Popejoy Calls for 1,040 Layoffs : O.C. Social Services, Public Safety Hit Hardest : Recovery: ‘Brutal first step’ also would eliminate 563 vacant positions. It would balance budget for next fiscal year but close libraries, landfill, health and mental centers.

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 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 government 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 1994-95 operating budget of $463 million by 40.6%, leaving it with a 1995-96 budget of $275 million.

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

“This is not the thanks (county employees) deserve,” Popejoy said. “But the crisis will only get worse and hurt even more people unless we act decisively now.”

In other developments Tuesday:

* The supervisors reluctantly agreed to pay $4.1 million to lawyers, accountants and Wall Street brokers who advised the county on its bankruptcy during the month of December alone.

Salomon Bros., which helped liquidate former Treasurer-Tax Collector Robert L. Citron’s risky investment portfolio, received payments totaling more than $2.8 million.

The payments were criticized as excessive by both an anti-tax group and an employees union, especially in light of Tuesday’s 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 own taxes as part of any agreement to obtain help from the state.

Lockyer met for about an hour with half a dozen Orange County officials--including Popejoy and Supervisors Marian Bergeson and Gaddi H. 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 indicated they may appoint 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 publicly of the county’s risky investment strategy.

Bergeson, however, suggested that the board establish a “confirmation hearing” process to approve any appointment.

* The board voted to remove Merrill Lynch from consideration for any future Orange County bond business. The county filed a $2-billion lawsuit against Merrill Lynch last December, alleging the firm had no authority to sell Citron the type of risky investments that led to the county’s financial collapse.

News of the massive layoffs sent a tremor of terror among the county’s 15,000 employees, who for months have been told their jobs are in jeopardy.

“It’s the darkest day in the history of the county for employees,” said John H. Sawyer, the head of the Orange County Employees Assn. “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 lay off 2,000 employees, as he indicated he might be forced to do in a Feb. 24 memo to county supervisors.

“County employees don’t deserve this,” said Linda Pierpoint, staff manager of the employees association. “We’re glad the numbers weren’t any higher and that they found the vacant positions.”

Regardless of the numbers, the stress level remains high for county workers, who are still waiting to learn which of them will lose their jobs.

“It just put more fear and anxiety into everybody because they still don’t know whether they will go or stay,” said one Social Services Agency worker who asked that her name not be used. “Nobody really knows: Is it going to be me, or is it going to be the person who started a year ago, or the person who started two years ago?’

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 jobs is in addition to the 200 layoffs and some 300 vacant jobs eliminated in December by other county officials. Since the bankruptcy, the county’s work force of 15,000 employees has been reduced by more than 10%.

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, they said.

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 will eliminate 10 vacant positions as it reduces its general fund budget from $6.8 million to $4.5 million, nearly 34%.

“The budget cuts will make it very difficult for us to handle our caseloads, especially with ‘three strikes’ cases,” Dist. Atty. Michael R. Capizzi said. “We’ve already been conservative when it comes to adding staff and now we’ll be dealing with fewer people.”

In addition to suffering massive layoffs, the Social Services Agency also would cut another 255 vacant positions under Popejoy’s plan. Other departments that would be hit hard by layoffs are: the auditor-controller with 53, the Health Care Agency with 36, waste management with 42 and General Services Agency with 38.

Supervisor William G. Steiner said that Popejoy’s proposed layoff plan was painful but necessary.

“I think this is what I ultimately expected to occur. But it doesn’t make it any easier,” said Steiner, former director of the Orangewood Home for abused children. “It’s hard to dismantle programs, especially in children’s services, where I’ve spent my life trying to preserve programs.”

Steiner said that this latest round of layoffs might represent a valley in the financial crisis. He added that the situation reminded him of the cuts required after the passage of Proposition 13.

“We found there that there was a better day ahead, and I think there is a better day ahead today for Orange County children,” he said.

Popejoy blamed the layoffs on Merrill Lynch Co. and other brokers who, 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.”

The county declared bankruptcy Dec. 6 after suffering losses of $1.69 billion in its investment pool. The pool managed the investments of the county and some 200 investors, including cities, school districts, special districts and other agencies.

Merrill Lynch officials in New York issued a prompt response to Popejoy’s comments, saying they shared the county’s concern “about the human cost” of the budget cuts.

“However, 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,” the statement concluded.

Popejoy said his top priority is making sure the county does not default on its loans, welcome news to Wall Street officials, 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 D. 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.”

In response to suggestions by some county officials that the county could save jobs by privatizing services, Wedin said there is too little time.

“We don’t have time to sell or lease assets before some of those notes come due,” Wedin said. “The crucial thing is that we not default on those debt service payments.”

