ORANGE COUNTY IN BANKRUPTCY : O.C. Voters Will Decide Tax Hike : Recovery: Supervisors unanimously approve placing half-cent sales tax, Measure R, on June ballot. Decision follows angry public comment that lasted into early morning.

Caught between conservative voter groups threatening their ouster and warnings of financial meltdown, Orange County supervisors early this morning passed an ordinance calling for a half-cent sales tax increase and ordering a June 27 countywide vote on the tax.

The supervisors voted unanimously to approve the ‘bankruptcy recovery” tax--dedicated to preserving essential county services and guaranteeing payments to schools, cities and other agencies with money in the ill-fated county investment pool.

The vote came after more than five hours of spirited public comment both for and against the proposal, and after county Chief Executive Officer William J. Popejoy again warned the supervisors that failure to adopt the proposed tax hike 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 before the vote. He warned that without it, property values would plummet and schools would suffer.

Popejoy also said that without the tax, 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-Tax Collector Robert L. Citron’s failed investment pool, which hemorrhaged in losses last fall and forced the county into bankruptcy.

Supervisor Roger R. 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, and I don’t think really all inside are convinced, that every single stone has been turned” in the search for solutions, he said.

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

“We need the assurance that in fact Plan B is going to be underway and we are not just sitting back and waiting for the vote in June,” Stanton said.

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 evening meeting, people began forming a line to sign up for an opportunity to speak to the supervisors about the proposed tax increase. Outside the Hall of Administration, where the meeting was held, a small group of tax protesters passed out handbills calling for the supervisors to resign rather than pass a tax increase.

Tom Steele, a representative of Ross Perot’s United We Stand America, was among the first speakers to address the supervisors. “Let the treasurers of other cities and school districts and other agencies take their lumps, tighten their belts and eat their losses,” he said.

A vote in favor of the tax “will put into motion two campaigns,” Steele warned. “One is a vigorous campaign to defeat this tax. . . . The second is an active recall campaign. Remember who you work for.”

But John Brimmage, president of the Assn. of Orange County Deputy Sheriffs, urged the board to approve putting the tax on the ballot. “Do we hold our noses and do the right thing . . . or do we continue to pretend that it’s someone else’s problem, that it won’t really impact my own local community, police department, library or school? We have no choice but to work and vote for passage of Measure R.”

Jim Smith of Orange complained that the county has not looked hard enough for ways to cut its budget, especially in the area of employee salaries. Smith told supervisors to find another way to solve the financial crisis.

“We don’t need another tax,” he said as onlookers applauded. “Our taxes are extremely high as it is.”

But Todd Nicholson, president of the 2,000-member Orange County Business Council who followed Smith to the podium, disagreed. He urged supervisors to do the politically incorrect thing and put the measure on the ballot.

“We know this is not an easy decision for you,” Nicholson said, asking the board to simply let the voting public be heard. “We understand that people can differ on whether this is needed, but what we don’t understand is not allowing the people to vote for it.”

Angry words from Dale Williams of Mission Viejo were greeted with cheers and applause. “How dare you try to steal my family’s money to support this bureaucracy.” Williams said. “I’m outraged!”

One week ago, board members unanimously--but very tentatively--agreed to place the controversial tax hike on a ballot in a special election, so the county’s traditionally conservative voters could decide whether to tax themselves out of the largest municipal bankruptcy in U.S. history.

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

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 that 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 is sure to set off a heated campaign pitting vocal anti-tax groups against business and government officials who see the tax hike as the most critical component of the county’s recovery effort.

Popejoy, the county’s top executive, has been warning for weeks that without the tax the county faces a financial “meltdown.”

Wall Street financial experts have said that a default on existing county bond debts would effectively deny the county access to the low-interest municipal bond market, which could ultimately 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 steadily during 1994.

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 hike to help the county recover from the crisis, Popejoy told them there was no other reasonable alternative. To make the tax increase more politically palatable, however, Popejoy also proposed submitting the proposal to voters in a special election to let them decide the matter.

Even if the voters approve the tax, the county might 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.

Agreeing to put the tax on the ballot was a bitter and politically dangerous decision for board members. And, because it was held during a night meeting, it has shaped up as one of the most thoroughly scrutinized decisions in county history.

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 Roger R. Stanton and Jim Silva had said they would never publicly endorse the tax increase. Board Chairman Gaddi H. Vasquez refused to say whether he would publicly support the tax.

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

“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 (the supervisors) were asleep at the switch. They’re going to have a difficult, if not impossible, time getting reelected.”

Since last Tuesday, supervisors have been busy looking for other ways to raise revenue for the county, no matter how unlikely the source might be. Stanton, for example, has pushed for a proposal to tap into sales tax revenue 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 legally impossible to do.

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

Over the course of the 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.

In a last-minute attempt to sway the vote, Buck Johns, an influential developer in Orange County and member of the conservative Lincoln Club, whose members are major political donors, sent letters to the supervisors urging them to vote against the tax hike. Johns said he referred to the vote as a “real historic moment for Orange County.”

“They could achieve national stature if they go against the conventional wisdom and not raise taxes to get out of the crisis,” Johns said.

He said it was the only politically viable option for the bunch.

“Voting against the tax is the only way they can save their careers,” he said.

For many, the tax proposal marks an especially dark day in the history of Orange County--a conservative bastion dubbed John Wayne country, where Republican leaders took pride in the county’s ability to take care of itself, and where looking for state assistance or raising taxes was akin to political suicide.

But now, one of the richest counties in the country, one that for years relished the high returns on Citron’s gambles, finds itself hat in hand, looking for help wherever it can.

MORE BANKRUPTCY COVERAGE INSIDE

* WARNING--Judge wants settlement within 30 days. A12

* AUDIT--State report finds that trust was broken. A12

* RECALL--Three Irvine council members targeted. A13