ORANGE COUNTY IN BANKRUPTCY : NEWS ANALYSIS : Region’s Solid Economy May Help Allow It to Weather Storm
On the morning after Orange County’s filing for bankruptcy, business people and economists were trying to keep their eyes on the doughnut, not the hole.
At Chapman University, economist Esmael Adibi said the bankruptcy should do no permanent damage to an economic recovery expected to add 21,000 jobs to local payrolls next year.
“We are projecting that the county’s gross product in 1995 will be $82.4 billion,” Adibi said, citing Chapman’s 1995 forecast, which was to be released today.
Others called attention to rising retail sales and commercial real estate values as indicators that, as economist Anil Puri of Cal State Fullerton put it, “This is a financial crisis, not an economic crisis.”
No one doubted that a financial crisis would inflict real pain. To make up for revenues lost in the county’s investment fund debacle, cities and special districts would have to impose fees--in effect, taxes by another name.
Yet Puri’s distinction is valid. He believes Orange County’s underlying economy can remain strong and growing despite the inevitable difficulties of working out the investment fund mess.
Experts noted that this is not Bridgeport, Conn., the depressed city of rusted industry that tried to file for bankruptcy in 1991. Orange County is a place of new businesses--in computers and software, medical instruments and environmental sciences--with growing markets for its exports.
Nor are Orange County’s troubles as severe as those of New York City in 1975, when public borrowing and pension obligations outran the ability of the city’s tax base. Orange County’s tax base of property values and retail sales continues to expand.
“No manufacturing or service business should suffer directly because of the financial crisis,” said Joseph DeFranco, chairman of SRS Recovery Systems, an environmental water treatment firm in Irvine.
Still, there is worry about how the financial crisis will affect the real economy, and recognition that many communities and businesses may face one-time fees or special taxes to pay for losses in the $20-billion investment fund.
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“Communities will suffer shortfalls because of revenues frozen, or lost, in the Investment Fund. Somebody will have to make them up,” said Dennis Aigner, dean of UC Irvine’s Graduate School of Management.
Potential property buyers were worried and calling Kaufman and Broad Home Corp.’s Orange County division all day, said Roland Osgood, president of the builder. “Can they raise my taxes?” was a big concern, he said.
His staff has been assuring callers that “there is really nothing the county can do to raise (property) taxes, because of Proposition 13,” the law requiring two-thirds approval in a general election to increase property taxes.
Osgood and others worry about Orange County’s long-term credit ratings, which will be lower than the premium ratings it had enjoyed. They will mean higher interest rates and a market wary of the bonds Orange County cities use to pay for building schools, roads and sewer systems.
There were no reports of house purchases falling out of escrow on Wednesday, as the Board of Supervisors tried to come up with a plan for fiscal reorganization.
Companies planning major projects adopted a stance of watchful waiting.
At Irvine Co., the county’s largest land owner and developer, executives would not comment on the bankruptcy filing.
At Disneyland in Anaheim, where officials have been discussing a major expansion linked to public improvements of the area around the park, spokesman John McClintock said executives didn’t want to speculate on the impact of the bankruptcy filing. If it cuts off funds for freeway improvements and parking structures, however, Disneyland’s $2-billion expansion plan could be scrapped.
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At Fluor Corp., the international engineering and construction firm in Irvine, spokeswoman Deborah Land said company officials were concerned that some of the larger projects being proposed for the county would be canceled. Among them are a new football stadium for the Rams and a new county courthouse.
A major test of the county’s credit could come next spring, Aigner noted, when the Eastern Transportation Corridor toll road project will have to sell about $1 billion in bonds. In that respect, a shattered reputation for governmental competence may be a problem for the county.
By the time such bond issues roll around, however, a clearer picture of the losses to be expected in the investment fund will have emerged. And the underlying, long-term strength of Orange County’s businesses and general economic climate may already have repaired some of the damage to its reputation in the marketplace, economists and business leaders said.
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* O.C. leaders call for calm. A1
* Final days before bankruptcy. A1
* What other municipalities do. A27
* Good news for muni investors. D3
* Questions about rating agencies. D3
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Times staff writers Greg Johnson, Don Lee and correspondent Hope Hamashige contributed to this report.
