When 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.
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(229mm x 152mm x 22mm)
University of California Press
Publisher: University of California Press
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US Kirkus Review »
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 crashes - up 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; post - Proposition 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. (Kirkus Reviews)
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Author Biography - Mark Baldassare
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.