Economists Say Loss May Include 5,000 New Jobs

The $1.5-billion investment loss that drove Orange County into bankruptcy could cost the county several thousand future jobs and slow economic growth through the end of the decade, economists at Chapman University said Thursday.

Although the county will probably not fall back into recession, the declining value of its investment portfolio could erase 4,000 to 5,000 of the 21,000 new jobs that had earlier been forecast for 1995, according to projections unveiled at the annual presentation of the Orange County Economic Forecast, compiled by Chapman’s Center for Economic Research.

Through 1999, the county’s financial crisis could reduce the number of created jobs by 25,000, said Esmael Adibi, the economist who heads the research unit and performs Chapman’s long-range forecasting.

Most of the job loss would be related to public works projects now on hold, including toll roads, a new Anaheim sports stadium and new public buildings.

The total impact of the county’s bankruptcy filing is harder to predict, the economists said, but a modest ripple effect is virtually assured. That could include a decrease of $100 million in annual taxable sales--about 0.3% of the total--and a $540-million decline in the gross county product, the measure of all goods and services produced.

As a result of the financial crisis, the economists said, the gross county product for 1995 is now projected at $81.8 billion, off nearly 1% from earlier estimates.

“It would be a dampening, but not a death blow,” Chapman economist and President James Doti told a crowd of more than 1,000 business and political leaders.

“We are at the height of a financial panic in Orange County right now with fear, anger and confusion making it difficult to see,” Doti added. “But our analysis shows the county has a strong fundamental economy.”

The usually circumspect Doti chastised Robert L. Citron for “a move of desperation” during the summer when the recently resigned county treasurer tried to recoup losses by moving even further into high-risk securities. The then-treasurer, Doti said, was “hoping irrationally to recover” from his disastrous investment strategies “by doing the same thing.”

On Tuesday, the county, after revealing huge losses in risky investments by Citron’s office, became the largest municipality in U.S. history to file for bankruptcy protection.

Citron’s investments went sour because he bet that interest rates would fall, which would have boosted the value of the bonds he bought. Doti said he could not understand the former treasurer’s strategy. “By March of this year,” he said, “there were no forecasters predicting that interest rates would drop.”

Ironically, Chapman’s forecast for 1995 calls for declining long-term interest rates. Doti said bonds such as those on which Citron lost money this year could increase in value by 16% next year.

The Center for Economic Research has been tracking Orange County’s annual economy since 1981 and is heralded by other forecasters for its high degree of accuracy.

The center’s 1995 forecast prepared a week before the county’s financial crisis broke had predicted an increase of 21,000 jobs on government and private payrolls for the year--the first overall job growth since 1990--and an increase of 105,000 jobs by the end of 1999.

If the loss from the investment fund is held to $1.5 billion, Doti said, there would be an increase of 17,000 jobs in 1995 and 84,000 jobs by the end of the decade.

“The losses are bad,” Doti said, “but it would be much more devastating to the county’s economy if there was a tax increase to try to make up for the losses.”

Although the Chapman forecasters see the county on the road to recovery, they predicted that a mild national recession will occur in 1996. But underlying strengths, including healthy foreign trade and high-technology research sectors, as well as a rapidly recovering construction industry, will “put the county back in its accustomed role” of leading the nation out of recessions, Adibi said.

For the last four years, Orange County, along with the rest of California, has had a much weaker economy than much of the United States.

On the positive side, the economists said they do not expect the county’s bankruptcy to depress individual earnings. The median family income is expected to rise 2% to $55,507 next year.

Nor do they expect the construction industry’s long-awaited rebound to stall. Doti said he expects the value of new construction projects, mostly home building, to rise 17% next year to $2.6 billion. Because most of the construction projected is in residential properties, the economists say, that will soften the blow to the industry from decreased spending for public works after the bankruptcy filing.

The Chapman forecast does call for Orange County’s average home price to fall next year, though. The forecast is for an average decrease of 2.6%, the fifth consecutive annual decline. But from 1996 through 1999, Adibi said, homeowners and home buyers can expect residential property values to increase, topping out with a gain of 7.6% for 1999.

Orange County’s Bankruptcy

* For complete background on the bankruptcy of Orange County, including Times profiles of the key players, sign on to the TimesLink on-line service.

Details on Times electronic services, B4

Contributing to today’s coverage of Orange County’s financial turmoil were: staff writers Leslie Berkman, Anna Cekola, Mike DiGiovanna, Michael Granberry, Len Hall, Greg Hernandez, Michael Hiltzik, Ross Kerber, Sheila Kern, Matt Lait, Mark Landsbaum, Don Lee, Patrick Lee, Eric Lichtblau, Martin Miller, J.R. Moehringer, Thomas S. Mulligan, Tina Nguyen, John O’Dell, Susan Marquez Owen, Tom Petruno, Mark Platte, Lee Romney, Val Tkach, Rebecca Trounson, Debora Vrana, Tracy Weber, Jodi Wilgoren, Chris Woodyard and Nancy Wride.

Also contributing were correspondents Bert Eljera, Catherine Gewertz, Hope Hamashige, Russ Loar, Frank Messina and Tom Ragan; and staff photographers Kevin Casey, Alexander Gallardo, Bob Grieser and Rick Loomis.

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Orange County Outlook

Economists at Chapman University predicted Thursday that Orange County’s economy will continue growing at a slow but steady pace in 1995 despite the county’s bankruptcy filing. Chapman compiles employment indicators that seek to predict job levels. Year-to-year percentage change in employment projected through 1999:

Chapman employment Indicator (1999): 4.21%

Employment % change (1999): 2.80%

Housing Values

Prices for resold homes are expected to undergo a fifth consecutive year of depreciation and not turn positive until 1997. Percentage change from previous year:

1999: 7.6%

Job Creation

The increase of about 21,000 new jobs forecast for 1995 will be reduced by 4,000 to 5,000, the economists say, and further job growth will be reduced through 1999.

1995: 21.2

Taxable sales

Taxable sales are expected to continue their upward trend, increasing 3.1% next year after being adjusted for inflation. Annual percentage change after inflation adjustment:

1995: 3.1%

Note: All data for 1994 and beyond are projections.

Source: Chapman University Economic & Business Review