Activists See Silver Lining in Dark Clouds of O.C. Crisis : Bankruptcy: Conservative think tanks, business leaders seek to use opportunity to downsize, privatize government.

In one breath, Bruce Whitaker is grumbling that Orange County’s financial crisis is an unmitigated disaster. Seconds later, the 35-year-old political activist--visions of a stripped-down bureaucracy brightening his eyes--is trumpeting the county’s $2.02-billion loss as “the best example of government ineptitude that we could hope for.”

For self-styled patriots like Whitaker who yearn to cut big government down to size, the unprecedented bankruptcy is as much opportunity as debacle.

Whitaker, who recently helped topple a Fullerton City Council majority that dared to raise taxes, knows voters will end up paying for the failed investment strategy. But like other members of a local coalition, the Committees of Correspondence--which takes its name from the colonial-era groups that rallied against King George III--Whitaker also views Orange County’s fiscal turmoil as a watershed event akin to the Boston Tea Party.

“This will be the (spark) that lets us make a major shift away from business as usual,” Whitaker said. “It will give us the ability to downsize, to open the government monopoly to a true bidding process.”

That message is not just the cry of a fringe group of modern-day Minutemen. Conservative think tanks that long have sought a laboratory for their theories and local business leaders who see prospects for profits in a New County Order are lining up in strong support. The movement is armed with two basic tenets: that big government must shrink dramatically and that tax increases must not be used to make up the $2-billion shortfall.

“This is a real opportunity to get government out of where it doesn’t belong,” said developer Buck Johns, a member of the conservative Lincoln Club of Orange County, which hired the Los Angeles-based Reason Foundation to draft a plan for privatizing government services in Orange County.

The plan calls for selling assets that conservatives maintain government has no business operating and opening most remaining public services to competitive bidding.

“To get out of the hole that it’s in, the county needs to find some big, billion-dollar-type numbers,” said Robert W. Poole Jr., president of the Reason Foundation. “Orange County needs to sell assets.”

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Some on Wall Street are calling on the county to increase taxes to ensure that its bondholders are paid and its financial underpinnings restored. But privatization proponents, who eschew taxes, instead envision a county-wide garage sale to generate cash.

John Wayne Airport is a logical candidate for sale, proponents said, and landfills, vacant land and the county’s Santa Ana administrative complex might also end up on the block. Poole also envisions less-sweeping but equally controversial changes, such as turning management of county parks over to for-profit companies and giving private ambulance fleets a bigger piece of the emergency services pie.

The prospect of strong voter support in this bastion of free enterprise for a dramatic downsizing of government has made some conservatives giddy. But other longtime critics of big government are sounding cautionary notes.

“I’m always very leery of people moving in and controlling the process who are ideologues,” said former Orange County business executive Roger Johnson, who heads the federal General Services Administration, ground zero of the Clinton Administration’s efforts to reinvent the federal government.

“Yes, this is a window of opportunity, but no, it doesn’t give people carte blanche to do anything they want,” said Dennis Aigner, dean of UC Irvine’s Graduate School of Management.

Last year, Aigner testified at a state Senate hearing in favor of abolishing county governments in large urban areas. Yet in Orange County’s case, he warns, “the window of opportunity has an asterisk or footnote attached. . . . There are dangers of pushing too fast just to solve a short-term problem.”

In hard numbers, the garage-sale approach may come up short. Absent changes in state law, selling county property could raise no more than $350 million, according to a report Friday by Standard & Poor’s, the credit-rating agency--less than a fifth of the sum that the county lost with its investment gamble.

Nor are county officials demonstrating much consistency in pursuing the privatization option.

On Wednesday, the Probation Department said it might turn supervision of 160 offenders over to a private company.

But a week earlier, county supervisors eliminated contracts with 50 private attorneys who represented indigent defendants in criminal cases--transferring their cases to full-time county lawyers.

The rationale: It is easier to control the expenditures of government employees than private lawyers--a position that experts on privatization caution is true for many services that government might consider contracting out to vendors.

