percent said they “think the current welfare system changes things for the worse by making able-bodied people too dependent on government aid.” Sixty-eight percent were in favor of cutting off all welfare benefits to people who have not found a job or become self-sufficient after two years. Nearly half said they wanted welfare programs to help low-income families to be either reduced or eliminated, while one in seven wanted them increased (Times Orange County Poll, 1995a).

Orange County’s voting record on state and local initiatives confirms the findings of the public opinion surveys. The voters at the polls are fiscal conservatives. But even on this conservative litmus test, there is not complete consistency. There were times when local voters actually supported state and local tax increases in the 1990s.

Orange County voters overwhelmingly supported Proposition 13 when it was on the state ballot in 1978. Seventy percent voted for the citizens’ initiative to limit property taxes. Proposition 4 won by an even larger margin in the special election in 1979. The Gann initiative to limit local and state government spending was supported by 82 percent of the voters in this low-turnout special election (see Table 2–7). There is no question about the county’s staunch support for statewide tax and spending limits.

The record in Orange County shows that voters have been selective in their support for local tax increases. A measure to increase the Orange County sales tax by one-half cent for transportation programs won by a 55 percent to 45 percent margin in November 1990. This was after a one-cent sales tax increase for transportation failed by a wide margin in 1984 and a half-cent sales tax increase lost by a narrow margin in a special election in 1989. This local tax increase had the advantage of dedicating new funds to transportation systems. For years residents had said that traffic was the top county problem. The measure finally passed when the sales tax increase was reduced from one cent to one-half cent and mention was made about how the money would be (p.45)

Table 2–7 Orange County Voting in the 1970S: State Initiatives To Limit Taxes and Spending

Proposition 13: Tax Limitations

Yes

404,878

70.3%

No

171,274

29.7

66.3% voter turnout in June 1978

Proposition 4: Spending Limitations

Yes

247,437

81.6%

No

55,803

18.4

35% voter turnout in November 1979

Source: Secretary of State (1978, 1979).

spent. The ballot measure included the establishment of a citizens’ advisory committee to oversee the use of the tax money.

Orange County voters, however, overwhelmingly turned down another sales tax increase in May 1991. Only 26 percent supported a measure that would have increased the local sales tax by one-half cent to pay for more jails and courts, while 74 percent opposed it (Secretary of State, 1990; Orange County Registrar of Voters, 1991).

Orange County voters had a split ballot on tax and spending issues in November 1993. Fifty-two percent supported a half-cent state sales tax increase dedicated to spending on public safety. This tax increase passed at a time when concerns about crime were at a high point in the county. At the same time, 76 percent voted against a measure that would have allowed local school taxes to pass with a majority vote instead of a two-thirds vote as required by Proposition 13 (Secretary of State, 1993).3

The political climate in Orange County has the overall effect of making local elected officials reluctant to raise taxes. Local voters are fiscal conservatives who are distrustful of government. They will support tax increases only if they know that the money will be directed toward what they define as a major need. The reduction of local services is unpopular, (p.46) since many voters believe that funding can come from cutting waste in government. In the 1990s local elected leaders were inclined to look for other local revenues to meet growing needs in the midst of declining state support. Democrat Bob Citron’s investment policies offered Republican elected officials a promising option, that is, raising interest revenues to maintain or increase local services.

