O.C. Tax, Fee Increases Studied Behind Scenes : Crisis: Business, civic groups urge reluctant officials to consider all the revenue possibilities, even if unpopular.

As Orange County grapples with a $172-million budget shortfall for the current fiscal year alone, county officials, business groups and others are quietly studying proposals to help rescue the county from its fiscal crisis by hiking taxes or fees.

The subject, rarely a popular one with taxpayers anywhere, is still anathema to many here, despite the gravity of the county’s problems. And it has yet to be embraced by any of the county’s top elected officials.

But groups like the League of Women Voters and the Orange County Business Council, while insisting they are not endorsing such revenue-raising options, have urged the county’s beleaguered leadership to consider every possible means of filling the budget gap, including the dreaded “T-word.”

“To immediately jump to a conclusion that one mode of solving the problem should be off the table, I just think is premature,” said Todd B. Nicholson, president of the newly formed Orange County Business Council, a coalition that represents 2,100 local companies.

“I don’t think any of us would necessarily like to see a tax increase,” he added, “but if that’s what it takes to resolve the situation and if there aren’t any viable alternatives, I don’t think we should rule it out.”

With the estimated $1.69-billion loss from the county’s collapsed investment pool still shifting--at times by tens of millions of dollars in a single day--the chairman of the Orange County chapter of Common Cause argues that it is irresponsible for the Board of Supervisors to adopt an inflexible “no new taxes” posture.

“How can they possibly eliminate any option before they know the full gravity of the problem?” asks the organization’s Bill Mitchell.

Thomas E. Daxon, the interim county treasurer, said he remains adamantly opposed to a broad tax hike because of the adverse effect it would have on the local economy.

“We are shortening and refining the list (of revenue-raising options) and it is not going to include a broad-based tax increase,” Daxon said flatly. “I think that is something that just should not occur.”

More likely, he said, are what he called “true user fees” that would require consumers of certain county services to bear their full costs.

Last week, two investment banks hired by the county to help formulate a recovery plan recommended a variety of tax and fee increases as one element of their proposed solutions.

At the county’s Hall of Administration, the issue of new taxes is so sensitive politically that few are willing to discuss the idea on the record. But behind the scenes, county officials have prepared discussion documents that include a laundry list of new tax and fee ideas to help bridge the budget gap.

The suggestions, most of which would require state legislation or voter approval before they could be enacted, range from a sales tax increase to new alcohol and tobacco taxes to a local lottery, county sources said.

But they note that the vast majority of such ideas will likely be dead on arrival. Elected Orange County officials, these sources contend, cannot publicly advocate substantial new tax or fee hikes at the moment unless they are prepared to commit political suicide.

According to a new Times Orange County poll, however, county residents may not be quite as skittish about taxes as their leaders fear.

In the wake of the county’s financial debacle, the poll results showed, a majority of residents would support a tax hike if one were necessary to maintain current funding for public schools. Nearly as many favored raising taxes if such increases were needed to keep current funding for police and fire protection.

“Everybody has said it would never fly here,” said Jean Forbath, a board member of Share Our Selves, a Costa Mesa charitable organization. “But if the case was represented clearly to the people, if they really understood what they might lose, and what the effects would be if taxes were not raised, who knows? I think the people of Orange County have much better hearts than they’re usually given credit for.”

Historically, Orange County’s taxpayers have reacted with hostility to government attempts to remove more dollars from their pockets and put them in county coffers. New revenue-raising efforts have rarely met with their approval. Among the few exceptions are 1993’s public safety-related Proposition 172 and 1990’s Measure M, the transportation sales tax. The latter had previously gone down in defeat.

In addition, the public perception that county leaders are responsible for the investment crisis has left a bitter taste with many residents, who rebel at the notion that they may have to help pull the hapless county out of its budgetary hole.

“It’s time for them to find money somewhere else,” said Carole Walters, president of the Orange Taxpayers Assn. “The people are tired of having to pay for our officials in office not doing their jobs.”

W. Snow Hume, a Fullerton accountant and local government watchdog, said he could think of no circumstance that would persuade him that a tax increase was justified.

“We are saying absolutely no new taxes, no new fees, period,” said Hume, a spokesman for the Committees of Correspondence, a coalition of community organizations. “The key thing is that we don’t want to pay new taxes or fees on account of the one-time loss or the permanent decrease in the budget.”

A.G. Edwards & Sons and Goldman Sachs, the two investment banks hired by the county to restructure its debt and issue more bonds, last week recommended tax and fee hikes as one aspect of their proposed recovery plans. Both firms also offered a number of other options for raising new revenue.

To recover from the budgetary shortfall, A.G. Edwards suggested that the county could increase sales and consumption taxes, raise taxes and fees from tourist-related services, and levy new fees on services. The firm provided no specific figures in its preliminary recommendations.

