Orange County Official Asks for Layoff of 1,040

Taking a “brutal first step” toward financial recovery, Orange County Chief Executive Officer William J. Popejoy announced plans Tuesday to lay off more than 1,000 county workers--a move that would balance the county’s budget for the next fiscal year but eliminate some key public safety programs and social services.

“It hurts me to present this plan to you because I know it will cause serious pain to so many innocent people,” Popejoy told the Board of Supervisors at a packed meeting Tuesday. “The county employees who will now lose their jobs did not cause this bankruptcy.”

In addition to outlining the largest layoff in county history--1,040 people would lose their jobs--Popejoy’s budget proposal calls for eliminating another 563 vacant positions for a total savings of $188 million. The cuts, which must be approved by the supervisors, would reduce the county’s original operating budget of $463 million by 40%, leaving it with a a 1995-96 budget of $275 million.

Popejoy’s drastic cuts would force the closure of at least six public libraries, the Bowerman Landfill in Irvine, the Joplin Youth Center for juvenile offenders in Trabuco Canyon and two work furlough homes in Anaheim and Buena Park. The reductions would severely reduce mental health and children’s services; the brunt of the layoffs would occur in the Social Services Agency, which would be forced to get rid of 731 employees.

A grim-faced Popejoy asked the Board of Supervisors to hold budget hearings and approve the plan within the next two weeks so layoffs can be phased in well before the next fiscal year, which starts July 1.

“The crisis will only get worse and hurt even more people unless we act decisively now,” he said.

In other developments Tuesday:

* The supervisors reluctantly approved the payment of $4.1 million in bankruptcy-related expenses incurred in December for lawyers, accountants and investment bankers. About $2.8 million went to Salomon Bros., which liquidated former Treasurer-Tax Collector Robert L. Citron’s risky investment portfolio.

The payments were criticized by both an anti-tax group and an employees union as excessive, especially in light of proposed layoffs.

* In Sacramento, the Senate’s top leader said Tuesday that a short-term loan or some other form of financial help from the state is “somewhat inevitable” if Orange County is to recover from its deepening investment debacle.

Senate President Pro Tem Bill Lockyer (D-Hayward) also appeared to dismiss the notion that Orange County must increase its taxes as part of any agreement to obtain help from the state.

Lockyer met for about an hour with a half-dozen Orange County officials--including Popejoy, and supervisors Marian Bergeson and Gaddi Vasquez--who hope the state will guarantee loans so the county can avoid defaulting on $1 billion in notes due this summer. The group met later in the day with Gov. Pete Wilson.

* Supervisors agreed to consider the appointment of accountant John M. W. Moorlach as county treasurer next Tuesday. Moorlach, who lost to Citron in last June’s election, was the first to warn of the county’s risky investment strategy.

* The board voted to deny the Merrill Lynch brokerage firm any future business selling the county investments or underwriting its municipal bonds. The county has sued Merrill Lynch for more than $2 billion over the events that led to the Dec. 6 bankruptcy filing and a $1.7-billion loss in the county’s investment pool.

News of the massive layoff plan sent tremors through the county’s work force. Members have been told for months that their jobs were in jeopardy.

“It’s the darkest day in the history of the county for employees,” said John Sawyer, head of the Orange County Employees Association. “I think the elimination of county employees is unfair.”

Bill Fogarty, an officer with the Orange County Central Labor Council, said the county work force was being used as “a scapegoat” for the blunders of others.

Some employees, however, were relieved that Popejoy did not call for laying off 2,000 employees, as he indicated he might be forced to do in a Feb. 24 memo to county supervisors.

Sawyer and other employee representatives urged the supervisors to save jobs by supporting a temporary increase in taxes.

“Everything should be on the table,” he said.

None of the five supervisors, however, supports a tax increase.

The slashing of 1,603 positions is in addition to the 200 layoffs and 371 vacant jobs eliminated by the county in December. Since the bankruptcy, the county’s work force of 15,000 employees has been reduced by more than 13%.

Because the county still has about 1,000 funded and unfunded vacant positions in its budget, the impact of the layoffs could be minimized somewhat, county officials said: Some laid-off employees might be able to fill vacant positions at a later date.

Although county officials have said that public safety and health remain priorities, no department escaped Popejoy’s heavy budget ax Tuesday. For example, the district attorney’s office would reduce its budget from $6.8 million to $4.5 million, a nearly 34% cut.

Popejoy blamed the layoffs on the brokerages, which he said exploited Citron by supplying him with risky investments.

“These brutal cutbacks should be laid at the feet of Merrill Lynch and others who manipulated Mr. Citron,” Popejoy said. “They knew full well that the financial schemes that ruined the investment pool were extremely risky and could cost the county dearly. Still, Merrill Lynch continued to sell the county’s bonds. Their motivation must have been pure greed to collect huge commissions and fees.”

Merrill Lynch promptly responded to Popejoy’s comments. The Wall Street giant said it shared the county’s concern “about the human cost” of the budget cuts, but added: “Any suggestion that Merrill Lynch or others manipulated Mr. Citron is wrong based on all the facts. . . . The county’s current budget problems have been caused by the actions and inactions of county officials past and present. Attempts to scapegoat Merrill Lynch and other financial services firms are both unproductive and unfair.”

Popejoy said his top priority is making sure the county does not default on its loans--welcome news to Wall Street, bondholders and business leaders.

Members of the Orange County Business Council, an advisory group helping the county reorganize in the wake of the bankruptcy, said the importance of the budget-cutting plan is the size of the savings it would provide.

“I wouldn’t be confident judging whether the exact numbers are right,” said Wayne Wedin, a member of the business council’s executive committee. “The philosophy is right. But whether 1,000 is better than 2,000 or worse, those are numbers that (Popejoy) has to determine.”

David Brodsly, manager of the San Francisco office of Moody’s Investors Service, said it was too soon to say how the cuts would affect his company’s ratings of Orange County’s debt.

“They’re in an extraordinary situation, so it’s not surprising that they’d be making extraordinary steps,” Brodsly said. “In terms of the county’s long-term recovery, it’s hard to take a single piece of it and say whether it’s good or bad.”

Even as Popejoy announced his plan for cutting next year’s budget, county officials said they were still struggling to balance the current year’s budget, which at one time was short $172 million.

Supervisors already have cut $40 million from their 1994-95 spending plans. And late last month, the county won a reprieve from U.S. Bankruptcy Court Judge John E. Ryan, who ruled that the county did not have to set aside more than $132 million to repay bondholders this summer. That money was to be reserved from property tax revenue to pay off $169 million in tax revenue anticipation notes; instead, the county can use the fund to plug its operating deficit.

Tom Uram, director the Health Care Agency and one of three county officials who identified the first round of budget cuts, said the county essentially will carry the current year’s deficit into next year.

“It goes into that big crater of losses,” he said. “We’ll have to deal with it later.”

Popejoy noted that the county has even greater fiscal challenges ahead.

“The crisis we face cannot be solved by budget cuts alone,” Popejoy said. “Our problems are so severe that even if we cut the entire county-funded portion of our budget to zero, we would still not have enough money to meet our debt payments this summer and repay the investors in the pool.”

Times staff writers Greg Hernandez, Lee Romney and Ross Kerber and correspondent Shelby Grad contributed to this story.