O.C.’s Planners Misread Slump

The financial crisis at the Orange County Planning Department began more than two years ago when building activity began to slow.

The number of permit applications dropped as the county began to build on its last undeveloped land -- with a corresponding cut in revenue. The department’s budget took another hit when officials decided to trim what developers were charged for building permits.

Instead of slashing costs, the department covered a growing deficit by drawing on its $18-million reserve fund.

Officials bought a fleet of Ford Explorers and installed a $7-million computer system. They predicted a turnaround in permit applications that never materialized.

Today, the Board of Supervisors will consider an emergency plan to keep the department afloat by raising permit fees more than 50%. The vote comes less than a week after Planning Director Thomas B. Mathews notified employees that 20% of the staff would be laid off.

Supervisors and others expressed shock at how the department found itself in such a hole, losing at least $500,000 a month with no reserves left.

“The Planning Department is supposed to do planning. They are the ones who are supposed to know what their budget should be,” said Supervisor Chuck Smith. “It’s inexplicable.”

Auditor-Controller David E. Sundstrom said Monday that his office has begun to sort out what went wrong.

“We want to see once and for all a fair accounting of their costs and revenues and all their overhead costs coming out of [the budget],” he said.

Despite the downturn, the Planning Department increased spending each of the last three years -- from about $24 million in 2000 to a projected $33 million this year.

According to an optimistic business plan for fiscal year 2001-02, the department’s budget staff predicted that though “permits are down at this time ... our trend analysis indicated that the second and fourth quarters historically are the peak periods. March is expected to increase.... We are not considering any reductions in staff.”

The business plan predicted that the department’s budget woes were temporary.

So many large projects such as Rancho Mission Viejo would begin in coming years that permit applications would shoot up again, the plan said.

The spike never happened. Instead, Planning Department spokesman Brian Murphy said all four quarters of 2001 saw less permit activity than any quarter in the previous four years.

This year’s planning department budget predicted a $9-million increase in building fee permit revenues. But the extra money hasn’t materialized.

The problem surfaced publicly in August, when supervisors discovered that the department’s reserve fund was empty.

The board approved an emergency $8-million loan that was supposed to last through June. So far, $6 million has been spent.

Experts said it’s hard to predict new housing starts.

“The big challenge is that these cycles don’t behave in very predictable ways,” said Richard Gollis, a real estate market analyst based in Orange County.

Still, county planners are very aware of the status of projects and should have been able to pinpoint future activity fairly accurately, Gollis said.

The county is in a legal battle in Orange County Superior Court with Barratt American Inc., a national homebuilder that alleged that planners were charging too much for permits. The county voluntary reduced some of its fees after the suit was filed in 1999, but the case has yet to be resolved.

A judge appointed a special master to review the county’s record.

In court papers filed Monday, Robert Mosier, the special master, faulted planners for mishandling the department’s finances and urged the judge to stop the board from approving a fee increase.

“The spending train gained so much momentum ... that by the end of the fiscal year on June 30, 2002, when the reserve was finally depleted, it just kept going,” Mosier wrote.

Judge C. Robert Jameson declined to intervene Monday, saying it would be premature before supervisors made their decision.

Some stunned employees expressed their own anger that warning signs were not more clearly seen by managers.

“This is all a nightmare,” said a department worker who requested anonymity. “What happened, that’s what everybody wants to know. What went wrong. Who’s running the planning department? It’s like a shipwreck.”