Bankruptcy? What Bankruptcy?!

It's Good to be the Kings

Two summers ago, Rick Reiff, editor of the invariably optimistic Orange County Business Journal, was munching wieners with Robert D. Kaplan at Bistango, a fine-food eatery for expense-account industrialists in the Irvine Business Center. Kaplan was visiting for what would become an Atlantic Monthly article on, among other places, Orange County, California.

"I asked about Orange County's credit collapse in 1994, after officials had made bad investments with public money," Kaplan wrote.

"A blip on the screen—in historical terms, just a rainy day," Reiff told Kaplan. "Roads are still being paved. No police have been fired. What I'm saying is that the Orange County phenomenon is intact."

But he was saying more than that. Reiff loves to call himself—as the late, gay millionaire Malcolm Forbes once did of himself—"a capitalist tool." In talking with Kaplan, he was clearly a tool, acknowledging what has become the perspective of the rich: Orange County is a phenomenon driven by two things—land development (hence the reference to roads) and suburban quality of life (police). Indeed, the December 1994 bankruptcy cost Orange County almost $1.64 billion, but in the months afterward, county officials managed to pave the roads that make land development possible and made sure that Brad Gates' notoriously wealthy and secretive Sheriff's Department was insulated from any bothersome democratic intrusions.

For the county's poor and for everybody else who depends in any way upon county services, the bankruptcy's effects have been something more than a blip—a blimp, maybe, or a zeppelin, like the Hindenberg that went down in flames with almost all aboard. If the "Orange County phenomenon" still operates, health care, water quality, mass transit and housing for the poor do not. In some cases, there have been crises so severe—as in the one at the county's Children and Youth Services—they have invited outside investigation; in others—say, the unprecedented closure of county beaches last summer—outside investigation was called for but never came.

Cries of concern fall on deaf ears in the county's Hall of Administration. Sometimes the supervisors adamantly claim that their budgets have not hurt the poor. Other times—particularly when confronted in pubic forums—they reluctantly acknowledge the festering problem but, as shoulder-shrugging Supervisor Chuck Smith recently rationalized, the county "could never do enough" anyway to address health-care issues with limited financial resources. The sensitivity to the plight of Orange County's underclass can be summed up by Gary Burton, the county's chief financial officer, who contends that the public needs to accept a "wider definition" of health care. Burton said straight-faced, "It could mean the county's overall financial health." Assistant Sheriff John "Rocky" Hewitt went one cynical step further. He has said that increased county spending on building jails should be viewed as a health-care expense because a sizeable portion of the inmate population is medically needy.

But disingenuous word games cannot mask the ugly reality: the supervisors routinely find thousands—even millions—of dollars for projects that benefit the rich and middle class, including themselves. For example, Cynthia Coad—a first-term board member who, conventional wisdom says, is the supervisor most concerned about health-care issues—got $1.5 million to fund her "crusade" to increase code enforcement in unincorporated areas in her district near Anaheim. Citing residents for allowing chipped house paint was apparently so dire that Coad increased the number of county employees for the job from one to seven. "These people [who live in the unincorporated area] have been ignored for too long," said the supervisor who lives close to the targeted area. At a November board meeting, Coad claimed "health-care issues are very well-addressed" by the county.

The hypocrisy gets worse. As a ploy to sooth potential public outrage, each of the board members (Coad, Smith, Jim Silva, Tom Wilson and Todd Spitzer) has repeatedly framed a false public-policy choice: health care vs. bankruptcy-debt reduction; or, even more inflammatory, health care vs. law enforcement and more jails. In June, Spitzer said, "It would be reckless and foolish not to make the bankruptcy debt our first priority."

But while Spitzer and his fellow supervisors can't find one additional dollar for health care or to assist the county's poor, the board voted itself generous car allowances and two separate raises totaling $10,000 per year; increased controversial County Executive Officer Jan Mittermeier's annual salary by $20,000 to $160,000 per year; boosted the number of county employees paid more than $100,000 annually by 24 percent; allocated $250,000 to televise their meetings; this year spent $1.5 million on public relations touting the conversion of El Toro Marine Corps Air Station to a commercial airport; dedicated $52 million for routine building maintenance; handed Disneyland and other local tourist-related business as much as $750,000 per year in taxpayer funds for advertising; increased county travel costs by 83 percent to $27 million per year; and, in the past two budgets, doubled employee overtime costs to $20 million.

