When Government Fails: The Orange County Bankruptcy

"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 Book DescriptionWhen Orange County, California, filed for Chapter 9 protection on December 6, 1994, it became the largest municipality in United States history to declare bankruptcy. In the first comprehensive analysis of this momentous fiscal crisis, Mark Baldassare uncovers the many twists and turns from the dark days in December 1994 to the financial recovery of June 1996. Utilizing a wealth of primary materials from the county government and Merrill Lynch, as well as interviews with key officials and players in this drama, Mark Baldassare untangles the causes of this $1.64 billion fiasco.
He finds three factors critical to understanding the bankruptcy: one, the political fragmentation of the numerous local governments in the area; two, the fiscal conservatism underlying voters' feelings about their tax dollars; three, the financial austerity in state government and in meeting rising state expenditures. Baldassare finds that these forces help to explain how a county known for its affluence and conservative politics could have allowed its cities' school, water, transportation, and sanitation agencies to be held hostage to this failed investment pool. Meticulously examining the events that led up to the bankruptcy, the local officials' response to the fiscal emergency, and the road to fiscal recovery--as well as the governmental reforms engendered by the crisis--When Government Fails is a dramatic and instructive economic morality tale. Eminently readable, it underlines the dangers inherent in a freewheeling bull economy and the imperatives of local and state governments to protect fiscal assets. As Baldassare shows, Orange County need not--and should not--happen again.

Reviews:

Although informative, the author needs almost 400 pages to say what could have easily been said in well under 100.