The Weak Structure of County Government

Orange County provides a classic example of the weak structure of local government in a suburban region. The profile is one of political fragmentation and locally oriented leaders in county government. These are the structural factors that led to a lack of oversight of the county treasurer before the fiscal crisis. Figure 2–1 outlines the basic structure of county government in fall 1994. Orange County is a “general law” county; thus, state laws largely determine its structure. At the top are the five members of the Board of Supervisors, who are elected within local districts to serve four-year terms. At the time of the bankruptcy, they were Tom Riley, Jim Silva, Roger Stanton, Gaddi Vasquez, and Harriet Wieder. There is a county administrative officer who is appointed by the Board of Supervisors. At the time, this was Ernie Schneider. The organization chart then divides county government functions into five branches. The General Government and Services Agency has four departments that are headed by countywide elected officials, including the assessor, auditor-controller, county clerk/recorder, and treasurer/tax collector. Five agency heads are appointees of the board. The branch of Public Protection includes the district attorney and sheriff/coroner’s offices, which are headed by countywide elected officials; these were Mike Capizzi and Brad Gates. The municipal courts’ and superior court’s judges are elected by district, and six other departments in this branch are headed by appointees of the board. The Health Services, Community and Social Services, and Environmental Resources agencies each include numerous departments. Most of these departments are headed by appointees of the board, except for the public administrator/public guardian.

There are several weaknesses at the top of this organizational structure. Most important is the fact that the Board of Supervisors does not actually represent the county. Instead, the five supervisors are elected by district. The supervisors are thus oriented toward the (p.47)

The Orange County Setting

Fig. 2–1 Structure of Country Government in Orange, December 1994. Source: Country of Orange (1994).

(p.48) “district prerogative,” which is an emphasis on representing their local areas instead of the entire county. Newly elected supervisor Jim Silva told the Orange County grand jury investigating the bankruptcy that he was introduced to this concept when he ran for office. “I remember one term he [an advisor] used, first time I’d heard it, was district prerogative, where each Supervisor basically handles their own problems with the district” (Orange County Grand Jury, 1995a, p. 17). A supervisor is expected to focus on exercising political authority over the issues that directly affect his or her district. The supervisors defer to each other’s decisions in exchange for future support from their colleagues for issues in their own districts.

The decision-making structure in Orange County has allowed each supervisor to take the lead role for decades in the land use and development decisions that affect his or her local district. This local orientation has had great significance for the way Orange County was built and developed as the vast agricultural regions in the unincorporated areas were folded into the metropolitan suburban region. This politically decentralized structure may have worked to the benefit of the land developers, who needed only the support of the one supervisor whose district was being considered for zoning changes, instead of having to lobby the entire board. It may have also had the support of city officials and residents who wanted the supervisors to represent their wishes in a county government that they viewed with suspicion. Moreover, the local orientation allowed supervisors to focus on their political careers by making decisions that pleased their district’s voters and seeking private contributions for future campaigns. There was support for the “district prerogative” from a variety of different sources, each wanting to maintain the status quo for their own local interests. Over time this approach encouraged a local orientation for board members and discouraged a more regional approach to county government.

The Board of Supervisors was also faced with an organizational structure that made it very challenging to manage the daily affairs of county government. For instance, the five board members, who are elected by district, would find it difficult to exert their authority over the agency heads, who are elected countywide. Then there were the large numbers of nonelected officials who were reporting to a five-member board instead of one chief executive. The Board of Supervisors had attempted to improve the day-to-day operations of county government by appointing a county administrative officer who would report directly to them on budget and staff matters. However, the county administrative (p.49) officer had no authority over the heads of any county agencies. Ernie Schneider, the chief administrative officer and previously the director of the Environmental Management Agency, said of this arrangement, “When I interviewed for the C.A.O. job, I told the Board that this was a dysfunctional organization the way it was set up” (Orange County Grand Jury, 1995b, p. 101). Schneider called the current structure a “disaster waiting to happen” and argued at that time “that you can’t have 30 separate department heads reporting individually to the Board” (Orange County Grand Jury, 1995b, p. 104). He sent a memo to the Board of Supervisors in January 1990 outlining his plan to have all non elected agency heads report through the CEO to the Board of Supervisors. In February 1993 he requested to the Board of Supervisors that his position be upgraded to chief executive officer. The Board ignored his requests in both cases, and at times they were openly hostile to the CEO proposal. One of the board members had actually argued in a 1990 memo that the Board of Supervisors is the “plural” chief executive officer for the county.

