County Failed to Control Costs, Report Says : Government: Efficiency study recommends privatization of services, second treasurer to watch over special districts.

A confidential draft of the first major study on government efficiency in Orange County since the bankruptcy contends that the county failed to control salaries and recommends that more services be turned over to private contractors.

The $30,000 study by the nonpartisan Rose Institute of State and Local Government at Claremont McKenna College also recommends that a separate treasurer’s office be created to watch over the finances of special districts such as county water and sanitation. Such a role, apart from the county treasurer, “could have limited the scope” of the bond fiasco that cost taxpayers $1.7 billion, according to the study.

The study--funded by the county, the Orange County division of the League of California Cities and Partnership 2010, a coalition of business, government and education leaders--found that county staff grew and workers earned higher pay increases during the recession when companies were laying off workers and many in private employment were going without pay increases.

“If the county had not raised salaries and benefits, there would have been less need to rely on the disastrous speculations of the treasurer,” the study states, referring to former county Treasurer-Tax Collector Robert L. Citron, who resigned in the wake of the county investment pool fiasco and has since pleaded guilty to felony charges related to his handling of county finances.

However, the study has run into opposition from both the county and the League of California Cities about the methodology, especially as it pertains to county employee salaries and city administrative costs.

“It’s ideology. It’s not research,” complained Janet Huston, executive director of the county division of the league.

“All they looked at is cost. Cost is not the only measure of efficiency,” said county legislative manager Cathy Knighten.

She took issue with findings like one showing that county workers earned an average of $49,961 this fiscal year, an increase of 11% from two years ago, compared to an average county resident’s income of $19,433, which declined 3% during the same period. She said it was unfair to make salary comparisons on a per-capita basis, which includes children, retirees and the unemployed.

Alan Heslop, director of the Rose Institute, which has been commissioned for studies ranging from landfills to political redistricting, said the study would be revised to include new numbers provided by the county, but he expected few of the recommendations to change.

“There are no common, universal ways of measuring costs in Orange County,” Heslop said. Even though there are significant problems in (using per capita costs), it is better than any other measure.”

The study’s findings, particularly its urging that more county services be turned over to private enterprise, parallel some of the conclusions of an unsolicited report in February on how Orange County can cope with bankruptcy from the Reason Foundation, a Libertarian think tank in Los Angeles.

“We’re running a $10-billion government operation in this county, and there is a question (of whether it is) being run as a professionally managed organization,” said Tim Cooley, Partnership 2010’s president, who spearheaded the study.

The project began last April, well before shaky investments in the county’s bond pool resulted in the filing of the nation’s largest municipal bankruptcy in December. The study was modified to include lessons since the bankruptcy occurred.

While it covered efficiency of the county and cities, the study took particular aim at the special districts, which it called “unnecessarily expensive” entities that “siphon off property taxes that could better be spent elsewhere, most notably on education.” The study adds that “some are poor stewards of public funds.”

Turning over all water and sanitation districts to private interests is “clearly the best course of action. All the inefficiencies and waste associated with the current arrangement can be eliminated by privatization.”

The study also found that the county lacks clear budget and financial reporting data, and that such reports need to be stated in plain English. “The supervisors are swamped in paper, but the crucial facts are often submerged,” the study reports.

“The single biggest surprise is how obscure the (county) budget document is,” Heslop said. “There are no common, universal ways of measuring the costs in Orange County” between governments.

Reed Royalty, president of the Orange County Taxpayers Assn., who co-chaired the committee that oversaw production of the study with former county Supervisor Harriett M. Wieder, said he hopes the study will produce more uniformity in the reporting of budget figures by cities.

“Some of the most crucial information (for making comparisons) is missing,” he said.

Although revisions are continuing to be made in the study before it is released to accommodate city and county concerns, Cooley said it will provide a tool for measuring government efficiency.

“I’m determined not to water it down,” he said. “This stuff has to come out. I told them I don’t want this sanitized. I want it bulletproof,” able to stand up to scrutiny.

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Report Summary

Highlights of a study conducted on ways to improve efficiency and accountability within Orange County government:

PROBLEMS

* Lack of information: Officials swamped in paper, but crucial facts are submerged in documents lacking clear summaries. Budget document is cumbersome,with no clear data available regarding public payroll and benefits.

* Special service districts: True costs of services provided difficult to ascertain, since scrutiny of activities is occasional and incomplete.

* Efficiency and costs: Measures of efficiency and comparative cost data lacking.

SOLUTIONS

* User-friendly budget document: Revise to show beginning, ending fund balances, including all debits and credits; a debt service schedule listing obligations and revenue streams used to pay them; information on county employee salary and benefit allocations. Provide similar information for each special district.

* Evaluations: Evaluate department managers on ability to reduce costs for current service level outputs.

* Improve fiscal reporting: Provide monthly fund balance statements, updated debt schedules.

* Two treasurers: Separate treasurer should oversee special service districts.

* Privatization: Pursue where it can provide greater efficiency of services. Possible areas: fire protection, paramedics, jail operations, janitorial services, food services, fleet maintenance, animal shelter/animal control, water and sanitation districts.

* Monitor salaries: Need clear information on county employee salaries and benefits, including a private sector comparison.

Source: Rose Institute of State and Local Governments; Researched by JANICE L. JONES / Los Angeles Times