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O.C. Gets Scant Sympathy in Plea to Assembly


SACRAMENTO — With hat in hand, a contingent of Orange County leaders asked the Assembly on Wednesday to help provide loan guarantees needed to keep schools afloat and prevent the county's financial debacle from rippling further through the state.

But the pleas drew a largely unsympathetic response from Democrats, who repeatedly asked why Orange County hasn't addressed its deep fiscal problems by raising taxes, and criticized the county for budget cuts they say target the poor.

"When you speculate (on risky investments) the way Orange County did and then expect the rest of the state to bail (you) out, it's really asking a lot," Assemblyman Tom Bates (D-Berkeley) said after the 90-minute presentation before the full Assembly. "We want the pain of the recovery to be shared by all of the residents of Orange County, not just the poorest and weakest. We want something balanced, not just a flimflam."

The unusual session came at the invitation of Democratic Speaker Willie Brown, who scheduled it after meeting last weekend in Orange County with business leaders and county officials.

In making the pitch Wednesday, Orange County Chief Executive Officer William Popejoy outlined the financial crisis that engulfed one of the country's wealthiest counties after its investment pool suffered a $1.69-billion loss last year, prompting the county to declare bankruptcy.

Asked repeatedly by Democratic members why the county had not looked at raising taxes, Popejoy said he viewed a sales tax increase as a last resort.

But he wouldn't rule it out.

"If we get to a point where I can't see a way around this other than a sales tax, then I'll recommend a sales tax," Popejoy said. "I'm not foolish enough to feel that we just say 'no' to taxes under any circumstances."

A sales tax increase of 1 percentage point would raise about $270 million in additional revenue for the county--an infusion of cash that Wall Street investment bankers have said would help Orange County secure the loans it will need for its financial recovery.

Republicans seemed far more amenable to Orange County's recovery plans. Assembly Republican leader Jim Brulte expressed support this week for providing a state loan guarantee, and other GOP legislators appeared agreeable at Wednesday's session.

"I think guaranteeing a loan is not a bad way to go," said Assemblyman Mickey Conroy (R-Orange).

Popejoy and other county officials have been pushing to issue $255 million in "recovery notes" that would be guaranteed by the state but use the county's assets as collateral. The money generated by those notes would help pay the public agencies that participated in the investment pool.

Many pool investors have rejected a recent settlement proposal that would repay all participants 77 cents on each dollar invested, but hold out a promise that they would eventually recoup all of their funds. By selling the recovery notes, the county would hope to increase the immediate repayment to 90 cents on the dollar for school districts and 80 cents per dollar for other investors.

On Wednesday, several Democrats voiced qualms about that proposal.

Marguerite Archie-Hudson (D-Los Angeles), chairwoman of a special Assembly committee that will meet March 22 to discuss the county's recovery efforts, said a state loan guarantee remains troublesome because Orange County leaders have identified only $155 million in assets they can put up as collateral.

"The state would be asked to take a $100-million exposure," she said. "That seems to us to be at least imprudent."

Popejoy told legislators that the county is preparing to identify assets that it could use as collateral. But he didn't play down the potential risk.

"What we need from you people in Sacramento is help in this area," he said of the loan guarantees. "Just like any of you who sign notes for your children or friends, you're at risk."

But he also suggested to state lawmakers that if they "walk away" from helping Orange County, they will have to "accept the other possibilities that come out of the insolvency of the schools," such as having to bail out troubled districts with state revenue.

Popejoy warned that if the county's recovery efforts falter, the entire California municipal bond market will feel the impact. "We won't be the only ones hurt," he said. "Every municipality in California will be hurt."

Brown continued to insist after the session that no state relief package would win Assembly approval unless Orange County demonstrates that it has taken every step possible--including a tax hike--to bail itself out of trouble.

He said Democrats and Republicans in the Legislature "are going to insist that Orange County exhaust every option that Orange County has, including any new revenue sources, before they start seeking assistance" from the state.

But the embattled Orange County Board of Supervisors has steadfastly resisted the idea of a tax increase and is scrambling to find other options.

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