O.C. to Cut Budget $40 Million; Hundreds May Lose Their Jobs : Bankruptcy: Labor representatives say up to 1,000 positions could be eliminated. Vacancies could ease blow. Union leader assails supervisors.

Hundreds of Orange County workers are expected to lose their jobs in early January under a sweeping plan, passed by the Board of Supervisors on Thursday, to slash $40 million from the county’s budget over the next six months.

Most of the cuts will come from salaries and nearly every county government service--from the courts to health care to social services programs--will be targeted. More reductions may follow if the county’s financial situation deteriorates.

“There’s no easy way . . . to say someone died or you’re fired and that’s what happened today,” said Supervisor Harriett M. Wieder, who is retiring this month after 16 years on the board.

Nobody knows exactly how many jobs could be cut. But the head of the Orange County Employees Assn. estimated that 800 to 1,000 positions could be lost. One supervisor said there are several hundred county jobs currently unfilled, which might help out.

John H. Sawyer, the union’s general manager, charged that supervisors acted prematurely and unjustifiably in approving the cutbacks, which suspend a number of collective bargaining agreements with local unions, asks that some employees volunteer to retire and puts a halt to all raises and promotions.

The board also gave broad discretion for county managers to fire employees, regardless of seniority, and to cut salaries. The move came just three days before Christmas--and was timed by county leaders to head off raises that were due to some workers Friday.

“We are shocked and disappointed that the county would treat its employees so cavalierly, particularly in the face of this march of folly,” said Sawyer, whose union represents 11,000 of the county’s 16,000-member work force. “This is a disastrous approach. This has all the aspects of a steamroller.”

In other developments Thursday:

* A federal bankruptcy judge approved an interim plan that lets Orange County and more than 180 cities and districts withdraw up to $1 billion to pay emergency bills and make payrolls through Jan. 31. The plan limits the county and each investor to 30% of their investments in the county’s troubled bond fund.

* Supervisors demoted Matthew R. Raabe as acting treasurer and named former Oklahoma State Auditor Thomas Daxon as treasurer for the next four months. Daxon was named two weeks ago as the county’s special consultant to the treasurer’s office.

* The U.S. Securities and Exchange Commission, one of several agencies investigating the county’s financial debacle, has sent 10-page questionnaires to investors, inquiring about their dealings with the county pool and whether the risks were adequately explained.

* Salomon Bros., the brokerage handling the liquidation of Orange County’s portfolio, said it had auctioned off $405 million more in corporate securities Thursday but it was not immediately known how much was raised in the sale.

* Former California treasurer Thomas W. Hayes, the county’s top financial adviser, said that although the sale so far of $3.3 billion in holdings by Salomon Bros. had succeeded in bolstering the troubled portfolio, “it is still very risky” and still vulnerable to losses from increases in prevailing interest rates.

Among other factors, exotic derivatives now make up nearly 80% of the residual portfolio, compared to 60% as recently as Dec. 13. That’s because the investment advisers have focused on selling off the most easily marketable securities first to raise cash quickly.

Hayes said those moves have succeeded in raising the county’s cash balance by more than $1.8 billion while paying off $1.53 billion in loans. At the same time, the potential loss to the portfolio from a 1-point rise in interest rates is now $220 million, down from $300 million Dec. 13.

Hayes made his remarks in interviews with reporters from several newspapers before the Board of Supervisors held its emergency meeting Thursday to announce widespread budget cuts.

‘Giant First Step’

At a hearing crammed with anxious county workers, department managers and residents, Sheriff Brad Gates was the first to announce what had been rumored for days.

Gates was part of the county’s three-member management council that has spent the past nine days considering where to cut spending.

The sheriff called the $40 million in cuts “a giant first step,” that is “the necessary starting point to resolve our financial crisis.”

“These are unique circumstances,” he said. “We are on unchartered waters. What we need to do is different from what we’ve done before. It is important that all of us . . . must renew our commitment to steer the county through these troubled times.”

Because the county is already six months into its budget year, Gates said, the council’s ability to reduce spending was limited. The $40-million reduction represents nearly 20% of the county’s general fund budget through June 30.

“We simply cannot cut any more this year without seriously jeopardizing mandatory levels of health and public safety for our residents,” he said.

But he emphasized that the first round of cuts “must be done immediately,” and cautioned that the overall recovery would take several years. “The longer we delay action, the deeper and more Draconian the cost-saving measures will become,” he warned.

Gates, Dist. Atty. Michael R. Capizzi and Health Care Agency Director Tom Uram met with individual department heads several times, as well as with the county’s legal and financial advisers.

