O.C. to Cut Budget $40 Million; Hundreds Likely to Lose Jobs : Bankruptcy: Labor representatives say 800 to 1,000 positions could be eliminated. Among hardest hit services will be maintenance, personnel and welfare.

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 $40.2 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.

Among the hardest hit will be the county’s General Services Agency, which maintains county buildings, the county’s administrative office and the Human Resources Department, which handles personnel matters. Also targeted were welfare services and contracts for providing outside legal assistance for the poor.

“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, in which they suspend a number of collective bargaining agreements with local unions, ask that some employees volunteer to retire and put a halt to all raises and promotions.

Although the announcement of expected layoffs came three days before Christmas, officials offered one bit of consolation: Workers are not expected to lose their jobs during the holidays. Department managers, however, must have their budget-cutting plans ready for board approval Jan. 10.

The board gave broad discretion Thursday for county managers to fire employees, regardless of seniority, and to cut salaries. The move was timed by county leaders in part to head off raises that were due to county firefighters today and other employees in the near future.

“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 18,000-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. Raabe will return to his previous job as assistant treasurer.

* 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 is 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 uncharted 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 said.

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.”

Officials’ Authority Questioned

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 as much as 12% to 18% in salary cuts.

Among the departments losing the least, each less than 2% of this year’s budgets, are assessor and county counsel.

As for the layoffs, the county’s administrative office expected at least 20. The county counsel expects to cut jobs as well because there are not many other areas to cut.

“We don’t have that many legal pads,” said Terry Andrus, the county’s top attorney.

To minimize the layoffs, county officials are hoping some employees will take advantage of early retirement incentives offered Thursday. Employees who retire immediately will be guaranteed all their accrued vacation and compensatory time in cash. Those benefits remain in jeopardy for workers who stay with the county because the money is frozen in the county’s investment pool and could suffer losses.

Union leaders said the Board of Supervisors had rendered their labor contracts useless and feared they would be powerless to have a 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.

John Sawyer Jr., counsel for the Orange County Employees Assn. and the general manager’s son, said that the association’s members “were stunned by an overwhelming sense of betrayal.”

Union leaders were most dismayed by the the abrogation of layoff provisions in their bargaining agreements that protect employees according to seniority.

“Eliminating seniority seems to be designed to replace the merit system with favoritism,” the younger Sawyer said. “We’re going to be evaluating our legal options.”

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.”

A Tough Vote

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 decisions have been weighed and all have been difficult, as most would understand,” he said.

Jim Silva, who joins the Board of Supervisors in January, sat in the audience at the Hall of Administration, listening to the grim news.

“It’s very, very sad to see this many lives affected,” Silva said later. “When they have to go home to their families and tell them that now they’re unemployed, that’s really horrible. And it could have been prevented, that’s what makes me so mad. This was not an act of God. This was done by people.”

Silva said he thought the board had little choice.

“I think it was the right thing to do,” he said. “I don’t think that they really see the bottom yet. Unless we can act fast, I think there could be additional problems.”

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

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.

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.

“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.”

Times staff writers Rene Lynch, Greg Johnson, J.R. Moehringer, Jodi Wilgoren, Susan Marquez Owen, Michael A. Hiltzik, Julie Marquis and Greg Hernandez and correspondent Danielle Foquette contributed to this story.

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Crisis Strategy

Orange County government agencies are facing cuts of $40.2 million, roughly 20%, from the general fund for the rest of fiscal year 1994-95. The measures approved by the Board of Supervisors allow for:

Cutting agencies’ budgets by as much as 29%.

Voiding contracts with labor unions.

Adjusting the county general fund by approving salary cuts.

Preparing reduction plans for agencies and departments.

Making partial payments for sick leave and vacation days.

Assigning public defenders heavier workloads to reduce hiring outside attorneys

“All of us must renew our commitment to steer the county through these terrible times.

--Sheriff Brad Gates

Source: Orange County Operations Management Council