Most offensively, however, the supervisors found the courage in May to give their largest block of campaign contributors, real-estate developers, a massive 28 percent tax cut on their projects.

Sadly, the true legacy of the bankruptcy is that Orange County's poor likely face the most hostile local government in the nation. Evidence? Consider the federal government's much-talked-about settlement with the tobacco industry. In January, the supervisors will begin receiving $30 million to $38 million annually for the next 25 years as a result of the deal. In theory, the money was won to help communities defray the health-care costs of tobacco-related illnesses. Supervisors in San Diego and Los Angeles counties have already pledged their windfalls ($948 million and $3.3 billion, respectively) to improve public health. Despite the emotional and fact-filled pleadings of numerous speakers at recent board meetings, Orange County supervisors have so far rejected spending one additional dollar from the tobacco windfall on health care. Instead, the supervisors are considering spending the bulk of the money on building jails ($150 million) and further reducing bankruptcy debt ($107 million). Health-care advocates hope to convince the board to change its mind before January, but even political insiders don't like the odds.

"The poor and their advocates don't have the clout [in Orange County]," former Supervisor Bill Steiner recently told The Orange County Register. "They never have."

As we celebrate five years of life in bankrupt Orange County, it's important occasionally to recall the words of the late, great editor of Progressive magazine: "Governments lie."

Newspapers, if only occasionally, can tell the truth.

The Coup

There was a moment, just after the bankruptcy, when it seemed things would turn out differently—when there might even have been a revolution in Orange County. A loss of $1.8 billion in taxpayer funds coupled with the rare, nauseating glimpse of politicians at work infuriated tens of thousands of normally apathetic citizens. A government ruled entirely by die-hard conservatives had failed and become the butt of jokes around the world. Contrite local leaders found themselves pleading for—of all things—state assistance from the then-Assembly speaker, Democrat Willie Brown. Two unofficial but powerful troikas—one composed of top developers and another composed of bureaucrats, including then-Sheriff Brad Gates and then-District Attorney Michael Capizzi—proposed increasing the local sales tax, a move voters soundly rejected. To pay off the bankruptcy loss, in 1995, the county borrowed $800 million from Wall Street.

Poll after poll showed citizens countywide overwhelmingly favored drastic, corrective government reform. A daily barrage of hate mail arrived for the supervisors. Several people spoke of lynchings. Supervisor Gaddi Vasquez—the Latino face of the new Republican party—went suddenly silent, ultimately resigned, and disappeared from the harsh glare of formal politics; he now pulls down a six-figure salary as a lobbyist for Edison International. His voluble colleague Tom Riley served out his term with a whimper and died in early 1998 with hosannas from county developers. Roger Stanton, who had been talking about a run for U.S. Congress, left office and has said nothing of that ambition since. Harriett Wieder vanished. The bankruptcy turned Steiner, once the county's most obvious defender of abused and neglected children, into a political eunuch, incapable of pointing out even the most glaring deficiencies in the county's Children and Youth Services agency.

As frightened as the supervisors were of public reaction, their anxiety did not surpass that of the power brokers, influential real-estate developers and lobbyists who, for decades, quietly guided county government behind-the-scenes and directed millions from sweetheart deals into their own pockets—the multibillion-dollar toll roads being the most obvious example. An angry citizenry demanding answers and real change threatened to unravel the staggeringly lucrative and cozy relationship between business and government. The Register reported that developer George Argyros told Irvine Co. developer Gary Hunt: if we don't handle the situation, we're going to suffer.

The power brokers skillfully diverted public outrage away from their own extraordinary influence, defining the terms of reform debate and putting their allies in key government posts. It was a silent coup. The people's revolution never had a chance.

