Prepare for Bigger Cuts, Department Heads Told : Crisis: O.C. budget for next fiscal year, beginning in summer, will be about a third below this year’s figure.

Already reeling from $42 million in recent cutbacks, Orange County department heads were told Thursday to brace for twice the pain in the budget year beginning this summer, and to prepare a contingency plan slashing 10% more in case the county’s financial crisis worsens.

County Administrative Officer Ernie Schneider provided the first peek at the county’s grim budgetary outlook beyond June, saying the new general fund budget would be about $300 million.

That figure, one-third below this year’s $462-million budget, assumes the county will collect “minimal” interest earnings from deposits in its collapsed investment pool.

“We’re looking at a bare-bones, essential-services type of government,” Schneider said. “I’m asking department heads to defend the programs they’ve got” to determine whether they should continue. Earlier in the day, the Board of Supervisors gave a critical reception to a separate Schneider proposal for meeting the $172-million shortfall in the county’s budget for the next six months. Board members urged deeper cuts in county services rather than the large-scale borrowing outlined in Schneider’s plan.

For the 1995-96 year, Schneider ordered “a new approach to budget development” in which county departments start from zero and fund only legally mandated or critical services. He said at least half the savings should come from eliminating programs.

“There’s not going to be anything left of county government in 18 months,” said one department head who spoke on the condition of anonymity. “This doesn’t look good.”

County Auditor-Controller Steve E. Lewis said the proposed cuts are untenable.

“We can cut. We can’t get the job done, but we can cut,” Lewis said after a solemn, 45-minute meeting of department heads. “If we are asked to take that cut I think it’s a major error in the long-run good of the county.”

In other developments Thursday as county officials began to grapple with the longer-term impact of the fiscal fiasco:

* Officials said that district attorney’s investigators have interviewed executive assistants to at least two county supervisors. The assistants had been subpoenaed to appear before the Orange County Grand Jury today but voluntarily agreed to talk with investigators instead.

* County bankruptcy attorney Bruce Bennett said he has postponed indefinitely releasing the first draft of his recovery plan because county officials are engaged in secret negotiations with participants in the failed investment pool. Bennett refused to say who is involved in the negotiations or what is being discussed.

“We are pleased that a constructive dialogue has developed and as a result (we) adjusted our schedule to accommodate that dialogue,” Bennett said. “We will probably withhold release of a pool plan for so long as these private and constructive discussions continue.”

* The county’s attorneys filed papers arguing that the county is in a severe financial emergency that justifies layoffs without honoring collective bargaining agreements. The county already announced more than 400 layoffs. A federal judge issued a temporary restraining order Tuesday barring the county from firing any workers until it could prove that the layoffs are legal and necessary because of the county’s financial crisis.

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A hearing on the matter is scheduled for today.

Schneider’s initial draft of the 1995-96 budget plan calls for $80.7 million in cuts from current funding levels, as well as $30 million in contingency plan cuts.

He said he was starting this year’s budget process early because of the magnitude of the crisis--which forced the county to file for bankruptcy protection Dec. 6--and that he may even ask department heads to implement the cuts as soon as they come up with them.

Most departments would lose about 20% of their current funding, with the largest savings targeted for the areas of probation ($8 million), health care ($7 million) and social services ($7 million). Schneider also plans to cut by nearly half capital improvement projects and to reduce payments for interest, employee benefits and retirement funds by some $28 million.

“Recent events will change Orange County in ways we cannot now predict,” Schneider wrote in a memo to department heads. “Departments must identify their core services and provide these services at minimum levels. Programs outside of core services . . . must be re-evaluated and the determination made that they have sufficient value to the community to warrant continuing them.”

Vacant positions would be deleted from the budget rolls, the memo states. Expenses for travel, conferences, training and membership in professional associations should be cut in half. Other savings could result from contracting for services.

“The decision we must make will be very difficult,” Schneider wrote.

Department heads who struggled to meet the first round of budget cutbacks announced last month left the closed-door meeting expressing shock and resignation, predicting that Orange County’s government services would soon be changed forever.

