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O.C. Will Be Forced to Dip Into Reserves to Cover Deficit

Government: Expected $57-million shortfall, the first since county's bankruptcy, is linked to state's money problems. Drop in sales tax revenue adds to woes.


For the first time since the county's historic bankruptcy in 1994, Orange County will tap into its reserves to offset an anticipated $57-million budget shortfall, county finance officials said Friday.

The unusual action was prompted by new budget figures the governor's office issued in May, said Gary Burton, the county's chief financial officer, who unveiled the county's $4.3-billion budget--up 4% from last year--for the fiscal year that starts July 1.

Use of the county's reserves is necessary "to maintain operations and balance the budget," Burton said. The shortfall is the result of the stagnant economy and the state's $23.6-billion deficit, he said.

The sluggish economy has also lowered sales tax revenue, causing a $10-million funding drop for public protection agencies, including the district attorney's office and Sheriff's Department. Furthermore, the county has had to deal with increased retirement and health insurance rates for former employees, Burton said.

The county plans to use $17.3 million from its $126-million "strategic priorities reserve," which funds the Board of Supervisors' priority programs: affordable housing, ocean water quality and such capital improvement programs as the Theo Lacy Branch Jail expansion.

The county will not touch a separate $23-million emergency reserve for such catastrophic events as earthquakes, Burton said.

Maintaining the reserves was part of the post-bankruptcy financial planning that allowed the county to prioritize programs and provide funding for them. When shortfalls occur, the process allows the board to shift its priorities and funding levels.

Burton and a half-dozen department heads said the county is in for serious belt-tightening, and pinpointed potential cuts in programs and services if the state's budget picture doesn't brighten soon.

Details of the budget are still being worked out, but some of the hardest-hit programs are expected to include drug rehabilitation, family resource centers, foster care, adoptions, summer youth jobs and mental health services to the homeless.

Last week, County Executive Officer Michael Schumacher ordered a hiring freeze in anticipation of the proposed cuts in services and programs. Only those vacancies identified as "critically important" will be filled, a county spokeswoman said.

The county also has stepped up lobbying efforts with such Sacramento legislators as Assembly Speaker Herb Wesson (D-Culver City), said Board of Supervisors Chairwoman Cynthia P. Coad.

Given its own shortfall, the state is backing away from funding programs it mandated, which has left Orange and other counties having to provide services with a reduced level of funding, she said.

The county was forced to declare bankruptcy in 1994 after it lost $1.6 billion on risky investments. Officials pledged to repay more than $900 million in recovery bonds and bankruptcy debts over 25 years.

The state shortfall and use of the county's reserves will not affect the repayment schedule, said county spokeswoman Diane Thomas. County finance officials will present the proposed budget at a workshop Thursday at 3 p.m. in the county Hall of Administration, 10 Civic Center Plaza, Santa Ana. The budget will be presented to the Board of Supervisors on June 11.

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