Suggested ‘Plan B’: Sell Bonds Tied to Land Value : Bankruptcy: Backers say proposal would work best with sales tax hike. Critics question the idea’s revenue-sharing aspect.

The Orange County Business Council is weighing an alternative bankruptcy recovery plan that would halve the life of a proposed sales tax hike--or remove the need for it altogether--by asking cities, special districts and even the state to share the county’s burden of plugging the $1.7-billion hole left by last year’s sour investments.

The backup plan, devised months ago by the financial consultants to the county’s creditors and endorsed recently by a local public finance firm, suggests using growth in the property tax base to issue $1.5 billion in long-term bonds. The county would collect the first 2% in assessed valuation growth each year; anything beyond 2% growth would go to the agencies that normally collect the revenue.

To make up for the revenue growth losses the schools would sustain, the plan now being circulated by Newport Beach-based Chilton & Co. asks the state to increase its allocation to Orange County school districts. If the state declines, the plan calls for the county and its cities to divert some of their current sales and property tax revenue to fill the gap in school funding.

“My main objective here is that any good idea needs to be looked at. As a matter of fact, probably any idea needs to be looked at,” said Wayne Wedin, leader of the Business Council, which represents about 2,100 local companies and has served as an impartial adviser throughout the county’s bankruptcy.

“My sole interest is to see whether or not anything that is contained in the document can be helpful to the county’s recovery effort,” Wedin added.

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If voters approve Measure R, the half-cent sales tax hike on the ballot June 27, the proposal would combine that revenue with property tax growth to retire all of the county’s debts in just five years.

If voters reject the tax, as polls have predicted, the proposal could serve as a Plan B, enabling Orange County--with help from the state and local agencies--to pay all of its debts without taxpayers shelling out any new funds.

“If Measure R fails, I think that option should be looked at just like every other option should be looked at,” said Gary H. Hunt, Irvine Co. executive vice president and a business council leader. “If Measure R fails, the pot’s empty. There’s no money. If everyone wants to continue on the theory of getting 100 cents on the dollar, they’re going to have to get that money from somewhere.”

Jon Schotz of Saybrook Capital Corp., financial adviser to the pool participants, called the plan “bogus.”

“You’re asking the cities and the schools to give money that’s theirs already to pay themselves back, which is the same thing as saying use the MasterCard in your wallet to pay off your Visa bill,” Schotz quipped. “You could solve all the problems if you use someone else’s money.”

Originally conceived by Sutro & Co., financial advisers to the official bankruptcy creditors committee, the Dedicated Revenue Financing Plan has evolved over the past several months during meetings with local and state politicians and business people.

It landed on Wedin’s desk a month ago, and he asked Ken Caresio at Chilton to review it and offer his analysis.

Caresio said the plan would work best if it included revenue from Measure R, but that the new sales tax would not need to last the 10 years the county is asking. Rather, the entire debt could be retired by 2000 if the tax passes.

Even without Measure R, Caresio expressed confidence in the plan, saying it reduces the risk of default on county and agency debt. He said the proposal should exempt any local agency that did not participate in the county’s failed investment fund.

Although he, like others, was doubtful that the state would agree to replace the schools’ lost revenue, Caresio said the cities, special districts and county itself could plug that gap by simply shifting a portion of their current sales tax and property tax revenue to the schools.

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Other revenue, including landfill tipping fees and vehicle license fees, also would be pledged to back the county-issued bonds.

“Everybody would be in bed together to try to make sure that things got solved,” Caresio said. “We’re crippling ourselves when we’re staying in bankruptcy. From the very beginning we’ve been saying this is a county that should not be in bankruptcy. It’s a strong county.”

But Paul S. Nussbaum, top aide to County Chief Executive Officer William J. Popejoy, said the demand for cooperation would sink the plan, not help it swim.

“I just can’t see getting those different constituencies together to agree on it,” Nussbaum said. “You assume that there’s a family concept, that different constituencies will agree to help the whole. That’s not true. All these plans assume that someone is going to act in a greater interest, an interest beyond their immediate self-interest. That just doesn’t happen here.”

Other county officials, along with other financial experts involved in the case, also expressed doubt Monday about the plan’s prospects, noting that it relies on projected growth in the property tax base, which has been flat for two years, and requires state legislation to shift funds from one public agency to another.

The revenue it uses, such as vehicle license and landfill fees, are already fully tapped in the current budget, they pointed out.

“Is it good for the county? Of course it is. Would it help solve the county’s problem? Of course,” county bankruptcy attorney Bruce Bennett said Monday. “But it’s not new revenue. It’s someone else’s revenue. We anticipate that the proposal would be opposed by all the districts and agencies; that’s why it’s not part of the county’s recovery plan.”

But Mary Ann Schulte, chairwoman of the vendors’ subcommittee in the county’s bankruptcy, is still peddling the proposal because “this has the most potential without actually raising taxes.”

Wedin and Hunt said they would likely focus more attention on the Dedicated Revenue Financing Plan if the tax increase--which both men support--fails. Even Sutro’s Robert Swerdling said he has put the proposal on the back burner during the campaign for the sales tax.

“This is not an appropriate time to be speaking on alternatives to the sales tax,” Swerdling said Monday. “The county officials have made a decision that the plan they are pursuing is the sales tax one.”