Orange, L.A. Counties Plot Transit Tax Raid

SACRAMENTO — Thrown together by a common desperation for cash in their home constituencies, lawmakers from Orange and Los Angeles counties hope to use the state budget hearing process this weekend to give their financially strapped county governments the power to raid transportation tax dollars, officials said Thursday.

The proposal, which could be voted Saturday along with the state budget, would give each county’s Board of Supervisors authority to take sales-tax funds now used to subsidize bus service, and require local transit authorities to use other transportation funds to cushion the possible impact on bus riders.

Bankrupt Orange County could get as much as $70 million a year for 15 years, according to drafts of the proposal now being circulated in the Capitol. Los Angeles County, facing a $1.2-billion budget shortfall, would likely take in about $75 million annually for five years, legislators said.

“We think this is a good opportunity to bring about a solution for both L.A. and Orange counties,” said Assemblyman Curt Pringle (R-Garden Grove).

“The reality is that if we want to move this and have the impact felt immediately, we need to build coalitions,” agreed state Sen. Richard Polanco (D-Los Angeles).

Democrats and Republicans plan to discuss the tax-diversion proposal during separate party caucuses today. The normally warring delegations from Los Angeles and Orange counties represent nearly a third of the votes in both houses, and together can wield far more legislative clout.

Assemblyman Phillip Isenberg (D-Sacramento) said if the conservative and liberal lawmakers from the two counties present a united front, the tax-shift proposal would almost be a slam-dunk.

“My hunch is, unless the budget involves some kind of relief for Los Angeles [County], it is unlikely there will be enough votes to pass it initially,” Isenberg said. The bonus of financial help for bankrupt Orange County would only “improve its chances,” he added.

Since Orange County’s Dec. 6 bankruptcy filing, people both inside and outside government have looked longingly at the Orange County Transportation Authority’s coffers, flush with about $340 million for an urban light-rail system to be built sometime in the future.

But that money comes from Measure M--a half-cent sales-tax passed in 1990 for specific transportation projects--and cannot be diverted to other uses without voter approval.

Last week, however, the county’s financial and legal consultants presented a back-door plan to use Measure M funds by passing legislation that would take other sales-tax money away from OCTA, and order OCTA to replace those funds with Measure M dollars that have not yet been allocated to specific projects. This idea is what legislators have jumped on.

“It’s a tremendous step in the right direction,” Orange County’s lead bankruptcy attorney, Bruce Bennett, said Thursday of the quick movement in Sacramento. “It doesn’t solve the problem in and of itself, but it’s a huge help.”

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OCTA Chief Executive Stan Oftelie could not be reached for comment Thursday afternoon. He has said previously that he is willing to use OCTA’s excess cash to help in the bankruptcy, but hopes to gain control of John Wayne Airport in return.

Chris Varelas of Salomon Bros., Orange County’s financial adviser, said the county is crunching numbers to determine what impact taking the sales tax money would have on OCTA’s bus service. He said that Measure M funds could easily be found to replace at least $35 million of bus money. But he said he needs more time to determine whether the bus system could survive intact if the county took all $70 million it would be authorized to take under the current proposal.

A 15-year revenue stream of $35 million a year would be enough to back the issuance of more than $300 million in new bonds. Combined with the $460 million in reserves the county already has, this would give the county almost enough to pay off the $800 million in short-term notes whose maturities were recently extended to June, 1996.

But the county also has more than $1 billion in other outstanding debts, including about $850 million owed to 200 local governments that lost money late last year when the county-run investment pool collapsed.

“This is a good beginning, [but] we cannot choose our favorite creditor and specifically pinpoint the funds for bondholders, so this alone isn’t sufficient to remove from the county any fear of default,” Varelas warned.

The county is also working on legislative proposals that would divert property tax revenue from special districts to the county’s bankruptcy recovery effort. Orange County legislators in Sacramento, however, favor asking cities and special districts that lost money in the pool to forgive the debt the county owes them.

The pool participants, meanwhile, have suggested swapping county assets either for debt forgiveness or cash payments, and plan to present a proposal to that effect today) or Monday.

In Sacramento, some lawmakers--even those who support relief for Los Angeles and Orange County’s financial crises--expressed dismay over the last-minute proposal to take transportation taxes.

“It’s a startling policy change,” said state Sen. Quentin Kopp (I-San Francisco), chairman of the Senate Transportation Committee. “I don’t object to voting for it as far as those two counties are concerned, but it will set a bad precedent.”

Scott Johnson, chief counsel to state Sen. William A. Craven (R-Oceanside), said the proposal particularly poses problems in Orange County, handing over up to $70 million with no strings attached, and no guarantees the money would go to pay off bankruptcy debt.

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“It seems premature,” Johnson said. “It was always envisioned by legislators in Sacramento and officials at the county that [relief] would be done as part of a comprehensive recovery package.”

Until Thursday, the Orange County delegation had been focused on writing a bill that would divert OCTA money--but also threaten the appointment of a state trustee to run the county’s affairs if the county failed to have a comprehensive recovery plan in place by year’s end.

Pringle said Thursday that the opportunity to quickly get the revenue the county needs was too good to pass up, and that the trustee provision--which some lawmakers feel is needed to prod Orange County officials into action--can be accomplished in later legislation.

“This is something available to us today,” Pringle said of the proposal to link the revenue transfer to the state budget. “The voters I’ve talked to said they don’t want any new taxes and they want the county to live within its resources. . . . This is answering their edict.”

In other bankruptcy-related developments Thursday in Sacramento, a daylong hearing called by Assembly Speaker Doris Allen (R-Cypress) to discuss 13 pending bills on local government investment was mostly notable for who was absent.

With the exception of Allen, the entire Orange County delegation boycotted the morning session. Only Craven appeared in the afternoon, and then simply to present a bill he authored.

“It’s unfortunate the Orange County contingent chose to boycott,” an irritated Allen said. “Maybe they think they already know everything.”

Allen took particular aim at Pringle, saying “basically he doesn’t want me involved. Unfortunately, that’s playing politics instead of policy.”

Pringle and others from the county delegation said they skipped the session simply because it was a rehash of what has been debated in Sacramento for the past eight months.

“The Orange County bankruptcy didn’t just happen yesterday,” Pringle said. “Many of us have been working on solutions since early December. This select committee hearing is just a show.”

They also expressed ire that Allen had chosen to focus on the slew of bills designed to prevent an Orange County investment debacle from happening again, instead of addressing the immediate needs of the county.

Allen, however, said that the county’s negotiated settlement with creditors giving it until next June to repay the $800 million in outstanding notes has given everyone breathing room to craft a careful solution.

Bailey reported from Sacramento and Wilgoren from Costa Mesa.

* WORDS OF WARNING: Congress urged not to overreact to O.C. bond disaster. A24