N.Y.’s Ex-Banking Adviser More Troubled by O.C. : Finance: Incompetence cost Big Apple in ‘70s, he says, but Orange County was ‘gambling people’s money away.’

The New York investment banker who helped that city avoid filing for bankruptcy during the mid-1970s said the lack of oversight on former Treasurer-Tax Collector Robert L. Citron makes Orange County’s financial mess even more troubling than the Big Apple’s brush with disaster.

“If you can apply moral judgment, it’s worse, the Orange County situation,” said Felix Rohatyn, a senior partner at Lazard Freres & Co. in New York. “Our situation was just irresponsibility and incompetence, but in Orange County’s case it was gambling people’s money away.

“There’s always more than one culprit; it takes many people to tango in these things,” he said. “The question of what kind of ground rules should be set up for these investments, and what kind of supervision there was, is what needs to be looked at.”

Rohatyn, reached while vacationing in Venice, Italy, said he didn’t have enough information to judge whether the Orange County Board of Supervisors was correct last week in deciding to file for Chapter 9 bankruptcy protection.

But the filing resulted in exactly the sort of loss of control that he was proud of having helped New York avoid, he said. “We always felt that bankruptcy clearly would be the last resort,” he said, “that it would create such levels of uncertainty, in terms of welfare checks, or paying off the cops, paying off the bondholders, that it would create a dynamic reduction in services and probably drive businesses and taxpayers out of the city because of the uncertainties.

“There was nothing that bankruptcy could accomplish that we couldn’t ourselves.”

Enlisted by Gov. Hugh Carey in 1975, Rohatyn chaired the newly created Municipal Assistance Corp., which oversaw the refinancing of the city’s debt, and advised officials as they cut services, capital spending and jobs in order to balance the budget.

The city also created a Financial Control Board, with representatives of the state and city controller’s offices and the public, to monitor the city’s debt and revenue projections.

Orange County might consider setting up similar boards, Rohatyn said. Administrators are pursuing the right types of solutions in hiring outside consultants, such as former State Treasurer Thomas W. Hayes as its financial adviser during it restructuring, he said.

Rohatyn said he didn’t know enough to offer additional suggestions except to point out that Orange County doesn’t have the social spending needs that many large cities face.

“What happened in Orange County isn’t the result of the urban problems that are bringing the major cities into the budgetary problems that are caused by joblessness or poverty,” he said.

“The problems of Orange County were created by running a big casino with taxpayer funds, and losing. That’s a very difficult situation, in terms of rescheduling debt.”

Rohatyn stepped down from the assistance corporation in 1993, handing the reins over to a protege. He left saying he did not wish the agency’s criticisms of the budget of then-Mayor David Dinkins to appear to be in conflict with his personal endorsement of the mayor during his reelection campaign.