‘95-96 Looks Grim for Orange County : Bankruptcy: Official says coming budget must be slashed by one-third. Covering this year’s shortfall continues to be a problem.

Already reeling from budget cutbacks of $42 million, Orange County department heads were told Thursday to brace for twice the pain in the budget year starting July 1 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 30, saying the new fiscal year’s general fund budget would total about $300 million.

That figure--about 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 proposal from Schneider 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; at least half the cuts should come from eliminating programs, he said.

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

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

Schneider’s initial draft of the budget plan calls for $80.7 million in cuts beyond current funding levels, and another $30 million in potential cuts in a contingency plan. He said he was starting this year’s budget process early because of the magnitude of the fiscal crisis, which forced the county to file for bankruptcy protection Dec. 6.

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 capital improvement projects by nearly half and reduce payments for interest, employee benefits and retirement funds by about $28 million.

“Departments must identify their core services and provide these services at minimum levels,” Schneider wrote in a somber memo to department heads. “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 would be cut in half. Other savings could result from contracting out unspecified services.

During a two-hour meeting on the current year’s budget crisis, 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.

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

Noting that the $172-million budget gap equates to about $1 million a day between now and June 30, Supervisor Roger R. 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.

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.”

The six-month plan presented by Schneider called for the county to 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 to the county 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.

Chairman Gaddi H. Vasquez attacked Schneider’s plan. The notion of raising money by impounding cars was flawed, he said, because cities--not the county--would probably receive the fees from that action.

The supervisors told Schneider to return with new proposals for 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 state Legislature to discuss the county’s fiscal problems.

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.

Wilson is on vacation in Europe, but a spokesman for the governor said that Bergeson’s letter was “a good framework” and that state and Orange County officials would meet next week to discuss the proposals.

Times staff writers Susan Marquez Owen and Anna Cekola in Santa Ana and Eric Bailey and Dave Lesher in Sacramento contributed to this story.

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