“Public employees aren’t inherently bad,” said Indianapolis Mayor Steve Goldsmith, who has opened about 60 government-provided services to competitive bidding. “What’s bad is a monopoly. And we don’t want to be controlled by a (private) monopoly, either.”

Indianapolis, which has asked for bids on everything from pothole repair and microfilm services to waste water treatment plant operation, most recently asked private companies for bids on operating its airport.

“We didn’t go into this with the goal of privatizing,” said city spokesman John Hatfield. “We did it to have competition, and in many cases”--roughly half--”the public employees have been the low bidder.”

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Back in Orange County, Newport Beach attorney Paul Hegness, a strong proponent of privatization, is adamant that the county not adopt a “business as usual attitude.” Hegness, who sat on a panel that developed nearly 60 privatization proposals for the county in 1991, has a few modest proposals that are sure to enrage county employees and residents with a liberal bent.

“Why not look at packaging the county buildings (in Santa Ana) and selling them to someone . . . with a 20-year lease-back?” Hegness asked. “I’d have to guess that would be worth $400 million to $500 million. ‘We’ve (also) got huge, underutilized parks in the county that could be used to develop mobile home parks or that could be sold or leased to someone for commercial and retail development.”

As talk of privatization heats up, suppliers of goods and services are starting to hear cash registers ringing.

CareLine, an Irvine-based ambulance fleet operator, is preparing “an analysis that would allow us over coming months to work with the county government on better structuring the (emergency medical response) system.”

BAA USA, a Pittsburgh-based company that operates airports, is “extremely interested in what Orange County does” with John Wayne Airport. And Parsons Development Co. in Pasadena, an engineering concern, anticipates “fierce competition” if the county open its doors for competitive bids.

But it remains unclear which of Orange County’s assets will be most attractive to potential buyers.

The airport is saddled with about $330 million in debt, including $70 million in federal investment that probably would have to be repaid before a sale is completed. Other observers question if the airport’s value has been diluted by talk of a new commercial airport at the El Toro Marine Corps Air Station.

Opening the county’s landfills to out-of-town trucks--or simply selling the dumps to private operators--isn’t as attractive as it once was, either; demand for landfill space has tumbled recently after hitting a record high in the late 1980s.

And although a landfill sale might generate immediate cash, it could create a thorny problem for a future Board of Supervisors because the county would remain liable for a portion of future environmental remediation costs.

Privatization proponents also expect the debate to stir up a firestorm of protest among public employees who stand to lose jobs--or at least job security--if their work is contracted out.

And any perception that the county was engaging in a fire sale also might enrage taxpayers, who in the past have protested seemingly mundane attempts at turning municipal golf courses and softball fields over to private managers.

“People are always very nervous about losing something that’s theirs,” said Poole. “This is going to be a real test of public leadership in Orange County.”

Elected officials in Orange County already are scrambling for lead positions in the privatization parade:

* Supervisor Roger Stanton, in a white paper released Jan. 2, demanded a “comprehensive, not piecemeal” restructuring of county-provided services.

* Supervisor Gaddi Vasquez is poised to reprise the leadership role he played in the 1991 privatization study.

* Assemblyman Mickey Conroy (R-Orange) plans to introduce a bill that would let the county hire private companies to handle some services from which they are now barred by state law.

* And Assemblyman Curt Pringle hosted a “fiscal recovery forum” Friday in Garden Grove that focused largely upon privatization.

Yet the official enthusiasm hardly gladdens the hearts of true believers in downsizing government like Whitaker, who manages a home furnishings store in Buena Park.

The thought of politicians rushing in to save the day “is more proof of the cultural bias of the government gang,” he said. “They say what we want won’t work because we’re outsiders and we don’t understand government.”

Whitaker compares the coming shrinkage of government, starting with Orange County, to the fall of the Berlin Wall.

“I refer to a ‘bureaucracy dividend,’ which is like the ‘peace dividend’ everyone used to talk about,” Whitaker said. “Downsize the government, open the government monopoly to true competition. Just like (old weapons), government . . . needs to be melted down.”

Times staff writers Debra Vrana and Ross Kerber in Orange County contributed to this story.