Despite Bipartisan Effort, County Might Be Headed for ‘Bankruptcy Light’

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Monday, Sept. 12, 2011 | Despite a months-long, high-level lobbying blitz by top Orange County officials in Sacramento and a dramatic, last-minute push before state lawmakers adjourned Saturday morning, the county has lost $48 million in annual revenue for basic services as part of the state’s newly adopted budget.

The blow to the county coffers is equal to more than half the annual payment for the county’s 1994 bankruptcy, prompting one insider to call it “bankruptcy light.”

Bill Campbell, chairman of the county Board of Supervisors, has said that many services and as many as 250 county jobs would be affected if the revenue loss couldn’t be reversed this legislative session.

“Layoffs are on the table,” Campbell warned. “It’s not a question of if, it’s how many and in what departments.”

The loss in tax revenues is the direct result of an oversight by top county executives and supervisors during the 2005 bankruptcy refinancing and their subsequent failure to address it during five legislative sessions in Sacramento.

It stems from the way in which counties receive their share of the state’s vehicle license fees. In 2004, the state stopped giving counties a share of the fees and instead increased each county’s share of property tax, saying it was a more equitable and less volatile source of revenue.

Orange County, however, continued to receive its vehicle fees under special state legislation passed to cope with the county’s bankruptcy. When Orange County supervisors refinanced their bankruptcy debt package in 2005, they inadvertently terminated their special access to vehicle license fees.

This year, Gov. Jerry Brown’s staff found the glitch and took the $48 million to help balance the state budget, which sent Orange County officials scrambling.

Campbell spent the last month teamed with Nick Berardino, general manager of the Orange County Employees Association, walking the halls of Sacramento to round up votes for a bill sponsored by Assemblyman Jose Solorio (D-Santa Ana) that would fix the glitch.

Berardino worked the Democratic side of the aisle, gaining the critical early support of Assembly Speaker John Perez (D-Los Angeles). Campbell worked to gather Republican votes and by Friday said he had the entire Orange County delegation in tow. He had 43 sure votes in the Assembly, he said.

Campbell and  Berardino have worked before on a series of deals, including an employee pension enhancement and revised retiree medical benefits that saved taxpayers nearly $1 billion. And over the past several years, both have teamed to allow Orange County to offer a reduced pension benefit that is less expensive for both employees and taxpayers.

“Nick and I play off each other very well,” said Campbell, himself an assemblyman before coming to the Board of Supervisors in 2003. “We understand each other,” Campbell said.

Berardino praised Campbell’s acumen as a former legislator, noting that lobbying a Legislature about to adjourn requires strong legs and focus. “I only have words of praise and admiration for his [Campbell’s] work ethic. He has worked tirelessly and even spent Labor Day weekend working the phones.”

But both men became pessimistic by Friday afternoon as the bill, waiting for committee action, stalled.

Despite a dramatic run — clearing the Assembly Appropriations Committee by 9 p.m. Friday and gaining an early-morning 48-2 floor vote to approve the measure — the Senate did not take up Orange County’s tax measure before its session ended.

Persuading an overwhelmingly Democratic Legislature that one of California’s most Republican counties should receive a $48-million break while allocations for other counties are being cut proved too steep a hill to climb in 2011.

“Although the Legislature ran out of time to pass ABX1 43 on to the governor for consideration, the vote on the Assembly floor was very encouraging, so we will continue the issue along in January when the Legislature reconvenes,” said Solorio during a morning press statement.

On Friday night, Berardino said Orange County’s staunchly conservative delegation made such funding raids hard to stop. And he fears it’s just the beginning of a trend.

“It’s an uphill struggle,” said Berardino, who flew to Sacramento three times during the last month. “It’s trying to get a lot of money at the state for a county that has a delegation that has been very adversarial to the administration and the Legislature.” In Sacramento politics, he said,  “that’s a recipe for disaster.”

Campbell said Berardino is “absolutely right” about the animosity created by the Orange County delegation. But, he added, “I’m not going to advocate adding any more Democrats to the Legislature.”

Instead, Campbell took aim at the Democrats who said they would help Orange County.

“I’ve been disappointed with the speaker,” said Campbell. “He said he’d get the bill off for us, and he hasn’t done much for us.” Campbell said he thought Perez had gotten blowback from other Democrats whose counties had been affected by vehicle license fee raids, asking why Orange County should receive special treatment.

Campbell also said Solorio hadn’t been the vote gatherer he expected, adding, “I’m very frustrated with his performance.”

Berardino took issue with Campbell’s comments. “Jose [Solorio] and [Sen.] Lou Correa (D-Anaheim) did a fantastic job, and the speaker was accessible and helpful, and we look forward to his continued help in January,” Berardino said.

The toughest challenges facing Orange County officials now is where to turn next.

Last month, some supervisors openly questioned county CEO Tom Mauk on the status of layoff contingency plans if the $48 million wasn’t restored. A plan has since been circulating among top-level executives, but county officials have refused a Voice of OC public records request, arguing that the report is still in draft form and exempt from disclosure. The draft reportedly suggests a 5.4 percent across-the-board cut but does not include supervisors’ office budgets.

While the county’s coffers have received a slight boost from sales taxes, Campbell said that’s not much relief. It won’t be enough to stave off large-scale cuts if the $48 million isn’t recouped, Campbell said.

Yet moving too aggressively on job cuts before January could jeopardize the cooperation needed from labor and Democrats to restore the money permanently when the Legislature returns in January.

Berardino said he would urge supervisors to avoid any job cuts before then.

“Right now, the best thing for the county and us [labor] to do is collaborate, continue to work together and have an objective analysis of what the political dynamic is [in Sacramento]. We’ll have to do this in a way that we don’t lose jobs.”

Berardino said he has much work ahead to persuade Democrats in Sacramento that despite the stereotypes they may have of Orange County, a lot of working-class people are going to suffer if they stick a $48-million knife into the county budget each year.

“It’s the workers that are getting penalized, not their political adversaries,” Berardino said. “They’re taking out their frustration with their political adversaries on working men and women. That’s the irony of it all.”

In addition to the potential job cuts, many unanswered questions have been thrown back to supervisors and county executives.

Principally, how did they miss this?

It was known as far back as 2006 that a glitch existed.

Several top officials privately admit that the glitch fell below the official radar after the refinancing was completed. Even the bond disclosures for the refinancing make note that the legislative authorization had been cut.

In 2009, Correa’s was the critical, last-minute vote to pass the state budget, and he used it to bargain for more than $50 million in property taxes returned to Orange County. All observers now agree that Correa could have easily fixed the glitch then without much debate.

Adding to that, said Campbell, was the attitude or many Democrats mention that extra $50 million as a rationale for the state keeping the $48 million in vehicle tax.

For many Democrats in Sacramento, “this is tit for tat,” Campbell said.

Meanwhile, Berardino acknowledges that he must persuade Republicans in Orange County who may not have an ideological problem with government cuts that the “tit-for-tat” matters.

“The fact is, it’s our money,” he said. “It’s not like we cut $48 million and returned it to the taxpayers. LA County, San Francisco County came in and took our $48 million. It’s not cutting government. You’re just cutting your own services and giving it to other jurisdictions.”

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