Goldman Sachs recommended selling county assets, privatizing services and raising “non-traditional” taxes and fees, some of which would need approval by voters or the Legislature. Goldman Sachs has declined further comment on its Orange County proposal.

County officials have begun to assemble lists of the possibilities.

“This doesn’t mean that any of this will ever see the light of day,” one said, speaking on condition of anonymity. “But we felt there was an obligation to put together the laundry list of revenue-raisers, in case these things were ever needed.”

Raising the sales tax half a percent, from 7.75%, could net the county an estimated $136.5 million annually, but would require four votes of the Board of Supervisors and approval by a majority of the voters. Implementing it before March, 1996, also would require a special election.

Politically, a new sales tax might be the least difficult measure for the supervisors to approve, because placing it on a ballot puts the burden of responsibility squarely on the shoulders of the taxpayers, one county official said.

Legislative approval is required to raise consumption taxes on alcohol and tobacco, or taxes on hotel occupancy and entertainment. The same is true for any effort to establish a local lottery.

Establishing a “tipplers’ tax” at 20 cents per drink sold would raise $100 million annually on the 2 billion drinks now sold each year in county bars and restaurants, according to county projections. Increasing an existing alcohol consumption tax--which includes beer, wine and spirits sold at grocery stores--would raise about $23.5 million annually. And hiking the current tobacco tax from 35 cents to 50 cents per pack would net an additional $30 million a year.

Other possibilities include increasing a tax on filing required documents with the county when property is sold and adding a $50 surcharge to civil court filing fees.

The Board of Supervisors has the authority to raise other taxes, but those would yield comparatively little. A $10 tax on business licenses in the county’s unincorporated areas would raise about $390,000 this year. A 5% utility users tax, which also could be implemented only in unincorporated areas, would yield about $5.5 million a year.

Daxon, the interim county treasurer, said the county administrative office began researching revenue-raising options soon after the county declared bankruptcy Dec. 6 and has continued in the tumultuous weeks since.

The most likely alternatives, according to Daxon, are higher fees for those who use certain specialized county services.

For example, the county treasurer’s office is proposing that its delinquent tax department become self-supporting, by more aggressively collecting overdue taxes and requiring those who file late to pay larger fees. “By March 1, I hope we will have that in place,” Daxon said.

“If it’s a choice between raising taxes, letting prisoners out of the jail, cutting off meals to the homeless . . . or asking people who are late with their taxes to pay an extra fee, it’s just not a hard decision for me,” he said.

Daxon said county officials have yet to come up with a target figure for increased revenue because it is still unclear how much money will be saved through spending cuts, as officials try to bridge the immediate $172-million shortfall. Even murkier is the issue of how much the 187 agencies that invested in the county pool may ultimately have to raise to make up their shares of the $1.69 billion lost when the pool collapsed.

Also uncertain is whether the cities and school districts that invested in the troubled investment pool may be forced to raise taxes to recover their losses.

Irvine City Manager Paul O. Brady Jr., whose city sank more than $205 million in the county pool, said Irvine leaders remain opposed to a city tax hike to cover the loss. “Nobody here is crunching any numbers on a tax increase,” he said.

A countywide tax increase, however, should remain on the table, said Brady, who represents cities on a creditors’ committee in the county’s bankruptcy proceeding. “The cities are not suggesting this as a solution, but it is an option that before anyone closes their mind to it totally must at least be addressed,” he said.

Supervisor William G. Steiner said he remains opposed to a countywide tax increase, because the “tax burden is already too heavy” on county residents. But Steiner said he is open to considering increased fees for people who use the county’s specialized services.

“It seems appropriate to me that the people who use our county services--in the recorder’s office, for example, for land-use applications or property transactions--should pay a higher share of the cost of those services,” Steiner said.

But some continue to urge county officials to include tax increases as they plan their way out of the fiscal crisis.

“This is a very serious, very complex situation and a tremendous amount is at stake relative to the overall economy of the county and the quality of life we all have here,” said Nicholson of the Orange County Business Council.

Nicholson said the business community’s unlikely open-mindedness on the tax issue should underline its concern over the financial crisis.

Constance Haddad, president of the Orange County League of Women Voters, has urged supervisors to consider all options, including a tax increase.

“At this point, I would not say that anybody, even the league, is saying, ‘You must raise taxes,’ ” Haddad said. “But to rule it out of the discussion is narrow, unproductive and foolish.

“Have you heard them come up with a solution yet of how they can get the county back functioning and on its feet in any reasonable lengthy of time? No. So we need to be open-minded here.”

* GAME PLAN: Sanford Sigoloff, a front-runner to become the county’s interim chief executive, says he is already working to assemble a team of specialists. A15

O.C. Bankruptcy

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