03/28/2024

Dan Walters: Officials gamble with the public’s money, and sometimes lose big

Voice of San Diego, a journalistic website that covers local politics, published a remarkable article late last month about financial shenanigans in the San Diego Association of Governments, a regional planning and transportation agency.

Twelve years ago, the article said, SANDAG, as it’s known, decided to invest – or wager – millions of dollars from a newly enacted sales tax in a complex financial scheme. The result was a financial disaster.

“SANDAG bet big that interest rates would go up,” the website reported. “Instead rates went down and stayed down – and they’re still down. That unforeseen event – persistent and historically low interest rates – cost the agency millions.

“As a result, SANDAG now has a roughly $100 million liability hanging over its head. It’s already spent $3.5 million out of pocket that it didn’t anticipate. And it spent $22 million to get out of a portion of its bad bet using borrowed money that will wind up costing $42.5 million to repay.”

Five days after the article was published, Orange County officials made the last payment on a $1 billion bond the county had issued to cover losses from a similar scheme that its county treasurer, Robert Citron, had floated in 1994. Citron invested county funds, those of other local governments and borrowed money in speculative instruments that counted on interest rates remaining low.

When interest rates rose, the investments tanked, the county had to declare bankruptcy and Citron went to jail for financial fraud.

The bond that was finally repaid on July 1 cost taxpayers $1.6 billion with interest – money that otherwise would have paid for public services and facilities.

One would think that the Orange County debacle would have been a powerful warning to avoid gambling with public funds. Unfortunately, it wasn’t, as the SANDAG disaster shows. Nor is SANDAG the only example.

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