Once Bankrupt, O.C. Now Balloons

After it declared bankruptcy nearly nine years ago, Orange County tried to become a more efficient machine. Supervisors slashed payroll, placed restrictions on county investments and developed a plan to ensure that the county never again exposes itself to financial ruin.

But in the years since, county government has grown even bigger, spending has escalated and perks awarded county workers have soared.

The county has increased its work force year after year, to where it now employs 28% more people than it did the year of drastic cuts that followed the bankruptcy, 1995-96. In contrast, the county’s population grew 15% over the same period.

In eight years since the bankruptcy-triggered spending cuts through the fiscal year just ended, the county’s budget has risen 42% -- about double what the rate of inflation required to keep spending flat. If spending continues at its current pace, the county will run out of savings in two years.

Now, some on the county Board of Supervisors are growing concerned, because of the greater spending and because a significant portion of the state’s budget problems will probably be passed along to the counties this year and perhaps for years to come.

“My perception is the county went through a severe belt-tightening after the bankruptcy. Finally, near the end of the ‘90s, they started loosening the belt,” said Supervisor Bill Campbell, who took office this year. “They were in a strong economic time when they felt justified doing that. Times are different now. We are in a flat economy. The state is in an economic disaster. So we have to go back and look at where we loosened the belt the last three years, and tighten it.”

One example of the looser spending is the car allowances given to top- and mid-level managers in 26 departments. In four years, the allowances leaped 43% to more than $670,000.

Many of those managers receive more than $125,000 in annual salary and the added “auto allowance” of $7,000 to $8,000 per year. In the district attorney’s and public defender’s offices, some 47 managers received car allowances totaling more than $300,000 in the last year, records show.

“That’s a perfect example of an area that’s growing,” Campbell said. “When you see that kind of growth going on, it’s a sign there’s something strange going on.”

Campbell said he would consider asking his colleagues on the board to limit future car allowances to managers who rely on their cars for county service.

Some costs have been for one-time occurrences.

When the Board of Supervisors this year fired Executive Officer Michael Schumacher, he received a contractually required $230,000 severance. Adding to that his salary, car allowance and 401(a) retirement benefit, Schumacher got $356,256 his last year of county employment.

The Orange County Grand Jury recently criticized the county for issuing generous benefit increases to more than 17,000 county employees represented by unions. Among those benefits: a 2% bonus for top-performing workers that actually is given to more than 95% of the county’s workers, costing about $15 million per year.

Applying Pressure

County Supervisor Chris Norby is opposing every contract that, as in the past, allows county agencies to spend 10% above the contracted amount without the board’s approval. The board is promising to reconsider the employee bonus program and has publicly criticized the county’s personnel department for allowing managers to suspend county workers with pay for long periods during disciplinary investigations. That practice has cost the county thousands of days of salary.

The county has lingering pains from the 1994 debacle. It was forced to declare bankruptcy when the risky borrow-and-invest strategies of then-Treasurer Robert L. Citron backfired, creating more than $1.6 billion in losses. The county borrowed nearly $1 billion to cover the losses and must pay $91 million annually on its debt, which, at $873 million, won’t be paid off until 2026.

In one of the most egregious cases of unmonitored spending, the county planning department spent $24.5 million from reserves and an emergency loan before balancing income and outflow.

Orange County Treasurer-Tax Collector John M.W. Moorlach said he looks at Orange County’s spending increases today with memories of the bankruptcy fresh in his mind. In 1994, before the crisis became apparent to all, Moorlach, a private accountant, ran for election to unseat Citron, warning that the county’s investment strategies could collapse. He lost, but after the county declared bankruptcy, he was appointed to the seat.

Moorlach said he is particularly concerned about the board’s 2002 decision to award sheriff’s deputies a 50% increase in pension benefits, which allows many deputies to retire at age 50 with 90% of their final salaries for life. That increase, and stock market losses, have created a deficit in the county pension fund, forcing officials to consider borrowing millions.

Moorlach faulted county officials not just for the 2% bonuses, but also for agreeing to combine sick leave and vacation time into one benefit, with cash value upon retirement if unused. One study put the cost to the county of combining sick and vacation time at about $30 million.

“You can see the termites coming into the building,” Moorlach said. “We’re not going to have a major collapse like we did with Citron. We’re just going to have the whole infrastructure collapse because no one is spraying the termites.”

Norby, who was not on the board when those benefit increases were approved, said he believes county officials were not forthcoming about the costs.

“We have to understand the effects of everything we do. It appears a number of things were approved without a full understanding of what the cost was,” Norby said. “Some of these were proposed to the board by staff without giving a full explanation of what they meant.”

State Is the Wild Card

Budget manager Steve Dunivent said he is confident in the county’s fiscal discipline but remains concerned about the impact the state budget crisis will have on Orange County. In June, supervisors approved a $4.78-billion budget that assumes a certain level of funding from the state, which may or may not be approved by state lawmakers.

“I don’t know of any organization that can say they’re 100% efficient and totally lean,” Dunivent said. “But I think, generally, the departments are doing their very best in order to control costs and maintain services to the county.”

Robert MacLeod, general manager of the Assn. of Orange County Deputy Sheriffs, said there are areas other than employee compensation where the county should scale back.

“Where the county should look to save money is the ratio of managers to line employees in Orange County compared to similar jurisdictions,” MacLeod said.

Supervisors Campbell and Norby said the state’s fiscal crisis heightens the importance of their scrutiny on the county budget.

“Our job is to supervise, not just to be a public relations machine to make the organization look good,” Norby said. “If we make mistakes, I want to learn from these mistakes.