
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, July 11, 1995                   TAG: 9507110061
SECTION: EDITORIAL                    PAGE: A-4   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

MUNICIPAL BONDAGE

FINANCIAL distress has sent several big American cities - most famously, a few years ago, New York - careening into the abyss of bankruptcy. None, however, has repudiated its general-obligation debt. By tightening belts, raising taxes and adjusting loan-repayment schedules, localities in trouble have climbed back toward solvency without costing their creditors a dime in principal.

Until now, that is. Of all places, suburban Orange County, Calif., might be the first to tell its creditors to take a hike. If so, the shock waves could be felt all the way from the Pacific Coast to here in the Blue Ridge.

It hasn't happened yet. But Orange County has been in bankruptcy for six months - and talk of debt repudiation has intensified in the wake of the voters' rejection two weeks ago, by a 3-2 margin, of a local sales-tax increase designed to help get the county out of the hole. Wall Street is worried.

Municipal bankruptcies tend to result from a combination of both external forces and internal mismanagement. In Orange County's case, the difficulty stems mainly from the latter: Inappropriately high-risk investment strategies undertaken by former County Treasurer Robert Citron's backfired to the tune of a $1.7 billion loss.

The ire of Orange County voters and taxpayers is understandable, and opponents of the sales-tax increase contend that the money could be obtained by cutting the pay of county employees. But county programs already have been cut 41 percent - and the county, increasingly an employment center as well as affluent bedroom community, has the wealth to repay debt that, however incurred, is the county's obligatation to repay.

If it doesn't repay? Orange County, we suspect, will be spending a lot in legal fees - and state and local governments across the country could confront skyrocketing interest rates as investors lose a measure of confidence in the safety of municipal bonds. It would give Virginia and her localities all the more reason to adhere to traditional policies of fiscal prudence.

by CNB