Enter Mittermeier. Of all the high-profile but specious reforms since the debacle, Mittermeier's rise to CEO exemplified how very little really changed in Orange County. As one of its last major acts, the bankruptcy-tarnished Board of Supervisors appointed the standoffish Mittermeier to the CEO job in September 1995. Mittermeier's supporters marketed her as a model of businesslike efficiency, a strong woman for a tough job. Her arrival was heralded as a reform in and of itself.

In fact, during her 21-year career, Mittermeier had already established her bona fides as an insider. Since 1990, she had been trusted to run the government's most lucrative cash cow, John Wayne Airport. At John Wayne Airport, Mittermeier honed the skills that have been so useful to her at the county Hall of Administration: keep cash flowing in and limit public scrutiny of airport finances and operations. Several high-level sources said her appointment to CEO was first privately approved by developers and lobbyists eager to maintain easy access to the county's massive annual budget: $3.8 billion for the 1999-2000 fiscal year.

No one doubts Mittermeier's skills and intelligence, just her loyalties. Despite her talk about openness and honesty in government, Mittermeier remains the friendly—and female—face of corporate lobbyists and developers. That's not how Mittermeier describes it, of course. Shortly after taking office, she told reporters, "A lot of people think we're bottom-dwelling, scum-sucking bureaucrats, feeding at the public trough. I think they are just going to have to watch what happens."

From the moment the bankruptcy was announced, the political machine's goal was to convince the public that they intended to clean up their act. "We're leaving no stone unturned," said then-Supervisor Vasquez. Stanton guaranteed those responsible for the debacle would be brought to justice. Gates boasted, "Government's probably going to be reinvented here."

It did not take long to proclaim victory. Only nine months after the bankruptcy, the Orange County edition of the Los Angeles Times declared the problem fixed: "historic" action by supervisors had "drastically altered the way county government is run."

Then-Supervisor Donald Saltarelli—a former Irvine Co. lobbyist who was appointed by Governor Pete Wilson to replace a resigning Vasquez—didn't hold back his enthusiasm in May 1996. "Orange County is back," he said. "We are vibrant, strong, healthy and doing what needs to be done." In the 1997 State of the County address, then-board chairman Steiner said, "Many lessons have been learned. . . . Local government has been inextricably altered. What emerged is a stronger county where there is more involvement in the political process and more accountability."

Such impressive-sounding rhetoric elicited a hearty laugh from Tom Rogers when the Weekly interviewed him that year ("Silent Coup," Dec. 19, 1997). The outspoken Republican and lifelong observer of local politics told us, "Mittermeier is running the county with an iron fist for the developers. It's just pitiful. They certainly talked a lot about serious reform, but it was really never more than a clever smoke screen."

"I was hoping there would be some kind of revolution," Bill Mitchell—a private attorney by day and vice chairman of Orange County's all-volunteer, post-bankruptcy Government Practices Oversight Committee—also told the Weekly at the time. "But that didn't occur. The bankruptcy came and went without any real sense of what happened."

Under immense pressure in February 1995, the supervisors established Mitchell's oversight committee with a directive to collect information and "evaluate and generate proposals for change in local government." Then-Supervisor Marian Bergeson promoted the committee as a "sweeping audit by outside eyes."

Mitchell's group was also billed as a "citizens' committee." But the roster read like a Who's Who of the county's power brokers, including Mittermeier—whose role as interim CEO was to monitor the group. Thirteen of the 15 original committee slots belonged to county politicians, top bureaucrats, major real-estate developers, government contractors, lobbyists or their agents. Mary Ann Schulte of Sukut Construction Inc.—a government contractor—headed the committee. When some in the community balked at the committee's composition, the supervisors added Mitchell, who has directed the nonprofit Orange County Common Cause (an independent grassroots organization), and Bruce Whitaker, a conservative activist with the Committees of Correspondence.

In the oversight committee's first meeting, the Irvine Co.'s representative, Hunt, suggested that the group use what would become an 18-month investigation to focus on "six key questions." Each of the questions concerned privatization, restructuring, downsizing and bloated bureaucracy. The point seemed to be that big government—not corporate domination of county politics—had caused the bankruptcy.