Even the CEO concept would not have addressed the politically sensitive issue of gaining more authority and control over the day-to-day operations of agency heads who are county wide elected officials. Treasurer/Tax Collector Bob Citron is a perfect example of a county official who was elected to represent a broader constituency than was any supervisor elected by district. Again, Supervisor Jim Silva’s first exposure to the system of county government provides some useful insights into the lack of power that county supervisors had over the countywide elected officials. Silva recalls his first meeting with Treasurer Bob Citron. While on the campaign trail, Silva said, “I asked him about the investment pool and he basically said he’s doing a very good job. He has a very good track record, and if I didn’t believe him, that I could read his press clippings. And he turned around and walked away from me” (Orange County Grand Jury, 1995a, p. 31). The novice to county government was taken aback by the rude nature of this encounter and said, “I introduced myself as Jim Silva. I’m a candidate for the Board of Supervisors, and I thought right there he would want to talk with me because if I would be elected, I’d be working with him” (Orange County Grand Jury, 1995a, p. 31). The candidate for supervisor perceived that the county treasurer should have treated him with greater respect, or at least more curiosity, since he was a potential member of the Board of Supervisors. But the treasurer’s role had autonomy and independence from the Board of Supervisors because it is an elected (p.50) countywide office. The supervisors were not that relevant to the daily affairs of Treasurer Bob Citron.

In addition to the structural problems, there are other circumstances that resulted in a weak Board of Supervisors at the time of the financial disaster. Two of the five members, Tom Riley and Harriet Wieder, were retiring at the end of December. Both of these county officials had served for many years. Two new members would be joining the board in the middle of the bankruptcy. Riley was also chair of the board in 1994, and a new chair would be named to that position in January 1995. The changes in board personnel and leadership added to the chaos and confusion during the crisis.

Orange County’s Similarities With Other County Governments

It is important to note that the structure of county government in Orange County, with all of its obvious shortcomings, is not at all exceptional. There are fifty-eight counties in California. Every county has a Board of Supervisors, with its members elected to serve four-year terms. All but San Francisco, which has eleven board members, elects five members to its Board of Supervisors. Fifty-five of the fifty-eight counties elect their board members by district. The exceptions are San Francisco, San Mateo, and Tehama, which had at-large county elections in the fall of 1994. Fifty-four of the fifty-eight counties elect their treasurers. Only Los Angeles, Sacramento, Santa Clara, and Glenn counties have treasurers that are appointed to the county government. Forty-seven of the fifty-eight counties have an appointed county administrative officer. Five counties have more powerful officials, such as a county manager, CEO, or county mayor. Five counties are in rural areas and do not have full-time administrators (California State Association of Counties, 1996).

The similarities between Orange County and other counties in the state are partly derived from the fact that forty-five of the fifty-eight counties are “general law” counties and only thirteen have their own charters. Orange County, however, is one of the few populous California counties that does not have its own charter. Alameda, Fresno, Los Angeles, Sacramento, San Bernardino, San Diego, San Francisco, San Mateo, and Santa Clara counties all have their own charters. It is important to point out that a charter government does not necessarily mean a more accountable political structure. Most of (p.51) the charter counties still have the structure of county government described here as dysfunctional in Orange County, including local district elections for five board members, a county administrative officer with little authority, and a treasurer who is elected county wide.

There are also many similarities between the structure of county government in Orange County and what is found elsewhere in the nation. Based on a survey of 3,044 U.S. counties, eight in ten have an elected board of supervisors. Half have their board members serving four-year terms. About one-third have five-member boards and hold district elections. Nine in ten elect the county treasurer. By contrast, few counties have people in positions that would improve the oversight and management of county departments. One in six say they have a full-time county administrative officer. One in twenty elect a county mayor (Koehler, 1983).

