Vote Allows Use of Bus Funds for O.C. Recovery

In a dramatic bid to help yank Orange County out of bankruptcy, state lawmakers agreed early today to let the financially strapped county siphon transit tax dollars to fuel a recovery, but revived the possibility of a state takeover if the county stumbles.

The Assembly voted 46-19 to approve the measure, which also gives beleaguered Los Angeles County the power to shift transit funds to help it recover from a $1.2-billion budget shortfall. The Senate granted its approval on a 23-12 vote.

While the measure represents one of the first breaks for a county mired the past eight months in financial quicksand, it could get a hostile reception from Gov. Pete Wilson. Eager to avoid a dicey issue that threatens to cloud his presidential aspirations, Wilson vetoed another bill earlier this year that would have authorized a trustee for Orange County, and his advisers expressed serious qualms over the latest effort.

The proposal would let the county take up to $70 million a year for 15 years in existing sales tax money that currently goes to fund bus service, but only if state lawmakers follow up in the coming weeks with a second bill outlining the duties of a trustee to shepherd the county’s fiscal affairs. Wilson would have the option of either appointing a trustee or deeming such a state overseer unnecessary.

“This bill offers a real opportunity for both L.A. County, which is on the verge of bankruptcy, and Orange County, which is bankrupt, to make a comeback,” said Assemblywoman Marilyn C. Brewer (R-Irvine). “This is the beginning of them helping themselves.”

The early morning votes followed several days of bartering by lawmakers on both sides of the aisle and lobbying by opponents, most notably transportation agencies in the two counties that stand to see their bus revenue decline.

The key stumbling block was a demand by Senate Leader Bill Lockyer (D-Hayward) that the tax shift be accompanied by approval of a state-appointed trustee to run Orange County’s troubled fiscal affairs.

Attempts by Orange County’s conservative band of lawmakers in Sacramento to win approval for the bankruptcy relief also were tangled in efforts by a cadre of Los Angeles County Democrats to win approval for a similar plan to bail their own beleaguered county out of its budgetary woes.

The bankruptcy occurred when Orange County’s high-flying investment portfolio suffered $1.7 billion in losses after a series of financial miscues by former Treasurer-Tax Collector Robert L. Citron.

The Orange County effort would allow authorities to replace the bus tax with money from Measure M, a separate half-cent sales tax passed in 1990 for specific transportation improvements. It also would require that the diverted money be spent only as part of a complete recovery plan approved in U.S. Bankruptcy Court.

Lockyer said Orange County lawmakers were trying to rush forward without a comprehensive plan. He had said his opposition could only be muted if the shift in funds is tied to approval of a subsequent bill later this year authorizing a trustee.

“Our Orange County legislators have argued in the past that the Board of Supervisors couldn’t be trusted,” Lockyer said. “Now they want to give that same Board of Supervisors a new pot of money to spend. What’s changed between then and now?”

Aside from Lockyer, Assembly Speaker Doris Allen (R-Cypress) opposed efforts by the rest of the Orange County delegation to divert money supporting bus service.

Allen said the Legislature should not rush to action on the county’s relief proposal, but instead consider a plan to be unveiled Monday by a group of cities and special districts that asserts the county can recover by selling John Wayne Airport and other assets and restructuring $850 million in claims the county owes those pool participants.

“Orange County’s fiscal crisis will not be solved by raising the transportation sales tax revenue,” Allen said. “These transit dollars should be used for transit. Why should people who cannot drive a car, cannot afford to own a car or simply choose mass transit as a responsible transportation alternative be forced to walk?”

But her colleagues in the Orange County delegation suggested the plan is needed to ensure that the county has the ability to finance its recovery efforts.

“We need to find resources the county can use to get itself out of bankruptcy,” said Assemblyman Curt Pringle (R-Garden Grove), who led the push for the revenue shift. “This county has been in bankruptcy for . . . months. It’s time we get down to business.”

Since Orange County’s Dec. 6 bankruptcy filing, people both inside and outside government have looked longingly at the Orange County Transportation Authority’s coffers, flush with about $340 million for an urban light-rail system to be built sometime in the future.

The catch has been Measure M. A half-cent sales tax passed in 1990 for specific transportation projects, it cannot be diverted to other uses without voter approval, OCTA officials argue.

Earlier this month, however, the county’s financial and legal consultants presented a back-door plan to use Measure M funds by passing legislation that would take other sales-tax money away from OCTA while ordering the transportation agency to replace those funds with Measure M dollars that have not yet been allocated to specific projects.

Transportation officials in Orange and Los Angeles counties worked hard Saturday to scuttle the tax shift proposal.

Charles V. Smith, Orange County Transportation Authority chairman, wrote a forceful letter to county lawmakers saying the funding shift would “devastate” the bus service and hurt the elderly and disabled riders who depend on the transit system. He argued that the plan was a “piecemeal solution” and wouldn’t resolve the crisis. Smith also urged lawmakers to wait a few more days for the county and its local governments to devise their own home-grown remedies.

“Give local officials a chance to resolve this problem comprehensively before the state imposes a partial solution,” Smith wrote.

Still, Orange County transportation officials have expressed a willingness to let the agency’s excess cash be used to help in the bankruptcy if they gain control of John Wayne Airport in return.

Democrats in the Capitol suggest that Pringle and other conservatives have been motivated to tap OCTA money in large part because of an unbending opposition to the transportation agency and its chief executive, Stan Oftelie. Oftelie is one of the few Democrats holding a top executive post anywhere in Orange County government and has long drawn the ire of conservatives who believe he is working to expand his transportation empire.

Pringle is also carrying legislation that would make OCTA’s board directly elected by the voters, a tactic designed in part to undermine Oftelie’s power.

“You’d have to be blind, deaf and dumb not to come to the conclusion” that the conservatives from Orange County are attempting to undermine Oftelie, one Capitol insider said. “Libertarians and conservatives oppose Oftelie because he and his agency are effective. That reality gets in the way of their argument that government can’t do anything right.”

County financial advisers have determined that Measure M funds could easily be found to replace at least $35 million of the bus money. But they remain unsure whether the bus system could survive intact if the county took all $70 million it would be authorized to under Pringle’s proposal.

A 15-year revenue stream of $35 million a year is enough to back the issuance of more than $300 million in new bonds. Combined with the $460 million in reserves the county already has, this would give the county almost enough to pay off the $800 million in short-term notes whose maturities were recently extended to June, 1996.

But the county also has more than $1 billion in other outstanding debts, including about $850 million owed to 200 local governments that lost money last fall when the county-run investment pool collapsed.

The county is also working on legislative proposals that would divert property tax revenue from special districts to the county’s bankruptcy recovery effort. Orange County legislators in Sacramento, however, favor asking cities and special districts that lost money in the pool to forgive the debt the county owes them.

Participants in the county’s fallen investment pool, meanwhile, have suggested swapping county assets--such as John Wayne Airport--either for debt forgiveness or cash payments, and plan to present a proposal to that effect Monday.