Getting Past Denial: Road to Recovery : Sacramento, Orange County start to wake up

After more than two months of denial, both Sacramento and Orange County have begun to face the reality that there is no quick or easy way out of the county’s famous fiscal crisis. For Sacramento this realization means getting more involved; for Orange County, it means thinking about new taxes, however carefully they might be raised and however temporary they might be.

THE STATE: At last, Gov. Pete Wilson has ordered a special session of the state Legislature next week to consider emergency measures intended to help the county save money or get funds more quickly than usual. This is something that should have been done perhaps when the crisis first surfaced.

Some state money for bondholders normally would go to Orange County anyway, so these funds cannot in any way be considered a dreaded “bailout.” The county needs to pay more than $1 billion to bondholders starting in June, and showing that it has a revenue stream can help restore confidence not just in the county’s bonds but in debts undertaken by other California agencies and localities. That is one reason it is in Sacramento’s interest to help.

What most needs consideration, however, is increasing county revenue. In other words--and we hate to say it--tax increases. One supervisor estimates that the legislation to be taken up in Sacramento could save the county more than $65 million. However, the county’s estimated loss in bad investments is more than 20 times that amount: $1.6 billion. There is no way to get from the lesser figure to the higher one without new revenue.

Several prominent Orange County businessmen have helped put together a plan to have the county pay 77 cents on the dollar immediately to the cities and school districts that invested in the county investment fund that went bad. Other possible repayments would come later.

If they accept that settlement, investors will need to know that the county will make good on IOUs by raising revenue. Bondholders also need to be assured locally that obligations will be met. But county supervisors, while signing off on the settlement plan, still managed to oppose temporary tax increases. That does not make sense.

Some of the burden of the recovery will fall to the localities whose agencies participated in the fund. They may need to be every bit as bold as the county and consider such controversial proposals as temporary parcel taxes. The schools absolutely must be spared any harm.

PAIN IN IRVINE: Irvine found out at a community meeting Tuesday night just how painful it will be to make ends meet through program reductions alone. The school board identified millions of dollars in potential cuts--everything from classes to schools to staff. But by merely cutting, community leaders risk losing sight of the big picture.

In the final analysis, by taking a statesmanlike stance county leaders will guarantee the continued viability of a county that is not just a premier place to live but an economic engine for all of California.