Many Local Governments

County government is just one element of the fragmented political structure of local government in Orange County. There are also many cities, school districts, single-purpose regional agencies, and local special districts involved in local governance. Orange County has thirty-one municipal governments, each with its own mayor, city council members, and city budgets to provide local public services (see Figure 2–2). This is a highly diverse group of cities in terms of size and population composition. No city comes close to representing a central city for this suburban region. The largest places are Santa Ana and Anaheim, each with fewer than 300,000 residents. In 1990 seven cities had populations of over 100,000, ten cities had populations of more than 50,000 and less than 100,000, nine cities had populations of fewer than 50,000 and more than 25,000, and five cities had fewer than 25,000 residents. Only about 6 percent of the population lived in the unincorporated areas served by the county government.

In addition to the thirty-one Orange County cities and county government, other key elements define the local government structure. The Orange County Transportation Authority is a massive single-function agency with its own budget, sales tax, and appointed board of directors. There are twenty-seven local school districts, which each have their own elected governing boards, bond financing, and budgets (State Controller, 1992a). There are 126 special districts that deliver water, (p.52)

The Orange County Setting

Fig. 2–2 Orange Country Cities. Source: Center for Demographic Research (1996).

sanitation, and other public services in certain areas, with their own budgets, financing, and elected officials (State Controller, 1992b). A full portrait of the politically fragmented government within this suburban region would thus include at least 186 local government entities. This explains how nearly 200 public agencies could have invested their money with Citron. (p.53)

The ways in which local governments in Orange County responded to the political fragmentation they faced is also important. In county government the supervisors followed the “district prerogative,” which focused on their local areas. In the cities the elected leaders were also locally oriented. Most cities were members of the Orange County Division of the League of California Cities, but that was a voluntary association that did not involve much in the way of city-to-city cooperation. Typically, cities were competing for business and commerce centers within their borders. As a rule, the cities were hostile toward the county government because of land use conflicts.

A telling story from the Orange County grand jury testimony involves, again, Jim Silva. He describes the questions he asked about the $40 million that the City of Huntington Beach had in the county investment pool while he was a member of its city council. The city treasurer said, “The County Investment Pool had X number of million dollars on deposit so that if the city did need their money back, they could get the money back” (Orange County Grand Jury, 1995a, p. 27). Silva reported on that statement, “So with that I felt pretty secure because it seemed like there was several hundred million dollars on reserve that would be used to pay the City back if they needed that money” (Orange County Grand Jury, 1995a, p. 28). But he failed to consider the fact that about 180 other cities, local school districts, and local special districts may have been given similar assurances, and that the combined investments of these local governments could not be covered by the county pool’s deposits on hand. Nor did the Huntington Beach officials check with their counterparts in other Orange County cities to see if they had raised similar concerns with the county treasurer about the liquidity of the county investment pool.

The grand jury testimony provides a good example of the poor communications that were common in Orange County, both between city governments and between city governments and the county government. Further evidence of a local orientation is seen in the resistance to regional governance in the years leading up to the bankruptcy. The Orange County cities and county government could not reach agreement on a council of governments for Orange County. The cities and county government officials were also reluctant to be involved in Southern California regional agencies, such as the Southern California Association of Governments and the Air Quality Management District.

The city data indicate that most of the municipal governments in Orange County were experiencing population changes that would lead (p.54) to fiscal pressures. Twenty-two of the thirty-one cities experienced double-digit growth rates in the 1980s. Cities such as Irvine, Mission Viejo, and Tustin were rapidly gaining new residents who were moving to their new homes and planned communities. Older, large cities such as Santa Ana, Anaheim, and Garden Grove had large influxes of foreign immigrants. The percentage of the city population that was white and non-Hispanic had become 23 percent in Santa Ana, 57 percent in Anaheim, and 55 percent in Garden Grove. Many of the cities in the northern portion of the county had experienced an increase in both the Hispanic and Asian populations because of foreign immigration. Thus, many cities were facing external conditions that would place fiscal pressures on the delivery of municipal services. Voters in these cities wanted to maintain services but would be unwilling to have their taxes increased. Orange County’s cities and special districts were thus as much in search of new revenues, without an increase in taxes, as was the county government. This is one reason most of the local governments invested funds with Bob Citron.

