Stanton Unveils Alternative to Tax Hike; CEO Fires Back

Supervisor Roger R. Stanton offered up a proposal Friday to bail Orange County out of bankruptcy without a tax increase, but the county’s chief executive officer denounced it as an “act of desperation” by a politician under pressure from anti-tax groups.

In an extraordinary rebuke, CEO William J. Popejoy also accused Stanton of undermining Orange County’s lawsuit against Merrill Lynch & Co.--the Wall Street firm blamed for leading the county to bankruptcy with perilous investment strategies--by publicly estimating that the county could settle for roughly $500 million instead of the $2 billion it is seeking.

“Sadly, this proposal from Roger Stanton is simply hollow political rhetoric by someone who failed to do his job before, and now is continuing to do so by submitting a smoke-and-mirrors proposal of no substance,” Popejoy said.

But Stanton’s proposal was welcomed by opponents of Measure R, the proposed half-cent sales tax increase set for a vote later this month, who maintain that the county has failed to adequately pursue other paths out of financial ruin.

“It looks like a plan with promise,” said Bruce Whitaker of the Committees of Correspondence, a vocal anti-tax group. “I think it certainly looks like a real effort to pick up the pieces on June 27 when Measure R fails.”

Stanton this week became the second supervisor, along with Jim Silva, to oppose the tax increase. Supervisors Gaddi H. Vasquez, Marian Bergeson and William G. Steiner support Measure R as the most effective way of digging out of bankruptcy.

Contending that Orange County residents already pay too much in taxes, Stanton predicted the proposed tax is headed for defeat.

“It would be the quick and easy way out of bankruptcy,” Stanton said. But he said he felt an obligation to come up with a plan that does not include additional taxes because voters deserve elected officials who will take on tough challenges.

“There’s more than one path to reach a goal,” he said. “Given the odds of this thing passing, we’d better have a plan for [alternative] avenues.”

Stanton’s long-awaited Plan B downplays the severity of the county’s fiscal crisis and accuses supporters of the tax of engaging in scare tactics. The nine-page document also says the level of the county’s debt might be inflated.

Its key elements include:

* Refusing to repay $180 million of county funds tied up in the investment pool that lost $1.7 billion and led to the bankruptcy.

* Selling John Wayne Airport to the Orange County Transportation Authority for an estimated $350 million and selling the Integrated Waste Management System for an estimated $360 million.

* Enlisting the help of the state Legislature, if necessary, to pave the way for county agencies to lend the general fund up to $100 million. State law prohibits county governments from tapping into cash reserves of some of its agencies to use in the general fund.

* Raising an estimated $300 million through asset sales, already underway, swapping assets in exchange for debt forgiveness and harnessing future property tax growth as a revenue stream.

Orange County Sheriff Brad Gates, one of the leaders behind Measure R, argued that most of Stanton’s suggestions already had been rejected in part because they would take too long to accomplish.

“There’s nothing here that we haven’t seen before,” Gates said. “I look at this as a laundry list instead of a plan.”

Gates and Popejoy pointed to barriers in the way of some of Stanton’s suggestions, such as federal guidelines restricting an airport sale or transfer, and they questioned whether the county’s landfills could reap as much as Stanton believes.

“If these were viable alternatives, we would have done it, it would be part of the plan,” Popejoy said. “In the past, Roger hasn’t faced up to the problems of the county, and he continues to sidestep the hard decision of telling the people of the county that to get the bankruptcy off our backs, it requires a new revenue stream.”

“This is an act of desperation,” Popejoy said. He said Stanton is taking the politically expedient path. “I find that very offensive.”

Another part of Stanton’s proposal that raised concern was his suggestion that county officials are overlooking the likelihood that the county could reap hundreds of millions of dollars in its $2-billion lawsuit against Merrill Lynch.

The county sued Merrill after learning that risky investments by former Treasurer-Tax Collector Robert L. Citron forced the county into bankruptcy, the largest in U.S. municipal history.

The county contends that Merrill schemed to defraud it and helped Citron engage in risky maneuvers that led to the financial crisis, allegations the Wall Street brokerage firm denies.

Stanton’s proposal includes an estimate that Merrill will pay the county at least $500 million in an out-of-court settlement. Stanton said he is not suggesting that the county settle for that sum, but argued that county officials should take into account the possibility that they will recover that much.

“It’s just a best guess at this time--I think they ought to pay much, much more,” Stanton said. “But it’s an estimate, and a conservative one, somewhere between zero and $2 billion.”

Popejoy said Stanton has no business discussing a settlement figure because it could put the county at a disadvantage.

“I’m particularly incensed at the great disservice Mr. Stanton has rendered to this county by his suggesting a $500-million figure of a settlement with Merrill Lynch,” Popejoy said.

He also said it would be “foolhardy” to plan a financial recovery based on optimism that the county will win the suit.

Stanton said he was submitting his “position paper” to get beyond rhetoric and help the county along the road to recovery.

He portrayed himself as someone willing to stand up to an anticipated “backlash” from county workers who support the tax, but said he was following his conscience.

* TEETER BONDS OK’D: County to sell $155 million in special long-term notes. A42

* IT’S NO CONTEST: Pro-Measure R faction has a huge edge in fund-raising. A43