Here's an editorial that gets to the heart of the matter.  


Tuesday, July 10, 2001 






Ghost of Bob Citron roaming halls of capitol 
Gray Davis is following footsteps of former O.C. treasurer into fiscal chaos




JOHN M.W. MOORLACH 
Mr. Moorlach is the Orange County treasurer-tax collector. 

A recent L.A. Times poll found that Californians still remain unconvinced 
that our state suffers from a shortage of energy. Perhaps the state's 
subsidizing of the actual costs for electricity these past five months has 
caused us to believe that everything is fine. It is not. 
The state has been spending an average of $57 million, a medium-sized city's 
annual budget, per day for electricity. Now California is headed toward the 
same financial catastrophe that was imposed on its shareholder-owned 
utilities, finding one of them in Chapter 11 bankruptcy and another on the 
precipice. At this pace, it will not be long before the state will be staring 
a Chapter 9 bankruptcy filing in the face. 
That's why I'm gnawed by this "d,j. vu" sensation. The similarities and 
parallels between California of 2001 and Orange County of 1994 are 
frightening. Here's a refresher. In 1994 the county, through former Treasurer 
Robert Citron, was borrowing at variable rates and investing at fixed rates. 
The "experts" and the "politicos" were comfortable with the investment 
scheme. 
No wonder the electorate was convinced that there were no investing 
improprieties. Even while their former treasurer was very secretive about how 
he was investing and what his "exit strategy" would be. Guess what? The 
unexpected happened. Short-term borrowing rates doubled. The cost of 
borrowing suddenly exceeded the revenues being generated. 
It caused the investment pool to implode and Orange County taxpayers realized 
a $1.64 billion loss. In spite of pleas to avoid or minimize this train wreck 
the county's leadership, he ignored it. The rest is history. In a 
half-pregnant deregulation scheme, the state capped the retail price that the 
utilities can charge. It also eliminated the availability to acquire 
electricity through the use of long-term contracts. 
Guess what? The unexpected happened. The wholesale price for electricity 
spiked dramatically above the inflexible retail price cap. It depleted the 
available funds for the utilities, and then some, and they are imploding. In 
spite of pleas from the utilities imploring Gov. Gray Davis to avoid or 
minimize this train wreck, he ignored them. The rest is also history. 
It gets worse. Davis doesn't allow for the immediate raising of retail rates 
and decides to have the state secretly purchase electricity. Guess what? The 
expected happened. He depleted our budget surplus! Our reserves! Nearly $9 
billion - and counting! He's a Citron, only quintupled! 
And in the light of day, the secret purchases were not attractively priced 
and only compound this financial nightmare. Gov. Davis has done what no 
Libertarian or Republican could ever dream of doing in such a short time. He 
has returned the budget surplus created by taxpayers to the residents of 
California by subsidizing their electricity bills. 
Bravo! It may not be the most equitable way of refunding taxes, but has 
anyone ever thought up a more efficient method? But, that's not all. He wants 
it back! Davis now wants to borrow some $13 billion to replace the spent 
reserves and purchase even more electricity at rates in excess of the retail 
prices! When does this train wreck in slow motion stop? 
And how do we pay off these bonds? Davis did not want to raise rates last 
summer or this past winter. But now he will to pay off this historically 
largest municipal bond offering with a significant utility rate increase. The 
ratepayers will be reminded for 10 years after Davis is gone about his 
expensive brilliance. And this elected official wants to purchase the power 
grids and bureaucratically manage the utilities? I say "no." 
If we don't show some leadership in Sacramento soon, potential bond buyers 
will also say "no," unless they receive an attractive interest rate. Just ask 
Edison International about attractive interest rates. It just subscribed $800 
million in bonds paying 14 percent. Tragically, Gov. Davis walked into his 
position with an existing budget surplus and now has no tangible legacy to 
show for it. No reserves. No improved highways. No new schools. No 
infrastructure improvements. Only interest payments. 
Wasn't that Citron's legacy? If amortized over 10 years at 6 percent, the 
citizens of California will pay an additional $4.4 billion in interest costs. 
Over 15 years it's $6.7 billion. And therein lies the true legacy of Davis, 
squandering the entire budget surplus that he inherited on interest resulting 
from his indecisiveness and lack of leadership! 
It is so tragic that the perpetrator of this colossal mess is still in denial 
and continues to play the "blame game." Orange County played the "blame 
game," too. But it had obvious perpetrators and succeeded in a court of law 
in securing a significant amount in retribution payments. I'm not so sure 
California will have a similar result.