ORANGE COUNTY PERSPECTIVE : Plan for Recovery Clearly a ‘Plan B’

As pressure was mounting in Sacramento for a state takeover of Orange County’s financial affairs, the Board of Supervisors came in just under the wire this week with a long-anticipated plan of bankruptcy recovery.

It may have satisfied some, but this is very much a “Plan B,” as opposed to a “Plan A.” That is, it is not the orderly approach the county should have crafted were it willing to accept the inevitability of new short-term taxes.

RAID ON OCTA: That there is now some sort of plan no doubt provides some participants in the bankruptcy drama with a sense of resolution. A committee representing the members of the failed county investment pool, for example, voted 5 to 2 in favor of the proposal, but clearly not everybody was happy. Perhaps for some, the latest plan could be measured favorably against the board’s previous effort, which was merely a list of options for the Legislature to choose from. The plan now is to raid $570 million from the county’s transportation agency and to force cities, schools and special districts to postpone and possibly forgive more than $800 million in debt.

The proposal at least would spread some of the pain. For example, the Orange County Transportation Authority would see $38 million in annual sales tax revenue diverted to the county instead of the $70-million annual shift approved by the Legislature earlier this month; the OCTA would receive $23 million in state gas tax revenue in return for responsibility for road improvements and capital projects.

But whatever more acceptable suffering might be found in this plan, it contains a fundamental flaw. It fails to raise any new money to dig the county out of bankruptcy. This proposal, like other “Plan Bs,” is really a shell game; it takes from those who are owed or asks them to absorb losses. It is still not clear, for example, how much of an effect the diversion will have on the county’s bus system.

Moreover, one of the most striking things about the plan is how much is based on the hope that everything will work out as intended. The county is now pinning a substantial portion of its recovery on a roll of the dice--the hope for success in its $2.4-billion damage suit against Merrill Lynch & Co.

LEANING ON LAWSUIT: The previous recovery plan, the half-cent sales tax idea defeated by voters in June, did include some measure of reliance on the outcome of the lawsuit. But the supervisors now are leaning solely on reimbursement from litigation proceeds for cities, schools and special districts. That effectively makes the 100-cents-on-the-dollar idea much more of a gamble than previously. There are questions also to be answered about other threads in the recovery plan: for example, whether trash importing fees will come in as anticipated, or whether the sale of county assets will be realized as envisioned.

For whatever hope it holds out, this new plan is much closer in spirit to the arguments of those who have said that investment pool participants effectively should swallow losses. While the county is offering a plan, it is not the plan it might be.