Local Focus and Regional Apathy

Orange County residents tend to focus their attention on their city or area while ignoring the overall region. This reflects the local political views that are common in suburban regions. Many residents believe that city government does a good job of representing their local interests. They would prefer to see their cities have more power and the county government less power over their daily lives. The public’s apathy toward the county government had an enormous role in the financial crisis.

Responses to the questions asked in a survey about local government indicate that most Orange County residents preferred the current system of fragmentation and local political authority. Fifty-six percent of residents said “the current system of county government and city government sharing responsibilities for solving problems” was effective, while 39 percent described it as ineffective. However, if given a choice, most would prefer to give their city governments more power. Fifty-eight percent said they would prefer to give their city governments more responsibility in the community, while only 28 percent said they would like to see the county government with more responsibility than it already had. There are no differences between Republicans and Democrats in this heavy leaning toward a more local orientation. (p.55)

Moreover, 63 percent said they would oppose “the merger of county government and city governments into one large countywide government.” Only 29 percent would support a regional government. At least six in ten Republicans and Democrats are opposed to having one countywide government (see Appendix B, Table B-4).

About six months before the bankruptcy made headlines, a random sample of 600 Orange County voters were asked, “When it comes to Orange County’s leaders, what names come to mind?” This was an open-ended question that allowed up to three responses. Fifty-six percent of Orange County voters drew a blank and could think of no one. Twenty-two percent could think of only one leader, 11 percent named two, and only 11 percent mentioned three people whom they considered Orange County leaders.

Relatively few residents named the members of the Board of Supervisors or other county government officials when asked to name their county’s leaders. Eleven percent named Supervisor Tom Riley, 11 percent mentioned Supervisor Gaddi Vasquez, 8 percent named Supervisor Harriet Wieder, and 10 percent mentioned Sheriff/Coroner Brad Gates (see Appendix C, Table C-2). Less than 3 percent named Supervisor Roger Stanton, Supervisor William Steiner, District Attorney Mike Capizzi, Clerk/Recorder Lee Branch, or Treasurer/Tax Collector Bob Citron. This means that when the bankruptcy took place, there were no public figures seen as county leaders.

The survey also asked questions to elicit the name identification and popularity of each of the five members of the Board of Supervisors. In the same survey, voters were asked if they had “a favorable or an unfavorable opinion” of each of the five supervisors in Orange County politics, or if they “didn’t know enough about them to have an opinion.” The majority of Orange County voters said that they didn’t know enough about each county supervisor to have an opinion. The “don’t knows” ranged from 58 percent to 78 percent. About one-quarter had favorable opinions of Tom Riley, Gaddi Vasquez, and Harriet Wieder. The unfavorable views ranged from 11 to 18 percent for these three county officials. One in six had a positive impression of Roger Stanton and William Steiner, while 6 and 9 percent, respectively, had unfavorable opinions. The supervisors were not even well known in their districts. The county’s top officials, then, were largely unknown to residents when disaster struck in 1994 (see Appendix C, Table C-3).

One can contrast the invisibility of county government leaders in Orange County with the high profile of mayors in big cities such as (p.56) San Francisco and Los Angeles. When asked about Mayor Frank Jordan, 45 percent of San Francisco voters had a favorable opinion, 50 percent had an unfavorable opinion, and only 9 percent of voters had no opinion (San Francisco Chronicle, 1995). As for Mayor Willie Brown, 63 percent had a favorable opinion, 19 percent an unfavorable opinion, and 18 percent no opinion (San Francisco Chronicle, 1996). When Richard Riordan was a candidate for mayor of the city of Los Angeles, 32 percent had a favorable opinion, 43 percent had an unfavorable opinion, and 25 percent had no opinion (KCAL, 1993). The relative invisibility of county government leaders is striking. It reflects the fact that city governments have more day-to-day contacts and meaning for the average resident than county government. The five supervisors, even within their own local districts, are not viewed as having the same kind of significance to voters as their mayor.

