It’s No on R by a Landslide : Voter Fury Buries Sales Tax Increase, Recovery Plan : Election: By a 3-2 ratio, O.C. residents refuse to clean up fiscal mess. County officials will start working on an alternate plan today. Talk of state takeover and brutal cuts already begins.

Orange County voters overwhelmingly rejected a half-cent sales tax increase Tuesday, pulled the linchpin of the county’s bankruptcy recovery plan and delivering an angry message that residents won’t pay for a financial mess created by county leaders.

The tax measure’s defeat, by a ratio of more than 3 to 2, leaves the county facing an uncertain financial future, with talk of a state takeover and brutal budget cuts in education, public safety and services to the needy.

“I was in hopes it wouldn’t be that way,” said a dejected County Chief Executive Officer William J. Popejoy, when confronted with election returns. “But it looks like our fears have been realized.”

Sheriff Brad Gates, who led the pro-tax campaign, remarked that voters obviously wanted “to express their anger . . . to punish somebody.”

Opponents of the tax measure, who were outspent by proponents by $1.5 million to $100,000, said the outcome was nonetheless predictable.

Tom Rogers, one of the leaders of the anti-tax campaign, said, “It was absolutely the height of folly to expect people to tax themselves and turn it over to the same people who caused the problem.”

Even before the first returns were announced Tuesday, Wall Street investors punished the county by demanding exorbitant interest rates for a $155-million bond issue that was another component of the county’s recovery plan.

Many institutional buyers refused to buy the bonds at all, and some remained unsold--something that was unheard of just last year when the county enjoyed one of the highest credit ratings in the nation.

And in Sacramento, a growing number of lawmakers began suggesting that a state takeover might now be inevitable.

“The interest of avoiding a disaster in government services [in Orange County], and the damaging effect it would have on state borrowing, would be sufficient to justify the state taking over the county and managing it in some way,” said Senate President Pro Tem Bill Lockyer (D-Hayward).

Gov. Pete Wilson, who has tried to avoid becoming entangled in the Orange County mess, said late Tuesday that in light of the election’s outcome, “it is imperative that Orange County now move quickly to develop an alternative plan that will meet the financial obligations of the county.”

Wilson said he was sending state Finance Director Russ Gould and Kevin Sloat, his deputy chief of staff, to meet with Orange County officials today to begin developing such a plan.

The ballot proposal known as Measure R, which drew a 33% voter turnout, was billed by county officials as the quickest, cheapest and most equitable way to rescue the county from the nation’s worst municipal bankruptcy ever.

By raising the county’s sales tax from 7.75% to 8.25%, county officials hoped to raise $130 million a year over the next decade.

They hoped to use the money to speed the county’s recovery from bankruptcy, which the county filed Dec. 6 after risky investments by former Treasurer-Tax Collector Robert L. Citron drained the county’s investment pool of nearly $1.7 billion.

Without the tax, the nation’s fifth-largest county will likely wallow in bankruptcy for years to come, and may be unable to repay $800 million in bond debts due this summer. Because the county was unable to meet these obligations, they may be extended for a year under a plan that received court approval Tuesday.

Bruce Bennett, the county’s lead bankruptcy attorney, has predicted that the county will not extricate itself from bankruptcy court until sometime in 1997.

Seven months into that bankruptcy, residents had been largely untouched by the fiscal crisis, which generally had been confined to cuts in the county’s bureaucracy. Few services had been reduced, and business seemed to go on as usual in a county known for its affluence.

But some warn that the blunt force of the bankruptcy is about to be felt more widely.

Supervisor William G. Steiner said one likely result of the election is that the county will never fully repay the money still due the cities and schools that invested with Citron. Under the disbursement plan approved by the court, the county repaid cities and schools roughly 10% of their balances with IOUs.

“That half-billion dollars [owed to them] probably won’t be repaid in our lifetime,” Steiner said.

Board Chairman Gaddi H. Vasquez said defeat of the tax “will have a definite effect on the services we provide. In the next few days, a list of those services will be offered up and the board will have to weigh them.”

Popejoy noted that “the county’s [annual general fund] budget is still $275 million. I didn’t say that it can be cut logically, reasonably, but arithmetically it can be cut. You can cut it down to zero.” Other county officials were equally pessimistic about what the future holds.

