Board Debates O.C. Tax Hike in Heated Meeting

Caught between conservative voter groups threatening their ouster and warnings of financial meltdown, Orange County supervisors continued public debate early today about a proposed half-cent sales tax increase aimed at helping the county recover from its $1.7 billion in bankruptcy losses.

Speaking before an overflow crowd that greeted some of his comments with jeers or angry murmurs, county Chief Executive Officer William J. Popejoy warned that supervisors’ failure to adopt the tax increase would lead to a default on county bonds and deny the county access to Wall Street for years to come.

“For those of you who want this county to sink into Third World status, go ahead and vote against the tax,” Popejoy said.

But with a near record number of citizens asking for time to speak on the issue, the supervisors still had not put the matter to a vote--or even voiced their own views--as midnight passed and the meeting stretched into the wee hours of this morning.

Popejoy warned that without it, property values would plummet and schools would suffer. “Maybe some of you don’t care about children, but I do.”

Supervisor Roger Stanton, an outspoken opponent of a tax increase, pressed Popejoy to convince the board and the public that Measure R is needed.

“The public is not convinced . . . that every single stone has been turned” in the search for solutions, he said.

“What do we do if, in fact, it doesn8t pass? We must continue to strive for other ways that may not be obvious even yet,” said Stanton, who then quipped that the county might consider borrowing from a water district that is said to be lending money to two local schools.

Popejoy assured Stanton that every conceivable option had been explored--and would continue to be pursued. Popejoy said if another revenue source is found, he will return to the board and call off the tax vote.

More than an hour before the start of the meeting, people began lining up to speak to the supervisors about the proposed tax increase. Outside the Hall of Administration, a small group of tax protesters passed out handbills calling for the supervisors to resign rather than pass a tax increase.

Popejoy said the county may be taken over by a state-appointed trustee without the tax increase. “I think may is an understatement,” Popejoy said. “Plan B basically means a prolonged bankruptcy, and you may not end up with an empty store.”

Even if supervisors approved the ballot measure, it would have to be ratified by a simple majority of the county’s voters.

Popejoy said that without the extra tax revenue, the county would be unable to make good on the settlement agreement it has offered to the cities, schools and other agencies that invested in former Treasurer Robert L. Citron’s failed investment pool, which hemorrhaged in losses last fall and forced the county into bankruptcy.

“If any of you . . . have a better answer to get us out of bankruptcy, please tell us,” Popejoy told the angry crowd. “But don’t tell us to let the county just fade into some sort of economic chaos.”

A week ago, board members unanimously--but very tentatively--agreed to place the tax increase on a ballot in a special election. According to some authorities, state law requires that any tax increase be approved by voters.

The proposed initiative, which would be called Measure R on the June 27 ballot, would raise the county’s sales tax to 8.25% from 7.75% for 10 years. The ordinance calling for the election required the approval of four of the five supervisors, and the tax proposal must be adopted by a majority of voters taking part in the special election.

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If passed, the tax is projected to raise at least $130 million a year starting Jan. 1, 1996, and make it possible for the county to raise about $700 million in new bond issues that would be repaid over the tax’s 10-year life span. Popejoy has said new borrowings are essential to avoid default on the $1.275 billion in bonds due for redemption this summer, and to enable the county to make good on its promises to settle up with the other pool investors.

The measure, if put on the ballot, is sure to set off a heated campaign pitting anti-tax groups against business and government officials who see the tax increase as the most critical component of the county’s recovery effort.

Popejoy has been warning for weeks that without the raised tax the county faces a financial meltdown.

Wall Street financial experts have said a default on county bond debts would effectively deny the county access to the low-interest municipal bond market, which could cost county residents more than the half-cent sales tax.

The county declared bankruptcy Dec. 6 after discovering that Citron, the former treasurer who ran the county’s $7-billion investment pool, had gambled away nearly $1.7 billion through the purchase of risky securities whose values declined as interest rates rose.

Nearly 200 other governmental entities, including every school district and most of the cities in Orange County, had money in the county fund.

Although supervisors had steadfastly refused to consider a tax increase to help the county recover from the crisis, Popejoy told them there was no other reasonable alternative. To make the tax increase politically more palatable, Popejoy also proposed submitting the plan to voters in a special election.

Even if voters approve the tax, the county may not be able to avoid bond defaults this summer, unless other pieces of Popejoy’s tenuous recovery plan fall into place, including a controversial proposal to raise dumping fees at local landfills, and accept trash from neighboring counties.

Although the board last week unanimously passed the first reading of the proposed ordinance, only Supervisors Marian Bergeson and William G. Steiner said they would be willing to campaign for the measure, as several influential state senators have insisted the supervisors do before the state could offer any help.

Supervisors Stanton and Jim Silva have said they would never publicly endorse the tax increase. Board Chairman Gaddi H. Vasquez refused to say whether or not he would publicly support the proposal.

Some say the supervisors were wasting their time if they were worrying about how their political careers would fare in the wake of a vote.

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“They’re done for, whether they don’t vote for it and even if they do vote for it, so they might as well stand up and do what’s right,” said Eileen Padberg, an Irvine political consultant. “Their political futures are dim because the candidates who run against them will remind everyone (that the supervisors) were asleep at the switch. They’re going to have a difficult, if not impossible, time getting reelected.”

Since March 21, supervisors have been busy looking for other ways to raise revenues for the county, no matter how unlikely the source might be. Stanton has pushed for a proposal to tap into sales tax revenue designated for transportation projects--known as Measure M funds--as a way to bail out the county.

That proposal was shot down by Popejoy and officials from the Orange County Transportation Authority as difficult if not impossible to do.

Meanwhile, the supervisors also have been urging city councils and school boards to pass resolutions supporting the sales tax increase. The response, supervisors say, has been underwhelming.

Over the past week supervisors have been heavily lobbied from both sides of the issue. Even Sacramento legislators have sought to pressure the board, telling supervisors that any state aid may be contingent on a sales tax increase--and proof that the supervisors actively support it.

State lawmakers have also threatened to make the supervisors surrender their financial responsibilities to a state-appointed trustee as a precondition for any state assistance.