Sweeping Recovery Plan Raises Trash-Dumping Fees, Imports : Crisis: Proposal--which officials admit may have legal problems--enrages city leaders, who say hikes will cripple services. O.C. also asks laws be altered to allow county to borrow against future revenue.

Fees for dumping trash in Orange County would skyrocket by more than 50% under a detailed bankruptcy plan unveiled Thursday to state lawmakers.

The recovery plan--the most comprehensive presented to date by county officials and admittedly filled with legal pitfalls--also calls for earning extra revenue by allowing neighboring counties to export 6,000 tons of trash a day to Orange County, increasing by about 60% the amount of refuse already being buried in its three landfills.

The higher trash fees were the latest element of a recovery game plan to touch off instant furor, with Seal Beach Mayor George Brown declaring the measure “just like passing a tax.” One Newport Beach official warned that the extra dumping fees would cost that city about $800,000 annually and probably result in a reduction of other city services.

The higher fees are likely to be passed on to residents in most parts of the county.

Earlier in the week, the Board of Supervisors took the first step toward putting a half-cent sales tax increase on the June ballot, a move that enraged anti-tax forces and provoked fresh threats of a recall election. Four out of five supervisors must give final approval next Tuesday to putting a sales tax up for a vote.

The latest plan, which includes the half-cent sales tax hike, also provides for issuing $1.25 billion in new debt. And while it seeks no handout from the state, the plan does ask the Legislature to guarantee county loans and revise state laws, thereby allowing the county more freedom to borrow against future revenue.

The comprehensive plan would allow the county to pay off all of its $2-billion debt, and that earned immediate praise from Wall Street. However, cities denounced it, and state lawmakers called it unrealistic.

Orange County Chief Executive Officer William J. Popejoy said that if the bankrupt county can follow the recovery blueprint, “we believe can get this terrible situation behind us.”

State officials expressed concern that the plan is fraught with legal and political uncertainties.

“It’s a fragile plan,” said state Sen. William A. Craven (R-Oceanside), co-chairman of the Senate panel.

Even Popejoy said the proposal may be difficult to enact.

“In some legal areas we’re stretching the envelope,” Popejoy conceded after presenting the plan to a special Senate committee probing Orange County’s Dec. 6 bankruptcy, the largest by any governmental entity in U.S. history.

“We never said this was going to be easy,” added Bruce Bennett, the county’s bankruptcy attorney. “We understand that there is risk in many of the options. But we think the county has a fair shot of getting through all the problems.”

Among the obstacles are environmental hurdles that could hinder the waste disposal plans, political difficulties with getting approval of the half-cent sales tax increase, and the nagging reluctance of state lawmakers to embrace loan guarantees.

“It’s still asking the state to bail out Orange County,” said state Sen. Tom Hayden (D-Santa Monica).

Everyone on the state Senate panel wasn’t so pessimistic.

“It’s certainly at least better thought out than anything we’ve seen so far,” said state Sen. Lucy Killea (I-San Diego), the committee’s co-chair. “Yeah, I think it’s optimistic. But there’s a greater sense of realism in the sense that they’ve lined everything up. It was very much piecemeal before.”

The plan was the county’s most detailed account yet of how it intends to move out of bankruptcy, but it offered few new proposals.

“The plan does do what they said it would do, it makes everyone whole. But the odds of getting it done are very difficult,” said Karen Krop, assistant vice president with Moody’s Investors Service, a bond rating agency.

*

County officials identified four new ways of raising revenue to help finance its recovery efforts. Most the money would come from the half-cent sales tax increase and a plan to increase dumping or “tippage” fees at county landfills, as well as earning extra revenue by allowing neighboring counties to bring some of their trash to Orange County.

The county’s precious surplus of landfill capacity would be very attractive to other Southern California counties--most notably San Diego County to the south--that are running short of landfill capacity. But the additional trash would reduce the life span of Orange County’s facilities from 55 years to 47 under the new proposal.

Under the plan, dumping fees at the landfills would increase from $22.75 per ton to $35, a prospect that had some city officials worried.

“It would hurt Newport Beach badly,” said Mayor John W. Hedges, who estimated that the increased dumping fees would cost the city $800,000 annually.

Unlike most cities, which either allow the trash haulers to charge customers directly or keep garbage fees in a separate enterprise fund, Hedges said, “all of our refuse pickup is paid for directly out of the general fund” which makes the county proposal “a terrible idea” for Newport Beach. “I don’t know how we could pay for this. We’d have to cut back services somewhere else.”

