Orange County's $2.02 billion investment collapse has local governments nationwide scrambling to re-evaluate their own financial strategies.
"I had been warning about this," says outgoing House banking committee Chairman Henry Gonzalez, D-Texas. "There is a difference between taking a risk and taking a chance. These things are turning out to be like giant casinos."
Says Los Angeles investment banker Jon Schotz, whose firm's clients include the Walt Disney Co.: "What happened in Orange County should wake up everybody in government. You can bet everybody is taking stock out there."
From Los Angeles to Washington, D.C., the intricacies of government finance - long the domain of bureaucrats - are being pushed into the public eye by officials seeking to reassure investors and constituents.
Orange County's bonds and securities losses, which could top $3 billion, are by far the nation's largest government investment failure. But other public agencies also face serious market-related troubles:
-- In Texas, investors continued to flock from a short-term investment pool run by the state treasurer for more than 1,300 municipalities. The run was prompted by reports the $3.7 billion pool fund borrowed heavily to invest in securities.
Tuesday, fund withdrawals totaled about $400 million, down significantly from a high of more than $600 million on Monday, as the government tried to soothe local investors.
The state denied its strategies were like Orange County's.
"The panic appears to be slowing down," says Bill Kryer, a spokesman for Gov. Ann Richards. "The trend toward lesser withdrawals is expected to continue tomorrow."
-- In Ohio's Cuyahoga County, officials plan to slash 11% - more than $35 million - from next year's budget after losing $114 million on a $1.1 billion investment fund.
County Controller Roger Deike says the county has frozen hiring and pay until the loss can be recouped. Deike says the county learned of its troubles in a recent Cleveland Plain Dealer investigation of the investment pool, named the SAFE Fund, which has about 80 government agencies - including school districts, libraries and sewer districts.
"Luckily we had enough reserves on hand to keep our operations going," Deike says, referring to Orange County's decision to declare bankruptcy.
-- In Georgia, the Municipal Electric Authority of Georgia, which jointly owns four power plants, has told investors that it will be able to absorb a $40 million loss in its $907 million portfolio.
Authority treasurer Patrich Simpkins says the authority took "no risks that we could not deal with."
Orange County's woes, Simpkins says, are "going to force a number of cities and counties to analyze their finances."
The sting from Orange County could also hit the nation's capital: Washington's Mayor-elect Marion Barry is seeking about $250 million to keep city operations afloat.
But in a sign of market jitters, Standard & Poor's Ratings Group warned about the city's projected $431 million deficit. That could mean higher interest rates, deepening its hole.
