Board Set to OK Painful Plan B for O.C.’s Recovery

Hoping to meet a self-imposed deadline for coming up with a bankruptcy recovery plan, the Orange County Board of Supervisors is poised to adopt a package of financial measures today that could spread the pain among cities, special districts and the transportation agency.

In addition to taking aim at some of the property and sales tax revenue of cities and special districts, the plan dips into funds from county agencies such as waste management, refinances leases on county property to get a one-time infusion of $95 million, and relies on borrowing backed by state motor vehicle licensing fees.

More than eight months after the county declared bankruptcy, the supervisors were scheduled to approve their second comprehensive plan to deal with the loss of nearly $1.7 billion last year due to the county’s risky investment strategy. And officials are clearly hopeful it will meet with more success than the first, which relied on a half-cent sales tax increase that failed miserably at the polls in June.

Supervisor Roger R. Stanton said he is optimistic that the package, some of which requires enabling legislation from Sacramento, contains viable options to help bail the county out of bankruptcy.

“I think things have been looking up for the last week,” Stanton said, crediting the feverish work of interim Chief Executive Officer Jan Mittermeier. “I think our new CEO has been working very hard and we have reason to be optimistic about that hard work being fruitful. It’s far from over, but finally we’re moving in the right direction.”

Under two of the scenarios being considered, the plan could actually raise hundreds of millions more than the county needs to cover its debts. But the county is anticipating that some of the more controversial options may not win approval from a reluctant Legislature.

“It’s like throwing a deck of cards in the air and hoping they land on edge,” is the way one county official put it.

The plan will involve a mixture of revenue-raising ideas, some new, some old. Mittermeier will ask the board for authority to pursue legislation needed to put the plan into action.

Key elements being considered include:

* Seeking legislation to divert up to $70 million each year from state sales tax revenue currently being used by the Orange County Transportation Authority to subsidize public bus transportation in Orange County.

* Seizing up to $33 million a year in sales tax revenue that presently goes to Orange County cities, which could deprive the cities of 1% to 4% of their annual revenue.

* Diverting anywhere from 40% to 60% of the property tax revenue now going to special districts, including the water, sanitation and flood control districts, and harbors, beaches and parks. The diverted funds range from less than $1 million for vector control to up to $15 million for the Orange County Water District.

* Issuing new debt in excess of $500 million, backed by motor vehicle licensing fees.

The plan also calls for continuing to pursue other options, such as issuing bonds backed by property tax revenue, privatizing county services and selling assets including the county’s landfills, all of which could bring in $315 million to $600 million, according to a confidential draft of the proposal.

The draft promises that the plan will not require stopgap funds from the state, will be solved within the confines of Orange County and will fulfill debt obligation so it won’t adversely affect the state’s borrowing abilities.

While the county promises its plan will not result in “material increases in taxes, costs or service reductions,” it does warn that there are political limitations to what the Legislature is willing to do for Orange County, and this could result in fee increases.

“It’s a shell game, it’s a hidden tax,” said Blake Anderson, assistant manager at the Orange County Sanitation District, which plans to fight the possible property tax grab. “If we lose property tax revenues, we may have to raise user fees to the property owners.”

City leaders reacted angrily to possible county plans to divert a portion of sales and property taxes from cities.

“The notion of taking sales taxes from cities is outrageous,” said Tustin City Manager William A. Huston, whose city would lose $1.4 million under one scenario. “Why would they ask cities that lost money in the pool for more money?

“It’s really beyond belief,” he added. “They’re hiring these consultants for $300 an hour, and the best they could come up with is stealing money from the cities. A high school student could have done that. It’s really the same business as usual with the county.”

Yorba Linda Councilman Mark Schwing said diverting sales tax money would hurt his city as well.

“Why should the county divert revenues from the cities and special districts whose revenues it lost in the first place?” Schwing said. “I have a major problem with that.”

The Orange County Transportation Authority contends that diverting sales tax funds will virtually demolish the bus services relied upon by the county’s poor and needy. OCTA Executive Director Stan Oftelie said his staff is looking at other ways to help the bankrupt county, possibly through a loan.

The county, however, contends that its analysis of OCTA’s books show the powerful agency can manage just fine without a portion of its state transportation tax funds. The county recommends that OCTA postpone or re-prioritize some transportation projects or funds to make up for any revenue appropriated for the county.

“There are always going to be people that are going to feel threatened by a diversion,” said Supervisor Marian Bergeson. “But the point is how we can minimize that so no one single agency is going to be overly burdened.”

The pressure is on the county to come up with its own plan to rival one being pushed by the county’s legislative delegation to Sacramento. The Legislature will reconvene later this month for three weeks, and Gov. Pete Wilson recently warned the county it was imperative that the county have its plan ready for legislative consideration no later than Aug. 21.

In a joint letter to state officials last month, Board of Supervisors Chairman Gaddi H. Vasquez and Bergeson pledged to have a viable plan ready to send to Sacramento this week.

Although other government agencies had invested billions in the county-run investment pool that lost $1.7 billion, the county is legally obligated under a court-approved settlement plan to pay back 100 cents on the dollar to the cities, schools, and special districts that put money in the pool.

The plan up for consideration today would give the county the means to eventually make good on those obligations. But it remains to be seen how the Orange County delegation will welcome the specific proposals.

“People are going to have to realize they may not get 100% on the dollar,” said Assemblyman Mickey Conroy (R-Orange). Conroy said he had little sympathy for special districts with millions in reserves that are unwilling to lend a hand to the county.

“A special district is a nonprofit operation designed to provide a service for the cost of the service. And you have Irvine Ranch Water District” with millions in reserves, he said. Conroy said that instead of setting aside reasonable amounts, special districts are hoarding “bundles of money.”

“Maybe residents should go to a meeting and say, ‘We want our refund,’ ” Conroy said. “Maybe then these [district officials] would understand the difference between a prudent reserve and when you’re gouging the taxpayers.”

Times correspondent Shelby Grad contributed to this story.

* OCTA OPPOSES LEGISLATION: Bill would permit vote on diverting Measure M funds. A11

* GRAND JURY INVESTIGATION: O.C. auditor’s bankruptcy role scrutinized, sources say. A12