“The county will not exist as we know it right now, that’s for sure,” said Lewis, the county auditor.

“We’ve had better days,” said Larry Leaman, director of the Social Services Agency. “It’s a necessity, but it’s certainly no fun.”

Chief Probation Officer Michael Schumacher called the proposed cuts “very, very substantial.”

“These are serious times and the news wasn’t very pleasant,” he said.

Still, many department heads said they had been expecting the blow.

“We knew the next budget was not going to be a picnic,” said General Services Agency Director R.A. (Burt) Scott. “We’re just going to deal with it the best we can.”

During a two-hour meeting on the current year’s budget crisis Thursday morning, supervisors suggested slashing their own car allowances and considering across-the-board salary cuts for county employees before appealing to the state and financial markets for help.

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Schneider had proposed refinancing or postponing about $107 million of the county’s short-term debt, but that idea irked board members.

“I still haven’t had any great level of satisfaction on this report,” said Supervisor Roger R. Stanton.

Noting that the $172-million gap equates to about $1 million a day between now and June 30, Stanton demanded of Schneider: “What have you done to save $1 million today?”

Supervisor Marian Bergeson, who is acting as a liaison with state officials and has asked Gov. Pete Wilson to call a special session of the Legislature in February, said she would be unwilling to go to Sacramento until more Draconian cuts are made.

“We’ll be dead on arrival if we haven’t done what needs to be done down on the home front,” said Board Chairman Gaddi H. Vasquez.

“Additional cuts keep us from mortgaging our future,” Supervisor William G. Steiner agreed in an interview after the meeting.

Added Supervisor Jim Silva: “Borrowing is not a good way to go.”

Schneider told the supervisors his staff is trying to assess “what the county can no longer afford to do.”

But, he added, “It’s our opinion that we just can’t cut our way out of this shortfall.”

According to the six-month plan Schneider presented to the board, the county would fill the $172-million hole with $48 million in savings from previously announced layoffs and suspended projects; $17.4 million in revenues from impounding cars of unlicensed drivers and withholding some payments into the county’s risk management and retirement funds; postponing $107 million in short-term debt payments; and unspecified cutbacks and new loans.

But the supervisors pressed Schneider for quicker, more dramatic action, grilling him about the plausibility of his proposals.

Vasquez attacked Schneider’s plan, noting that the notion of raising money by impounding cars of unlicensed drivers was flawed because cities, not the county, would likely receive the fees from that action.

The supervisors told Schneider to return with new cuts in two weeks, and gave him 30 days to finalize some aspects of the plan.

Bergeson said she hoped to have more drastic cuts in the works before February, when she has asked for a special session of the Legislature to discuss the county’s fiscal fiasco.

In her letter to Wilson requesting a special legislative session , Bergeson said she believed “specific legislative actions” could help Orange County “manage some immediate concerns” related to this year’s and next year’s budgets.

Bergeson said the county might ask for authorization to contract out for county services, reduce wages on public works projects, speed the process for selling county-owned property and avoid state- and federal-mandated welfare payments. The county may also request advances in state funding.

More Budget Reductions

County government department heads have been asked to almost double cuts they made earlier this month for the 1995-96 budget, beginning this summer. They were also asked to prepare to slash an additional 10% in case the county’s crisis worsens. Here’s how much each department would have to cut from current funding, what each would have in the new budget and what each would have to cut if an additional 10% has to be slashed:

Reduction from Proposed Additional Agency current funding 1995-96 budget reduction Public Protection $21,983,200 $115,972,400 $11,397,400 Health Services 6,842,700 27,370,800 2,737,100 Community & Social Services 8,209,500 49,640,600 2,873,900 Environmental Services 344,300 1,560,700 156,100 General Govt. & Services 10,986,700 54,588,500 5,671,100 Capital Improvements 4,385,700 6,549,900 655,100 Debt Service 0 4,319,000 431,900 Insurance, Reserves & Misc. 27,971,200 59,998,100 5,999,800 General fund total $80,723,300 $320,000,000 $29,922,400

Source: Orange County Administrative Office