ORANGE COUNTY PERSPECTIVE : Tax Hike: Painful but Necessary

It would be tempting to believe that the sale of more than a billion dollars’ worth of bonds to build a toll road in Orange County shows that Wall Street has shrugged off the bankruptcy. Tempting, but wrong.

Institutional investors lined up this week to purchase the $1.26 billion in bonds sold by the Foothill/Eastern Transportation Corridor Agency. The investors were aware it is the county, not the corridor agency, that is bankrupt. Also, the agency has a means of paying off the bonds as they come due: the tolls it will levy on motorists using the 24-mile roadway, to run from the Riverside Freeway near Anaheim to the San Diego Freeway in Irvine.

One money manager who passed on the bond sale offered a clear-eyed view of the county’s precarious financial situation. He noted a “cloud of uncertainty” that will not dissipate until June 27.

That is the day county voters will decide whether to increase the sales tax by half a cent, raising an estimated $130 million a year, for 10 years. The tax might not last that long because receipts could let the county emerge from bankruptcy earlier. But the extra revenue is needed temporarily, painful though it will be to increase taxes.

The proceeds from the sales tax would show investors that the county can pay back any money the investors might loan in the future, by buying bonds, for instance. The county does not have other sources of revenue, like tolls; it needs the Measure R money.

The city of Anaheim was one of the 200 governmental agencies battered when the county’s investment pool lost $1.69 billion last year. This week the city did manage to sell $22 million worth of notes. But they were short-term--just one-year--notes, and the county needed to pay $46,000 for a special guarantee that note buyers and bond purchasers want from California agencies.

Governmental agencies throughout the state are likely to find it more expensive to borrow money until Orange County gets its financial affairs in order. Increasing the sales tax will be painful, but no one has shown another way out.