“Without exception we found our entire county family ready, willing and able to assist in solving the current financial situation,” Gates told the board. “If there was ever a problem for us it was that so many in our county family offered more help than we were able to or had the time to accept.”

The management council refused to discuss specific numbers of people that may be laid off, and suggested that with the proper amount of budget juggling in each department, the impact could be minimal.

“It would be a scare tactic to just make up a number,” Capizzi said. “I think my department is going to try to minimize laying people off.”

Still, he said: “These are not easy decisions and we know it. There is anguish. There is frustration. it will be years before the county completely recovers from this situation.”

Several Orange County judges on Thursday privately raised questions about whether Gates and Capizzi--elected officials who run large departments of their own--had any authority to be part of an impartial body overseeing countywide budget cuts.

“They have no business being there, first because they don’t have the authority and secondly because it clearly appears to be a conflict of interest,” said one judge who declined to be identified.

The Sheriff’s Department was reduced 0.7% while the district attorney’s office was reduced 1.1%. Other departments were targeted for 12% to 18% salary cuts.

Lawyers Program Hit

By far the hardest hit program in the county is “alternate defense,” which provides attorneys for indigent people and pays for other court costs in those cases. The program, whose 1994-1995 budget was under $13 million, must slash $3.7 million--or 29% of the total budget--from its program, according to the management council plan. The county’s public Defender’s Office will pick up the slack, with no extra budget.

The General Services Agency will also suffer big losses, with a reduction of $4.5 million, more than 12% of the annual budget.

“It’s a big number,” said Bert Scott, said head of the GSA, which maintains county facilities. “It’s a significant number. Obviously we have to do whatever it takes to get this done.”

Other areas ordered to cut the greatest chunks from their budgets include human resources, which will lose about 18% of its 1994-1995 budget, and the offices of Supervisor William G. Steiner and incoming Supervisor Marian Bergeson, whose staffs will be trimmed 14% and 20% respectively. But because those offices have relatively small budgets, the cuts will yield only about $1 million in savings.

Several departments with large budgets will take smaller hits that will nevertheless go far to make up the overall county shortfall. The county Probation Department was ordered to reduced its budget by $9.2 million, the Social Services Agency by $10 million and the Health Care Agency by $3 million. For all three, though, the cuts are under 5% of their budgets.

The county’s administrative office expected 30 layoffs alone. The county counsel expects to cut jobs as well.

“I don’t have that many legal pads to cut back on to make up the difference,” said Terry Andrus, the county’s top attorney.

Union leaders said the Board of Supervisors had rendered their labor contracts useless and feared they would be powerless to have any say in how the cutbacks will be implemented. They were particularly incensed that the board’s action allows anyone to be laid off, regardless of seniority.

“County employees are the only asset that remains intact,” Sawyer told board members as many in the audience cheered loudly.

One angry resident pointed the finger at county supervisors, who have come under attack since the bankruptcy and criticized for failing to prevent it. She said county workers should not take the hit.

“We have had these people working in our county and they are not the cause of the problem,” said Madelene Arakelian of Laguna Hills. “What are you going to give up? You should all resign.”

Cynthia Pickett, field representative for a union that represents 500 county workers, suggested an across-the-board pay cut of 10% rather than layoffs.

“There is no fairness or equity in the layoff,” she said. “Why make 800 to 1,000 employees go out the door when there is an alternative where everybody contributes to solving the problem without anybody losing their jobs? The wrong people are paying the price for the mistakes they had no control over.”

After the meeting, Supervisor Gaddi H. Vasquez said Thursday’s vote was a tough one.

“While the decision we make here today will have very real and I’m afraid negative consequences for some of our county family, all of the decision have been weighed and all have been difficult, as most would understand,” he said.

Thursday’s announcement of massive cuts was the culmination of three weeks of nearly non-stop meetings and widespread worry over the financial crisis.

Loss Announced Dec. 5

The crisis surfaced Dec. 1, when former Treasurer-Tax Collector Robert L. Citron and Raabe, his top assistant, announced a $1.5-billion “paper loss” to the county’s investment pool. Citron resigned Dec. 5, one day before the county became the first in history to file for bankruptcy.

As investing agencies and the county have hired financial advisers, bankruptcy attorneys and other experts to help them hash out the situation, local and national groups have launched sweeping investigations of the treasurer’s office. The county’s loss has reached more than $2 billion.

County leaders said the financial crisis left them no choice but the slash the budget and move toward layoffs.

“I expected that it would come to this point,” Steiner said late Thursday, exhausted by the day’s events. “It’s regrettable. This is the low point of the investment pool calamity. From this point on, I hope we’re going to see recovery.”