As County’s Credit Rating Slides, So May Its Image : Fallout: Some fear that bankruptcy, other financial problems may tag the area as being untrustworthy.

Gil Ferguson, who spent 10 years in the Assembly representing the Newport Beach area, says he knows what they’re saying in Sacramento about Orange County’s declaration of bankruptcy.

“They’re saying, ‘You expect Watts to bail you people out?’

“Life is too good here,” Ferguson said. “The county is simply too wealthy for anyone to feel sorry for us. I think if there’s been any change in our image, it’s that we might be rich, but we’re not too smart.”

As county officials struggle to pick up the pieces of its risk-laden investment fund, which appears to have lost at least $1.5 billion, or about 20% of its capital, the county’s image is going to be important, say some experts in municipal management.

“How it’s handled right now and from now on is very important for damage control,” said Terry Clark, coordinator of the University of Chicago’s Fiscal Austerity and Urban Innovation Project, the largest study of municipal management in history. “If they handle it poorly, the effects could be long-range.”

But Mark Baldassare, a UC Irvine sociologist who has been polling attitudes about Orange County for 12 years, says he fears that long-range damage has already been done to the county’s image.

“People might not know what derivative or leveraged mean, but they know what bankruptcy means. When you tell them a county has gone bankrupt, you’re sending a message of severe distress.”

It is the most spectacular message so far, but not the only one. Downright embezzlement at major institutions has popped up with embarrassing frequency in Orange County.

* In March, Clyde E. Weinman, director of Irvine Temporary Housing, which aided the homeless, was sentenced to prison for stealing almost $450,000 from the charity by forging nearly 600 checks.

* In 1993, Steven D. Wymer went to prison for defrauding small municipalities in Iowa, Colorado and California. He promised that his firm, Institutional Treasury Management of Irvine, could invest their spare funds safely but with high profit. The largest victim, the Iowa Trust Fund, lost $75 million.

* In 1992, Stephen Wagner, director of business support services for the Newport-Mesa Unified School District, admitted stealing about $4 million from the district over the previous six years. His lavish lifestyle included luxury cars, a gold-plated grand piano and a diamond-studded tuxedo. A grand jury estimated that loss of the money Wagner embezzled forced the district to lay off 59 teachers and 150 other employees.

Orange County became the unofficial capital of the savings and loan scandals in the 1980s when Lincoln Savings & Loan, headquartered in Irvine, failed and its owner, Charles H. Keating Jr., was indicted and eventually convicted. Other Orange County S&Ls; also failed.

The same decade made Orange County the “boiler-room fraud capital” of the nation, according to congressional testimony, as swindlers sold phony investments in oil, minerals and coins over the phone. An Orange County prosecutor told Congress about 200 fraudulent boiler rooms in Orange County that grossed up to $1 billion a year.

Was this the true Orange County--people mad to hustle the big bucks and ignore the risks?

Of course not, said Baldassare, but it is going to make many people believe it is true, and that is understandable, he said.

“It’s incredible, really,” Baldassare said. “I understood how New York got into trouble (in 1975)--it wasn’t raising revenues to pay for more expensive social services--but how do you explain that one of the wealthiest counties in the nation is now bankrupt?

“We’ve crossed the line here. Many people are going to look at it and it’s going to be what they suspected about Orange County. People are out there taking huge risks with other people’s money. I think a very negative image has been created. In the Eastern media, we may be painted in broad strokes.”

This is bound to affect outsiders, Baldassare said, because “people are going to think about moving here in the future and investing their lives and businesses in this area. People don’t want to be thinking about whether the school will have enough money to keep the doors open. There are plenty of places in the nation where the daily business of government is taken care of without having to ponder a lot of risks.”

But the worst image problems, he believes, are going to be self-image problems.

“People here were just getting to the point they were getting more confident about finances, coming out of the recession, further away from the feeling of the (Los Angeles) riots,” Baldassare said. “Now this happens.”

Political images are at stake as well, said the University of Chicago’s Clark. Orange County had become “a national model for what we call the ‘new fiscal populists,’ who have turned away from Reagan Republicanism. They run against high spending and irresponsible management but they tend to be liberal on social issues. For them, this is disastrous. It’s not what was supposed to happen on their watch.”

Roger Johnson, a former Orange County business executive who is now administrator of the federal General Services Agency, says Washington doesn’t know what to make of this spectacular event.

“The concept of a government going bankrupt is a little off their radar screens here. Few of them have experienced the excitement of running out of money. It’s an intellectual concept that haven’t experienced.”

If Orange County is concerned about its Washington image, Johnson said, “the real issue is not what’s happened but what the county does about it.”

Clark said the lasting images will be forged starting now. How the county will react to the crisis is more likely to determine how the county is viewed in coming years.

“The city of San Diego is a stellar example. They created the Board of Fiscal Overseers, back when Pete Wilson was mayor. It would monitor all major fiscal policy decisions.

“Orange County could create something like that, a blue-ribbon panel that could assess specifics and suggest policy. It would take some of the spotlight off the county board and administrators and defuse the blame. It’s a classic technique, and it works, if it’s done right.”

But Baldassare’s suggestion for damage control is more basic.

“My own feeling is that what little confidence there was out there is going to be shattered by an event like that and it’s going to a be a long time before Orange County voters’ confidence is restored in their local officials.

“So far there’s very little of what’s most needed: an apology. The public wants local officials to take care of the school and pick up trash and make sure things were working all right. I think the public will be looking for apologies.”