NEWPORT BEACH, Calif. - County Clerk Gary Granville was worried. In the five days since Orange County disclosed a multibillion-dollar investment loss, he'd been trying unsuccessfully to reach his friend Bob Citron, the county treasurer.
On Monday morning, Dec. 5, as Granville was leaving another message on Citron's answering machine at home, Citron picked up the receiver.
How are you? Granville asked.
"Just fair," Citron replied in a shaky voice. "Just fair."
Citron had resigned 24 hours earlier and Granville was afraid of what he might do. The treasurer's job had been his life for 24 years.
Granville tried to bolster Citron, saying he regarded him as a friend. At that, the man once hailed as a financial genius broke down. Sobbing, unable to speak, Citron hung up.
In the wake of Orange County's Dec. 6 filing for bankruptcy protection, residents have engaged in a predictable cycle of buck-passing and finger-pointing. Most of the fingers have pointed straight at Robert L. Citron.
But if one's man hubris fueled this crisis, the kindling that turned his flaw into a county's tragedy lies elsewhere: voters' fierce anti-tax sentiment; public clamor for services; and an outmoded county government.
This is the story of how the nation's fifth-largest county - and one of its richest - lost more than $2 billion of taxpayer money. And why, as a result, officials in thousands of government offices across the country have begun to worry: Are we next?
`The Wizard'
Citron, 69, is an unlikely star of this or any drama. By all accounts devoted to his work, he is described by colleagues as quiet, serious and loyal. They say he worked tirelessly, rarely taking vacations. His outside interests appear to have been limited to University of Southern California alumni events, lunches at the Santa Ana Elks Lodge and collecting W.C. Fields memorabilia. He and his wife of 39 years have no children.
Through his lawyer, Citron declined to be interviewed for this story.
A career government employee, Citron was hired in 1960 as deputy tax collector. He was elected treasurer in 1970 and became treasurer-tax collector when the posts were combined in 1973.
Citron was the sole elected Democrat in Republican Orange County. He maintained a low profile. To many in the county Hall of Administration, he was best known for the annual Christmas party at his Santa Ana home, which was well-attended by local officials.
Still, there were hints he craved attention. A quiet man, he favored loud clothes. One Easter he was decked out in a sky-blue blazer, bright yellow slacks and pink tie. Though in recent years he adopted a more conservative style, he still wore the large turquoise jewelry that was his trademark.
During presentations to the board of supervisors, Citron tended to "toot his own horn," recalls Christine Smith, a board secretary. Former county Democratic Party Chairman Richard O'Neill says Citron "wanted to be a player, but didn't know how."
He fervently supported USC, where he took graduate business courses but did not receive a degree. The horn on his Chrysler sedan sounds the school fight song. At one memorable alumni function at Citron's home, USC's equine mascot, Traveler, put in an appearance. The county treasurer stood nearby wearing a USC Trojans' helmet and breastplate.
Right place, right time
Orange County in the 1980s and early '90s was the right place for a man of Citron's abilities. And amid a crisis in local government finance, he became something of a hero to cities and government agencies.
Beginning in 1978, Proposition 13 limited property taxes and required a two-thirds popular vote for tax increases. At the same time, a booming economy was attracting tens of thousands of new residents each year, all of whom required public services.
Those interests often clashed, as they did in March 1990: A proposed bond offering in Irvine to build schools won 62% of the vote - yet failed because of the two-thirds requirement. More recently, local governments faced additional pressures: California's 1990-93 recession depressed tax receipts while the state siphoned an increasing share of local revenues to ease its budget crunch.
As Orange County grew, residents' anti-tax fervor collided with their demand for roads, libraries and schools. Raising taxes remained political suicide as Fullerton city officials found. Voters there recalled the mayor and two city council members after the officials approved a 2% utility tax in 1993.
Likewise, throughout the 1980s, polls consistently showed traffic congestion to be among county residents' top concerns. Yet it took three tries and eight years before voters approved a penny-per-dollar sales tax increase to pay for improvements. "It boxed in political leaders (who) have to address residents' expectations for first-class municipal services with a wizened tax base. That led them to higher-risk investment strategies," says Spencer Olin, co-author of a 1991 history of Orange County called Postsuburban California.
Against this backdrop, Citron appeared a savior. Each year for more than a decade, he saved Orange County from a budget crunch by producing unexpected interest income. The cash helped save popular programs, such as an anti-gang initiative, without higher taxes.
"They all thought of him as the wizard," says Ralph Clark, a Democrat who left the board in 1986. "It was an expected thing at budget time to hear that there was extra money."
The past two years, reliance on budgeted interest income deepened. From $37 million in fiscal 1992-93, investment earnings were slated to grow to $164 million in 1994-95.
As treasurer, Citron invested on behalf of the county and 186 cities, school districts and municipal agencies. The funds that flowed into his investment pool included tax receipts and the proceeds of public bond offerings. Some of his investors - notably many school districts - were required by law to invest in the county pool. Others were drawn by Citron's performance. Yet, as an investor, Citron seemed to have just one idea: Borrow at low, short-term interest rates and invest at higher, longer-term rates. And using the $7.4 billion county fund as collateral, Citron borrowed billions from brokerage houses until he had assembled an astounding $20 billion portfolio.
Much of that was invested in some of Wall Street's most exotic securities, high-octane investments called "derivatives." In the sedate world of municipal finance, Citron's approach seemed risky and controversial.
But while interest rates were stable or declining, the strategy made money. Year after year, Citron outperformed the state investment fund. In 1993, for example, the county investment pool returned 8.5% vs. the state's 4.7%.
A cloudy crystal ball
Citron made no attempt to disguise his strategy. In a 1988 interview with the Los Angeles Times, he spoke of using reverse repurchase agreements to boost yield. His 1993 report to county supervisors specified his reliance on borrowing and on derivatives. "It was not top secret," says Tony Andrade, controller for the city of Garden Grove.
It hardly seemed to matter. Citron was popular, if viewed as mildly eccentric. Earlier this year, the Democrat was endorsed for re-election by all five Republican supervisors. Board Chairman Thomas Riley, 82, acknowledged he didn't understand the treasurer's investments but praised him as a "genius."
Friends say Citron grew addicted to the adulation. And with pride came arrogance. Taxpayers were required to make their property tax checks payable to "Robert L. `Bob' Citron" rather than to "Orange County Treasurer." The treasurer engaged in a series of minor spats with other county officials, including the county's powerful sheriff. His annual reports to the county supervisors smacked of self-congratulation.
"We will have level if not lower interest rates through this decade," Citron predicted in September 1993. "Certainl
