Fong Revives Talk of O.C. Takeover

With bankrupt Orange County reeling after voters rejected a bailout tax, state Treasurer Matt Fong revived talk Wednesday of a state takeover--but only if the beleaguered county stumbles further.

As Fong was voicing the possibility of having an “all-encompassing” state trustee for the county installed, Assembly Democrats were making it clear that they do not intend to go along with home-grown recovery measures designed by Orange County lawmakers.

Democrats and Republicans in the lower house engaged in a largely partisan slugfest over a slate of conservative proposals that had been given up for dead even before Orange County voters Tuesday rejected Measure R, a half-cent sales tax hike to help in the bankruptcy recovery.

The lawmakers did approve a handful of the more neutral bills, most notably a proposal by state Sen. John Lewis (R-Orange) that would save the county $10 million on transportation projects. But they rejected or stalled dozens of more controversial measures, including bills that would allow the county to privatize more government services and tap a bigger proportion of property tax revenue funneled through the state.

Fong, meanwhile, lent his support to efforts by state Sens. Lucy Killea (I-San Diego) and Quentin L. Kopp (I-San Francisco) to push ahead with legislation that would allow Gov. Pete Wilson to install a state trustee to shepherd Orange County’s recovery.

The treasurer said a troika of state officials--Fong, Controller Kathleen Connell and Finance Director Russ Gould--should be allowed to appoint a director who would have control over all county services such as the transportation agency, water districts and other agencies. That control would allow the trustee to tap reserve funds held by those agencies to help bail out the county.

But Fong also suggested that the trustee option should be pursued only if the county defaults on its upcoming bond debt payments, fails to keep government operating, invites such a takeover, or if the municipal bond market dries up in California. Failure of the tax “puts them one step closer to a potential default, but I think they’re still several steps away” from the need for a trustee, he said.

Fong also said the tax vote was mitigated to a degree by a federal bankruptcy judge’s decision to allow the county to go forward with a plan to roll over $1 billion in bond debt that comes due this summer. He expects Wall Street to go along with the rollover, but only after some grumbling.

“The bottom line is they don’t really have much of a choice because it means getting paid a year from now or not getting paid at all,” Fong said, adding that a rollover would give the county “breathing room” to sell assets without a fire sale mentality and pursue other options to create new revenue.

Fong said the Legislature could put a trustee bill on Wilson’s desk in 48 hours, if it became necessary.

Killea, who pushed a trustee bill to Wilson’s desk last spring only to see it vetoed after the governor declared it “premature,” said the proposal to roll over the debt still leaves the county searching for solutions.

“There’s still a huge hole there, and Matt Fong sees this very clearly,” she said. “But I don’t know what he can do single-handedly. None of us can push ahead unless we get some indication from the governor of what he would do with it. We could probably put another bill on his desk, but I don’t see the good of that if it gets the same treatment as the first one.”

The Assembly continued to wrestle with an issue that has for much of the year pitted Democrats and Republicans in a rhetorical battle.

Assemblyman Wally Knox (D-Los Angeles) said that Orange County seemed more intent on “trying to extricate itself by banging on a tin cup with a silver spoon” in hopes of a state handout.

“Forget the tax. Orange County doesn’t intend to pay its own debts,” said Assemblyman Phillip Isenberg (D-Sacramento). “The notion of giving them anything is outrageous.”

Assemblyman Richard Katz (D-Sylmar) said the Orange County proposals would have reaped only about $20 million or $30 million for the county, far short of the sort of cash infusion needed. Orange County declared bankruptcy after it suffered $1.7 billion in investment losses last year.

“This is ideology driven, not solution driven,” Katz said. “In terms of a sound fiscal response to the crisis, it’s nothing.”

Republicans griped that Democrats had persuaded GOP Speaker Doris Allen, who was elected this month with the votes of all Assembly Democrats, to bring the measures to the floor simply to have them killed. Nearly all the bills were so-called urgency measures that needed two-thirds votes, and most fell far short of that threshold.

“It’s a sham,” said Assemblywoman Marilyn Brewer (R-Newport Beach). “It shows that even though the Speaker is from Orange County, she cannot deliver on our behalf. And for the Democrats, it’s pay-back time. They’re having their day in the sun for every transgression they feel they’ve suffered at the hands of Orange County lawmakers through the years.”

Assemblyman Mickey Conroy (R-Orange) argued that Democrats were “stonewalling” simply because they would prefer a state trustee to take over Orange County. But he predicted that any trustee bill would die because of the required two-thirds vote needed to enact such a proposal immediately.

The Assembly is scheduled to take up the surviving Orange County bills Monday.