Orange County supervisors and their hired money men have spent the past months piecing together a shelter to weather a billion-dollar deluge of debts coming due this summer. But, by most accounts, what they've built is a rickety house of cards, its very foundation resting precariously on a series of temperamental "ifs."
If the supervisors brave the political heat and put a half-cent sales tax increase on the June 27 ballot.
If the voters approve it.
If the county can gain access to motor vehicle fees paid by its residents.
If the supervisors can overcome objections to the convoy of trucks that it would take to import 6,000 tons of garbage a day--and strong-arm cities into going along with higher garbage collection fees.
And if they can persuade Wall Street to float new bonds based on all this anticipated revenue.
One thing is certain: Between June 30--three days after the vote on a tax increase--and Aug. 10, the county must repay $1.275 billion to its bondholders. Or one of America's richest counties will default on its debt, in which case some market analysts predict that Wall Street will blacklist Orange County for years and that the nation's confidence in municipal bond financing will be rocked anew.
The county's proposed solutions "come so late in the game that if the voters should turn (the sales tax) down, you have no fallback, no room, no ability to pursue anything else," said Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, the chief watchdog of the municipal bond market. "They'll probably be counting the damn ballots when they're supposed to be paying off $600 million in bonds."
So the task for county Chief Executive Officer William J. Popejoy and the Board of Supervisors is either to persuade the state Legislature to come up with a "bridge loan" of some kind or get bondholders to roll over the county's bonds for another 12 months.
Both options, market analysts say, are simply another level of cards in the county's wobbly house of solutions.
County supervisors have alienated everyone from state legislators to investors to rating agencies with their delay in clearing the way for a tax increase.
"One of the proposals that made sense to me is to tie the passage of a sales tax to a recall" of the supervisors, said Zane B. Mann, publisher of the California Municipal Bond Advisor newsletter. "That'd be a neat package, as far as I'm concerned."
As late as Friday, four of the five supervisors resisted stating a position on boosting taxes--despite clear signs that state legislators expect them to carry the banner.
"I would not vote for legislation giving them a loan guarantee if the supervisors do not unanimously campaign for the sales tax," said Sen. Quentin L. Kopp (I-San Francisco). "They had better show good faith."
As for postponing repayment of the bonds, market analysts, rating agencies and investors are split on the ramifications of that action. Some bondholders already have declared that they will not take a deal that is "crammed down" their throats without the promise of a higher interest payout. Rates on the notes maturing this summer are set as low as 4 1/2%, while recently issued bonds carry higher rates.
Some say that if the county sweetens the deal for note holders, it will buy market goodwill. But the Standard & Poor's Rating Group stated flatly that a debt delayed amounts to a debt unpaid--and that the county will be duly penalized by Wall Street.
Besides the sales-tax hike, Popejoy's plan calls for raising trash dumping fees by more than 50%, a cost that will be passed on to consumers countywide, and borrowing $1.25 billion through new bond issues. To accomplish this, the county is asking the state to guarantee county loans and revise state laws to allow it more freedom to borrow against future revenues.
Popejoy does not dispute that the county's plan is dogged by risk, but he insists that it is hardly susceptible to collapse.
"It's not a house of cards," he said. "This is a way out, a path out that has some potholes and turns and twists. . . . Many of the solutions are difficult and complex, but certainly they are obtainable."
Popejoy chalked up Standard & Poor's harsh reaction to the rollover plan to the agency's "chagrin" over issuing high ratings on controversial county bond deals last summer. "Historically, when parties agree by mutual consent to extend maturities, that's not viewed as a default," he said.
Yet he acknowledged that a literal default on the debt still remains a possibility. "Absolutely. But we're hopeful and even confident that a default can be avoided and that the new maturities can be agreed to," Popejoy said.
Payable this summer are $600 million in taxable notes floated last year to raise money for the county's ill-starred investment pool; $175 million in taxable and tax-exempt notes that were secured by property taxes; $200 million in tax-exempt notes secured by tax and other revenues, and $300 million in school district borrowings guaranteed by the county.