It is possible that Orange County’s voters could not recall the names of particular supervisors, but could still have an overall positive impression of the actions of the five-member county board. In the same 1994 survey, voters were asked to evaluate the Orange County Board of Supervisors on a number of dimensions. About one in four gave the board excellent or good ratings “in terms of providing overall leadership.” Half gave them fair ratings for this issue, and 15 percent said they did a poor job in leading the county. Once again, there were no differences between Democrats and Republicans. The positive ratings for overall leadership were six points lower than in a similar 1992 survey. One in four also gave the Orange County Board of Supervisors either excellent or good ratings “in terms of representing the views of local residents.” Forty-two percent said they did a fair job, and 27 percent said they were poor on this dimension. This means that as many voters ranked them in positive as in negative terms for representing the views of residents. There were no differences between Democrats and Republicans in these judgments toward the all-Republican Board of Supervisors. A 1992 survey had also found that 30 percent of Orange County voters thought the supervisors did well in representing the views of local residents. In general, then, the ratings that the Orange County Board of Supervisors received from voters were mostly mediocre along key dimensions of job performance (see Appendix C, Table C-4).

It is important to note that the county supervisors’ ratings were well below those achieved by the city government. While the questions were not identical, about four in ten gave their city governments excellent or good ratings for solving problems in their community. In contrast, only (p.57) one in four said that the county supervisors were doing a similarly good job in either providing overall leadership or representing the views of local residents. This again reflects the local orientation of Orange County residents and their tendency to favor the actions of their city officials over their county officials.

Other job ratings of the county supervisors were also low. Twenty-nine percent said the Orange County Board of Supervisors did an excellent or good job in “maintaining integrity and high ethical standards.” A similar number gave them poor ratings on this dimension. The county supervisors received their best rating of all for “fostering the county as a place to do business.” Forty percent said they did an excellent or good job with this task. The number with positive feelings, however, had slipped dramatically by 29 points since a 1988 survey (Times Orange County Poll, 1994a).

The May 1994 survey also asked about several countywide elected officials who were on the June primary ballot. The sheriff/coroner and the district attorney were in uncontested races, so voters were asked to rank their job performance. Sheriff /Coroner Brad Gates had the highest popularity and name identification of any county official, including the members of the Board of Supervisors. Fifty-one percent said he was doing an excellent or good job, one-third said his performance was fair, and only 10 percent rated him as poor. Also significant is the fact that only 8 percent had no opinion about the sheriff’s job performance. Both Democrats and Republicans gave the sheriff/coroner high ratings. The fact that voters had a favorable view of Sheriff Brad Gates was to play an important role during the early stages of the bankruptcy. This was the county official who took one of the lead roles in managing the fiscal emergency.

The district attorney was much less well known than the sheriff. Only 34 percent gave District Attorney Mike Capizzi either an excellent or good rating. Twenty-three percent said he did a fair job, and only 7 percent rated him as poor. A third did not know enough about Capizzi to rate his job performance. There were no significant differences across party lines. In the election for the county’s clerk/recorder, which involved incumbents for this merged office, about half of the voters had no opinion about how they would cast their votes. Thus, most other elected county officials generated as little public interest as the supervisors (see Appendix C, Table C-5).

As for the treasurer/tax collector election, this was a relatively high-profile campaign, but many voters apparently tuned it out. John (p.58) Moorlach had accused Bob Citron of making dangerous financial investments in search of high yields for the local government funds. For months the stories about this campaign had appeared in both major newspapers. Two weeks before the election Citron led by a two-to-one margin, but 3 6 percent of the voters had no opinion. Republicans and Democrats gave the current treasurer, a known Democrat in Republican Orange County, a healthy lead.