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 pencil out the current fiscal year’s budget, which at one time was short $172 million.

Late last month, the county won a reprieve from U.S. Bankruptcy Judge John E. Ryan, who ruled that county officials did not have to set aside more than $132 million to repay bondholders this summer. The county also cut $40 million from the 1994-95 budget earlier this year, to make up the shortfall.

That money was to be set aside from property tax revenue to pay off $169 million in tax revenue anticipation notes, but the county can now use the millions to help plug the remainder of the 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 is essentially going to carry the deficit into the next year.

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

Aside from the budget problem, Popejoy said, the county faces the even greater concern of paying back investors in the county pool and covering a shortfall of $382 million to meet the more than $1 billion in payments due bondholders this summer.

“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 report.

O.C. in Bankruptcy

* DARK MOODS--Confirmation of layoffs compounds sense of doom among county employees. A12

* ADVICE PAYMENT--Supervisors agree to $4 million in fees for advice given in December. A12

* MORE PHOTOS, STORIES: A12-14

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Big Hits

Orange County Chief Executive Officer William J. Popejoy announced he plans to lay off 1,040 county workers to balance the budget for next fiscal year. The largest layoff in county history would affect public safety programs, social services and other departments. Agencies that would sustain biggest job cuts if the proposal is approved by county supervisors: Agency: Layoffs Social services: 725 Probation: 62 Auditor-controller: 53 Waste management: 42 General services: 38 Health care: 36 *

“The county employees who will now lose their jobs did not cause this bankruptcy. Many have devoted an entire career to serving the people of Orange County, and this is not the thanks they deserve. But the crisis will only get worse and hurt even more people unless we act decisively now.”--William Popejoy, County CEO

Source: Orange County Administrative Office

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Job Losses Delineated

The Social Services Agency will bear the brunt of 1,040 layoffs and 566 vacancy deletions, losing almost 30% of its positions. Here are all the departments that would be affected by layoffs and the nearly 28% elimination of vacant positions from the budget:

Pre-bankruptcy Existing Agency positions positions Public Protection District attorney 776 776 Marshal 451 0 Probation 1,140 1,115 Sheriff-coroner 2,512 2,479 Health Services 2,406 2,406 Community & Social Services Community Services Agency 177 172 Social Services Agency 3,679 3,553 Environmental Resources Environmental Mgmt. Agency 1,341 1,333 Waste Mgmt. Enterprise 279 279 General Government & Services Auditor-controller 465 446 Board of Supervisors (all) 44 38 County administrative office 78 60 Protocol office 1 1 County counsel 81 81 General Services Agency 574 474 Data systems 34 23 Personnel 130 113 Treasurer-tax collector 91 91 Public library 366 366 Insurance, Reserves & Misc. Telephone ISF 21 16 Transportation ISF 87 86

Estimated Vacancy New total Agency layoffs deletions* positions Public Protection District attorney 0 10 766 Marshal 0 11 440 Probation 62 4 1,049 Sheriff-coroner 6 36 2,437 Health Services 36 103 2,267 Community & Social Services Community Services Agency 6 4 162 Social Services Agency 725 255 2,573 Environmental Resources Environmental Mgmt. Agency 12 30 1,291 Waste Mgmt. Enterprise 42 13 224 General Government & Services Auditor-controller 53 22 371 Board of Supervisors (all) 4 0 34 County administrative office 15 5 40 Protocol office 1 0 0 County counsel 12 2 67 General Services Agency 38 8 428 Data systems 3 1 19 Personnel 14 14 85 Treasurer-tax collector 10 0 81 Public library 1 44 321 Insurance, Reserves & Misc. Telephone ISF 0 2 14 Transportation ISF 0 2 84

* Vacant positions that will not be filled

Source: County administrative office

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Crunching Budget Numbers

Orange County Chief Executive Officer William J. Popejoy on Tuesday unveiled a proposed 1995-96 county general fund budget of $275 million. The budget represents a 40% reduction of the pre-bankruptcy budget of $463 million. Nearly $188 million in cuts were proposed.

Approved Popejoy’s Percent Department FY 1994-95 budget proposal decline* Public Protection $160,403,441 $120,118,769 25.1 Health Services 40,213,538 25,715,000 36.1 Community & Social Services 74,063,591 54,099,106 27.0 Environmental Resources 3,465,003 680,096 80.4 General Govt. & Services 81,154,360 61,408,910 31.3 Capital Improvements 10,935,597 6,443,200 41.1 Debt Service 4,319,000 4,138,507 4.2 Insurance, Reserves & Misc. 87,969,340 2,396,412 97.3 General Fund Total $462,523,870 $275,000,000 40.5

Note: Figures are net county cost

* Between agency submission and 1994-95 budget

Source: County administrative office