“Tomorrow? What happens the day after a nuclear war?” said county financial adviser Christopher Varelas, when asked what might unfold in the wake of the measure’s apparent defeat.

Voters who opposed the tax were unsparing in their scorn for the supervisors in office when the debacle occurred.

“I might have considered voting for it if we could have gotten rid of these guys,” said Larry Ciaccio, a 67-year-old Newport Beach resident. “They are incompetent.” Ciaccio said at first he was torn over how to cast his vote but decided to vote No because he has no faith in his elected officials.

Many voters remained unconvinced that the county had cut as deeply as possible, such as Mark Waldron of Anaheim. “We’ve got enough money coming in and we can manage the money better, he said, adding, “I think they have to look internally to see where they have excess and cut costs.”

Waldron said he wasn’t sure he believed massive layoffs of county workers would occur if the tax measure failed: “I don’t know how much is scare tactics and how much will really happen,” he said.

Even Yes voters expressed profound doubts about the ability of county leaders to solve the fiscal fiasco.

While he was angry at the supervisors, Nelson Wong, 60, a retired director of community relations for Rockwell International, said his concern about the future of Orange County convinced him to vote for the measure.

“It was a tough decision to make,” Wong said. “I didn’t just upfront decide I was going to support it. I read a lot of things both pro and con about it and I think it’s the old case of pay me now or pay me later.”

When Popejoy applied for the newly created job of county chief executive in February, the retired millionaire businessman, who accepts no salary, said he too was hesitant to call for any new taxes.

But after weeks of studying the problem, Popejoy concluded that the county’s finances were so dire that there was no other reasonable alternative.

Although his tax plan was soundly defeated, the county’s top executive offered a conciliatory message to his Measure R foes.

“I feel even move strongly the final decision on such matters rests with the people. Orange County citizens have decided the issue with their votes,” he said. “That’s what our country is all about.

“Now the leaders should come together and forge a program to move the county forward. Differences must be forgotten and a new path for the county charted within the borders decided by the people,” Popejoy said.

During the campaign, opponents of the tax charged county officials with using “scare tactics” to win support for the measure. They claimed the county had not thoroughly explored alternatives to the tax, such as selling more county assets, privatizing services and even defaulting on debt.

Although the Board of Supervisors unanimously expressed a willingness in March to put the tax issue on a special ballot, they split on whether to support it. Supervisors Roger R. Stanton and Jim Silva came out against the measure, while Vasquez, Steiner and Marian Bergeson said they believed it was the best recovery option.

The supervisors ended up getting attacked from both sides of the issue. Citizen groups had threatened to recall them if the tax passed, while school supporters, bondholders and government workers pressured them to support the measure.

The election amounted to a referendum on Orange County’s future following its stunning surrender to bankruptcy. Even before the polls opened, interest in the special election was very high.

Absentee ballot applications totaled a surprising 175,729; an estimated 125,000 had voted by mail as of last Friday. The number of applicants surpassed that in the 1992 presidential race.

Voter turnout Tuesday appeared high for a special election.

Some saw the defeat as a rejection of big government and a slap at county officials voters held responsible for the fiscal disaster. Giving more money to essentially the same officials who allowed it be frittered away was unacceptable, opponents said, and county leaders never came close to seriously reducing the size of a bureaucracy that many still consider bloated.

Despite the insistence of some supervisors that he come up with a viable “Plan B,” a fallback position if the tax hike failed, Popejoy steadfastly refused to offer other recovery alternatives.

But with the election’s outcome no longer in doubt, Popejoy said a plan has been quietly in the works.

Times staff writers Jodi Wilgoren, Michael G. Wagner, Rene Lynch, Tracy Weber, Eric Bailey and correspondents Alan Eyerly, Russ Loar and Hope Hamashige contributed to this report.

CEO AT A LOSS: Popejoy goes through slowest day on the job with sense of foreboding. A16

ANGRY VOICES: Outraged voters tell why they yanked linchpin of recovery plan. A16

YES AND NO: How leaders on both sides worked until polls closed to get out the vote. A16

GOOD SIGN: Continuing O.C. recovery, job gains forecast in Chapman University report. D1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Measure R Results

Orange County

R--Sales tax

100% Precincts Reporting Votes % Yes 140,281 38.6% No* 223,092 61.4%

Results are not official and could be affected by absentee ballots.

Winning side of measure is in bold [*] type.