The Bottom Line on County Bankruptcy : How All the Numbers Will Translate Into Reality

Three months and oceans of words after Orange County declared bankruptcy, many people in county government appear unable to come to grips with reality. One problem may be that the numbers bandied about are so staggering. Take a home mortgage of $100,000. Compare it to a bankruptcy loss of around $2 billion, a figure 20,000 times higher. It’s like comparing years and light years; the brain can do the math, but the relevance to reality is lost.

Today and on successive Sundays we will lay out the problem. We will look at the impact on the quality of life in Orange County if officials led by the Board of Supervisors do not shape a workable recovery plan. We will look at the political will to make tough choices. Today we will look at the numbers.

Orange County government started its fiscal year last July 1 with a budget of approximately $3.5 billion. Close to $2 billion of that goes to special funds and districts that the supervisors cannot touch. The other $1.64 billion constitutes the general fund. Here, too, much of the money, $1.1 billion, though theoretically under control of the supervisors, is untouchable.

That leaves, by the reckoning of William J. Popejoy, the county’s new chief executive officer, $463 million for supervisors to deal with in an attempt to make up for money the county will not receive because the investment pool went sour. Yet here too there are political and economic problems.

To pick two examples from the Sheriff’s Department: It would be politically risky to lay off 50 sheriff’s deputies even if it would save the county general fund $3 million a year. It would be economically foolish to cut an anti-drug education program to save the county $172,000, when federal money pays about $12 million for the program, or 99% of the cost. If the program were cut, the federal money would be taken away; it could not be used for something else.

The investment pool losses left the county short $172 million in this year’s budget. Cuts will save an estimated $40 million, and a bankruptcy judge ruled the county could delay setting aside approximately $132 million to pay the investors who bought its bonds. But the county essentially will have to roll over a deficit to next year and repay the $132 million eventually.

For the fiscal year starting this July, Popejoy was faced with cutting $188 million. This past week, he proposed massive personnel cuts--more than 1,000 layoffs--to save the $188 million. That is like a family that budgeted $50,000 being forced to make do on $30,000. Yet Orange County still will be $382 million short of the $1 billion it needs to pay back those who bought its bonds, and the payments are due this summer. Something--many things--will have to go.

The county is now looking at an estimated shortfall of more than $1 billion to cover payments to investors in the pool, bondholders and operations. Realistically, that figure is so massive it cannot be bridged just by layoffs, asset sales and privatization. State legislators may guarantee loans, but if that does not cover enough, there will likely be only one other choice to make up the difference: new taxes.

Next Sunday: the social cost