Bankruptcy? What Bankruptcy?!

OCs financial meltdown, five years later

"Under the old welfare system, we gave the recipient—generally a mother—a monthly check," explained Griffith. "In the new system, we work to get her employed and provide her childcare. We actually spend more money per case than we ever did before. The tradeoff is that overall caseload has dropped almost 40 percent from its height in 1994. It's the good economy and our emphasis in getting people jobs that has greatly reduced our caseload. But it hasn't reduced the amount of dollars we spend."

Spending on overtime and lobbying expenses for county workers has skyrocketed. The county government's travel costs alone nearly doubled between 1997 and 1998—from $715,000 to $1.3 million —a figure the CEO's office attributed to lobbying and training.

Adding insult to the injury of welfare reform, the Times reported that a lot of the county's record-high lobbying and travel expenses were incurred by the forward-looking SSA.

According to the SSA's most recent budget (fiscal year 1999-2000), the agency continues to spend money on a variety of federally funded programs for Orange County's poor. But while the SSA now spends just more than $130 million each year on services and supplies, that's still a good $25 million less than what the agency spends on salaries and benefits—welfare, in another word—for its own employees.

The Coming Bad Times

The late 1970s and early 1990s produced a cottage publishing industry in books of financial pessimism—the How to Survive the Coming Tough Times genre. Today it would take some real sweat to turn up such books; you're more likely to run across The Great Boom Ahead and The Roaring 2000s, the well-publicized Dow 36,000, the less famous but more bullish Dow 40,000, and the nearly ecstatic Dow 100,000.

Such trends run in cycles, but officials laboring inside the County of Orange's Hall of Administration seem well ahead of the literary curve. Their 10-year Strategic Financial Plan suggests things are going to be bad in a few months. And then they'll get worse. And then worse still.

According to the plan, "beginning fiscal year 2002-2003, uses would exceed sources." Translation: in two to three years, the county's going to run a deficit.

Unless.

Unless (the plan says) that deficit can be filled with $35 million from the "Strategic Priority Reserve" and county officials can be persuaded to make vague "selective reductions" in county programs.

If county officials can do all that—spend all the money they've been hoarding in a giant coffee can in someone's back yard and trim further already-trim programs—then the financial feces will well and truly hit the fan in 2005.

Even if we handle the minicrisis of fiscal year 2002-2003, in other words, county officials acknowledge a bigger problem following immediately behind it, a crisis in which "baseline General Fund uses are growing faster than funding sources."

Beginning in 2005, the county will begin to clock annual losses of about $20 million. It will continue to run in the red through 2009, the last year for which officials examined this coming apocalypse.

County officials are hopeful they'll figure out something between now and then. But they're not sure what that something is.

And, in the meantime, they don't want to hear the "B" word.

When asked if the county's looming deficit has anything to do with the 1994 bankruptcy, Mittermeier's hand-picked financial guy said absolutely not.

"The deficit is a result of falling revenues," said Burton, the county's chief financial officer.

According to a Chapman University forecast, Burton says, property values won't rise as quickly in the future as they have over the past few years; that'll cut property-tax revenues to the county significantly. And vehicle-license fees, another source of county income, are projected to fall as well.

Meanwhile, "caseloads," the number of people dependent on some form of assistance from the county, will rise. That, said Burton, is the cause of the coming troubles, not the 1994 county bankruptcy.

But wouldn't the county be able to meet those demands if it didn't have to spend as much as $90 million each year —about 22 percent of the county's discretionary spending—to fund bankruptcy payoffs?

No, Burton said. The two things are unrelated.

Why?

Because they're not related.

Oh. So if the county wasn't sending between $60 million and $90 million each year to Wall Street bondholders, we'd still be broke after 2005?

Right.

Why?

Because uses are exceeding sources.

If you're confused, we're glad. Because it means we're not alone. We still can't understand how the county and its cities can lose $1.8 billion in 1994, get back half that through lawsuits against Wall Street firms, cut programs for public health and the environment, and not find itself digging through the couches for loose change to pay off the rest of the debt—change that might add up to the $20 million per year it would take to fill the spending gap after 2005.

A mother might point out that if we hadn't been so damn stupid as to lose all our money in the bankruptcy, we might have some saved for 2005.

It's possible that speaking so forthrightly would be impossible for county officials. Since Dec. 3, 1994—the night county officials gathered with their private-sector advisers at an Irvine restaurant to weep over the impending disaster—county officials have defined their purpose in public-relations terms. Appointments—like Mittermeier's to the CEO's job—have been described as "confidence-building" measures. Cutting health care for the poor while building roads to serve the projects of huge real-estate firms represents "a disciplined and pragmatic approach to financial planning that has been a catalyst for regaining and restoring"—not just regaining but also restoring—"Wall Street and the public's confidence in the County of Orange."

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