In the year since bankruptcy, Orange County's economy has become vibrant again, helping to lead the region on the ROAD TO RECOVERY

By JAMES FLANIGAN

Nov. 29, 1995 12 AM PT

A year ago next week, Dec. 6, Orange County’s government filed bankruptcy amid widespread predictions that the county and all of California would pay a terrible price for the carelessness of this otherwise wealthy and industrious area.

But as the anniversary approaches, the most evident fact about Orange County is its vibrant economy.

To be sure, a price is being paid and will be paid by Orange County taxpayers and residents, who have been debating what they want from local government ever since learning that their county treasurer had blown $1.7 billion in dubious investments. Thus, Orange County could point the way for government reform for all of California.

But the surprising news is that public bankruptcy scarcely applied a brake to the county’s economy. In the past year, Orange County has created 17,000 jobs and is poised to add more than 22,000 jobs in the coming year.

New business formation is spiraling. In the last year, $1.37 billion in public stock sales have launched or expanded Orange County companies as institutional investors have sought fresh opportunities. That compares to total underwritings of $377 million in the year before the bankruptcy, according to Cruttenden Roth & Co., an Irvine-based investment firm.

Venture capital for start-up companies has also flowed--$84.8 million in 1995, compared to $62 million the year before.

Orange County, like the rest of Southern California, was once a strong-hold of aerospace-defense, and it suffered with the region in that industry’s long early-1990s downturn.

But now it is becoming a powerhouse in biomedical instruments, computer electronics and software, and the many businesses that serve those fields, from financial services to special education.

“The common denominator of those industries is information, and growth of information business has been rapid in Orange County,” says economist Esmael Adibi of Chapman University.

Indeed, by shifting to those new industries the county’s economy has been able first to emerge from recession and then, in the past year, to overcome the drag of public bankruptcy.

Undeniably, the county is paying a price for its supervisors’ clumsy bankruptcy. Some 4,000 jobs in local government and the private sector have been lost. The county had to pay heavily in bond insurance and interest rates when it rolled over debt this year, says Zane Mann, publisher of the California Municipal Bond Letter.

And it will have to pay roughly $7 million extra in interest and insurance to roll over $400 million in bonds in 1996.

Moreover, payments on those bonds over the next decade are being taken from the county’s transit, parks and beaches, flood control and other accounts. The long-term result could well be a fraying of those services and amenities, especially as investment losses pinch local governments.

The voters turned down a sales tax increase last June that would have taken the county out of bankruptcy. So local governments, schools and other agencies now look to be reimbursed from a county lawsuit that seeks more than $1 billion from Merrill Lynch & Co. and other companies that sold investments to former Treasurer Robert L. Citron.

Such lawsuits can drag on for years, however, and any settlement is likely to be for much less than $1 billion. Governments and schools in Orange County will be on shortened rations.

“People care about the schools but not about the government,” reports Mark Baldassare of UC Irvine who surveys Orange County residents annually. Accordingly, schools were given a better shake when investment losses were allocated. And, Baldassare’s survey finds, a majority of voters want to relegate supervisors to part time and to hire a professional manager.

The county is discovering that it has too much government. “I don’t know why we need so many water or sanitation districts,” says William Popejoy, who served without pay as county chief executive in this year’s crisis and left in frustration at the way things are done. “We need fresh approaches, part-time citizen supervisors, nonprofit organizations used for some tasks,” Popejoy says.

The real thinking emerging in Orange County is that local government should feel the same scalpel that has restructured business corporations for the last decade.

And with many other counties in financial trouble--notably Los Angeles, San Bernardino and San Diego--such ideas will have influence as California moves toward constitutional revision.

But won’t infrastructure and services that support the economy suffer if government is downsized? Not necessarily. People vote for what they need. A good example are the highway interchanges that have relieved traffic congestion in Orange County. They were built with funds voted directly by county voters in a referendum.

A newer example is the private fiber-optic infrastructure being installed by competing phone companies in the central districts of Costa Mesa, Santa Ana and Irvine. The fiber-optic network will greatly increase communications abilities and help Orange County attract or inspire even more information companies.

But could poorer residents be left behind by the high-flying, high-tech world? Again, not necessarily. Social decay hurts new economies even more than it does the old. A county that runs on brainpower has to make life good for its people because the industry it wants to attract and hold depends on highly mobile people.

In that context, crime--a rising concern in Orange County--is not a good worry; wanting to make schools better is a good, productive worry.

Orange County, an area the size of Minneapolis or Dallas with more cultural facilities than either, has always been a trend-setter among U.S. metropolitan areas. It is again in bankruptcy’s aftermath.

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After the Fall

Defying most predictions and the fears of its own residents, Orange County has shown remarkable economic buoyancy since declaring bankruptcy on Dec. 6.

EMPLOYMENT

In millions of jobs:

HOUSING STARTS

In thousands of units:

TAXABLE SALES

In billions of dollars:

INVESTMENT

Investment in small and start-up companies, in millions of dollars:

Public underwritings

1995: $1,370

1994: $376

Private venture capital