County Begins Moves to Close Gap in Budget : Finances: Officials seek ways to erase $641-million shortage arising from unpaid reimbursement claims for health program. Hiring freeze, layoffs are among possibilities.

Faced with a stubborn $641-million gap in this year’s budget, the Los Angeles County Board of Supervisors set in motion a plan of action Thursday that could result in reductions in health services, a hiring freeze and layoffs of county employees, possibly as early as next month.

The move toward a dramatic shake-up came as the board was buffeted with bad news about the financial outlook for the 1995-96 fiscal year, which begins July 1. All told, the county could wind up facing the new fiscal year nearly $1 billion in the red, give or take several hundred million dollars, county budget officials said.

With the specter of the Orange County bankruptcy ever present, supervisors appeared determined Thursday to try to rein in spending habits that have left the county on the brink of crisis for several years.

The county’s predicament prompted newly elected supervisor Zev Yaroslavsky to condemn what he called the “Ponzi-like scheme we’ve been operating under.”

“This should not come as a surprise to any of us that we’re in this situation,” Yaroslavsky said. “This is not the first year the county has been spending well beyond its means. Today’s discussion is the kind that should have taken place a long time ago.”

Yaroslavsky added that the county may have to mortgage its future to resolve its problems. “To the extent we get ourselves out of this hole, we’ve dug ourselves a Grand Canyon for 1995-96.”

Yaroslavsky’s heated denunciation prompted several of his colleagues to defend their actions and to argue that promised reimbursements from the federal government had seemed like “real” revenue when past budgets were created.

“This is a complete surprise,” replied an angry Deane Dana. “I’ve never seen a complete turnaround of something of this magnitude.”

The latest emergency stems from a dispute with federal health authorities over Medi-Cal reimbursements the county says it was promised and that were included in the current $14.2-billion budget.

Los Angeles County is seeking $640 million in reimbursements for the administrative costs of running the health program over the last three years.

The federal Health Care Financing Administration disputes the size of the claim, contending that the county may have been double-billing the government, and argues that capitulating on the issue could set a nationwide precedent. Officials with the agency could not be reached for comment Thursday.

After months of lobbying by local officials, Chief Administrative Officer Sally Reed, who argued last year against counting the reimbursements in the budget, conceded to the board Thursday that there is little chance of the county receiving all of the money--and it may not get any.

“Our level of confidence in these . . . revenues is not as high as it was at budget time and continues to deteriorate,” Reed said. “We have been advised verbally that it is their intent to deny the claim.”

Beyond the rhetoric, the board knuckled down and asked Reed to come up with recommendations on how to fill the gap within the next month. Besides layoffs, other options include a moratorium on hiring consultants and on buying property and equipment.

Representatives of the county’s largest employee union decried the threat of layoffs.

“We are not Orange County,” said Gil Cedillo, general manager of Service Employees International Union, Local 660, which represents about half of the county work force. “We will oppose any proposals that attempt to have the workers of this county bear the burden of wrong fiscal policies.”

Reed said some of the deficit could be filled by $110 million in unanticipated property taxes and several hundred million dollars in reserves in the health department.

But applying that option could leave the county on even shakier ground entering next year’s budget battles, she said.

“You would spend down all of your flexibility for the next year,” she said.