A local orientation among residents is fairly common in the context of the political fragmentation that takes place in suburban regions. What was unique to Orange County in the 1990s was a decline in residents’ satisfaction with the public services they were receiving from local government. The majority of residents were still rating their parks and recreation, police protection, and streets and roads in excellent or good terms. Seventy-one percent gave positive ratings to their parks and recreation, 59 percent to police protection, and 58 percent to streets and roads. But the positive evaluations were down more than ten points from a decade earlier for each of these local public services. Even more dramatic was a seventeen-point decline in the evaluations of local public schools. Twenty-eight percent gave their local public schools excellent or good ratings in the 1991 survey, compared with 45 percent a decade earlier (see Appendix B, Table B-5). The increasing urbanization in the county—in particular, the larger population sizes, higher densities, and changes in ethnic and racial diversity of Orange County’s cities—was closely tied to the lower public service ratings (Baldassare and Wilson, 1995). These results offer evidence that local governments were straining to keep pace with the service demands of their residents. In this context, local elected officials sought extra revenues by investing their government funds in the county pool.

Summary

Orange County today is very different from its portrayal as a white, middle-class suburban region. It is the fifth most populous county in the United States, having reached a size of 2.5 million residents after many decades of rapid population growth. Recently the county has been a major site of immigration from Asia and Mexico, and this is leading to significant racial and ethnic change. Rapid growth and increasing diversity have placed demands on local governments to provide both (p.59) more and different public services. The county had an economic boom in the 1980s, followed by a severe recession. In the early 1990s the job market shrank, business declined, incomes stagnated, and housing values dropped. The mostly middle-class residents were in no mood to raise taxes. As a result, local governments struggled to raise the revenues they needed to provide services.

The political profile in Orange County is often described as very conservative and Republican. In actuality, though, most residents from both major parties express more moderate views that are conservative on fiscal issues and liberal on social issues. At the heart of the voters’ opposition to tax increases is a distrust of government officials and the perception that there is a lot of waste in government spending. Residents want their elected leaders to reduce taxes, but they do not want cuts in middle-class services. They believe that services can be maintained or increased by increasing the efficiency of local government bureaucracies. Local elected officials needed to find ways to meet these demanding requirements by their voters.

At the time of the fiscal crisis, the structure of local government in Orange County was one of layers upon layers of political fragmentation. The members of the Board of Supervisors were focused on their local districts. The countywide elected officials, such as the treasurer/tax collector, had little oversight and considerable autonomy. There were thirty-one cities, more than two dozen local school districts, and over one hundred local special districts without any real ties to county government or each other.

County residents were locally focused and apathetic toward county government. Most were unaware of the supervisors and could not name a county leader. Few had focused on the county treasurer’s race, despite the serious allegations raised against Bob Citron. In the early 1990s there was a decline in the perceived quality of local services. City and county officials, who were interested in pleasing their constituents and extending their political careers, would be in search of new revenues for improving local public services. They could not raise taxes or cut services. In this context, many local officials were attracted to the interest income promised by the county treasurer.

Orange County had a combination of demographic, economic, political, and governmental features that help to explain why the fiscal crisis occurred in this suburban region in 1994. Many of these features are not (p.60) unique. Orange County simply had more extreme versions of the characteristics found elsewhere in California and throughout the nation’s populous suburban regions. It also had a treasurer named Bob Citron, whose actions were the catalyst for this event. We conclude from this that the Orange County financial crisis could be repeated in other locales at other times.

Notes:

(1.) When asked about their personal finances, 17 percent of Orange County residents described themselves as very satisfied, 50 percent as somewhat satisfied, and 33 percent as dissatisfied. Once again, most residents are thus moderately satisfied with their personal finances. As further evidence of declining economic fortunes, the percentage saying that they were disatisfied had increased by fifteen points since 1982 (Baldassare and Katz, 1992).

(2.) The Reoublican domination in Orange County elections is so well known that the defeat of Republican Congressman Bob Dornan by Democrat Loretta Sanchez in the fall of 1996 was national news. In actuality, Bob Dornan had been elected in an Orange County district that has been predominantly Democratic in registration since 1984.

(3.) As a further sign that the county is liberal on social issues even while it is conservative on fiscal issues, a majority of Orange County voters supported Proposition 215, which legalized marijuana use for medicinal purposes (Secretary of State, 1996).