Seal Beach Councilwoman Gwen Forsythe also criticized the county’s proposal, complaining that raising landfill fees would hurt cities that have embarked on recycling programs. One of key advantages of recycling is that it reduces landfill costs. “Now, they go ahead and raise the fees,” she said. “That’s not the right way to handle this.”

Customers in cities where trash is collected by large “franchise” haulers, such as Huntington Beach, would likely see their bills go up by $2.40 to $3 a month.

“It’s something we’ve anticipated was going to happen,” said Stan Tkaczyk, vice president of Rainbow Disposal and a member of the county’s waste advisory commission. “As long as there’s a justification for it, we don’t have any choice (but to pass on the cost increases) to keep the system operating.”

A rule of thumb haulers have used in the past when explaining landfill fee increases to city councils, Tkaczyk said, is that a $5 increase in the landfill fee translates from 80 cents to $1 in higher costs to the consumer, depending on the distance trucks must travel and the amount of garbage generated by a community.

Dolores Otting of 5-Star Rubbish in Santa Ana said a fee increase of the size contemplated by the county could cripple some small, independent haulers.

“The small business is going to have to pay more, and we may not be able to pass it on,” she said, adding that larger haulers might just absorb some of the increase, and go after customers now serviced by small independent companies.

Under the county’s plan, bond proceeds and sales tax revenue would be used to come up with the $430 million the county needs--in addition to the $600-odd million it has remaining in the collapsed investment pool--to redeem $1.1 billion in outstanding county bonds that mature this summer. The plan would also return to Orange County the $345 million it lost in its own investment pool.

Still, because the county is racing against the clock and the solutions are complex and time-consuming, it seems unlikely Orange County will come up with the cash it needs to pay off debt coming due this summer. As a result, some type of rollover plan will have to be implemented, county officials said.

*

Throughout a daylong hearing, county officials told state lawmakers they were willing to make the tough decisions that needed to be made to dig itself out of the crisis. All the county needs, they said, was a little legislative support.

County officials also tried to assure the senators that they would find the financial means to pay off the $236 million in recovery notes and that a state guarantee was needed only for six months.

Bennett said the county is currently seeking ways to avoid having the state guarantee the county notes, including requests for letters of credit, private financing or insurance.

The county is counting on issuing the notes to repay the nearly 200 cities, schools and other agencies that, together with the county, lost $1.7 billion when the county’s investment pool collapsed in December.

“If they are salable, but the state has to stand behind them, then somebody is nervous,” Hayden said. “So why should the state not join the nervous people? It doesn’t make sense.”

The county is also hoping to get changes in state laws that would allow it to intercept motor vehicle fees paid by county residents. That revenue could be used to pay off bonds that would yield about $660 million.

In addition, the county hopes to alter state law so it could sell bonds that would be paid back by property tax fines and interest it expects to receive in the next 20 years. The county, which currently administers the program, wants state approval to form a “joint powers authority” that would take over those responsibilities. By isolating the program from further bankruptcy fallout, the county hopes the bonds would be marketable on Wall Street.

The county hopes to get state laws altered to allow a similar joint powers authority that would handle waste management operations.

“Wall Street will be enthusiastic if this deal is structured right,” said Jon Schotz, an investment banker with Saybrook Capital, a financial adviser to the Bankruptcy Court committee representing pool investors. “We, the committee, are very supportive of this plan. It’s a good idea.”

The most dicey part of the proposal is the sales tax hike, which would be left up to the voters. County officials estimate the tax increase of a half cent would raise more than $1.3 billion over its 10-year life span. If voters failed to pass the tax increase, county officials have warned that the whole plan could topple and the county would default on its loans.

* TAX HIKE SUPPORT: 3 on business panel call tax hike necessary to save county. A26

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The $2-Billion Plan

Highlights from the recovery proposal:

* $130 million annually from half-cent sales tax

* $360 million in net proceeds from bonds backed by higher trash-dumping fees and trash accepted from other counties

* $60 million in bonds backed by collected delinquent property taxes, other fees

* $660 million in net proceeds from bonds to be paid off with motor vehicle fees

* “Joint powers authority” takes over trash and property tax collection

* $236 million in state-backed “recovery notes” given to schools and cities

* County gets bondholders to postpone $1 billion in debt due this summer

Sources: Orange County, Salomon Bros.

Trashed Daily

The three landfills in Orange County, all owned and operated by the county, now accept a total of about 10,000 tons of trash daily. Under the new proposal, they would accept another 6,000 tons a day from neighboring counties such as San Diego.

Olinda-Alpha Landfill

Frank R. Bowerman Landfill

Prima Deshecha Landfill