It was a deft move on Hunt's part—a bait and switch in which the bait was a favorite Republican target (big government). What got lost in the sleight of hand was the real cause of the bankruptcy: systemic political corruption in which people like Hunt and Argyros wield tremendous influence. Hunt's committee of insiders declined even a cursory probe of routine closed-door meetings, generous campaign contributions, rampant favoritism and pronounced hostility to public accountability.

Mitchell concedes the oversight committee was stacked with insiders, but he's adamant that its 127 recommendations would have nevertheless improved county government. "You can look at the committee and see that we were not a group of bomb throwers," he said. "And yet we still couldn't get any of our reforms through Mittermeier."

Mitchell, who figures the committee's 145-page final report is still collecting dust, says, "I don't think Mittermeier likes scrutiny."

Mittermeier is symbolic of this secretive new order. She threatened to quit unless the supervisors granted her additional power—and picked up a private-sector-sized severance package and hefty pay raise; was given the right to unilaterally fire any department head as well as the right to sign millions of dollars in contracts without public discussion; and demanded that the supervisors grant her unprecedented independence from democratic oversight. Driving the point home, Mittermeier sought—and got—a requirement that four of the board's five supervisors must agree to overrule her decisions. In an instant, Mittermeier had become the most powerful official in Orange County, more powerful than her elected supervisors.

Don't Drink the Water

Bankruptcy, schmankruptcy: Harvey Conway works in a county water-quality agency whose budget and responsibilities have grown dramatically since the 1994 financial free fall, swelled by federally funded programs and the cash to carry them out.

So why is Conway bitching about the bankruptcy?

Because he's being worked to death. While the workload in Conway's agency has increased substantially, its manpower has decreased because county officials steadfastly refuse to hire replacements for employees who quit.

Welcome to Post-Bankruptcy Water-Quality Politics.

Eager to portray themselves as fans of limited government, the county executive officer and Board of Supervisors have severely restricted new hires. That leaves existing workers to pick up the slack and take on new responsibilities as ordered by constantly changing state and federal requirements.

"Before the bankruptcy, we had 18 employees," said Conway (not his real name). "We have 15 now, but our workload has doubled."

Working your staff like galley slaves is likely to spur even more employee defections. But the CEO and supes have an answer for that, too: they've abandoned those responsibilities, "shifting" them (to use the county's preferred term) to non-county agencies and the private sector.

In some cases, that's meant putting businesses in charge of policing themselves. Take the county Health Care Agency's Environmental Health Division, which is supposed to crack down on illegal toxic dumping; clean up hazardous-materials spills; and monitor public-health standards for beaches, drinking water, food preparation and public swimming pools. Confronted with steep budget cuts, Environmental Health transferred responsibility for much costly water-quality testing to the water companies that make up the Orange County Sanitation District.

That's like putting a steel mill in charge of testing for air pollution. It's in the best interests of the Sanitation District—which treats sewage for water companies in 21 Orange County cities—that its tests show a shit-free ocean, or at least a human-shit-free ocean. If the district fails its own water-quality tests, it could be subjected to heavy fines or sued under the Clean Water Act. Worst of all, if it's determined its waste is chronically fouling local beaches, the district could lose the permit that allows it to discharge sewage out to sea.

There's ample incentive to cheat, in other words, which is why the district's critics are so prickly. On July 27, for instance, Sanitation District officials found high bacteria levels at one stretch of Huntington Beach—but failed to report the test findings to Environmental Health. That allowed the dirty beach to stay open until the district reported the results on Aug. 2. By then, daily testing and reports showed that levels of enterococci bacteria had returned to normal. Critics charged the district didn't announce the findings because they could have interfered with the U.S. Open and Gotcha Pro, then under way a few hundred feet up the beach. A district spokesperson said the job of notifying Environmental Health officials may have fallen through the cracks.

Has it occurred to anyone, the Weekly asked Tim Korman of Environmental Health, that the county should test all beaches on the coast itself to make double sure water-quality findings are accurate?

"Oh, we used to," said Korman (also not his real name), "before the bankruptcy."

Please Do Not Care

for the Poor People

In March, two infants died after receiving injections from unlicensed pharmacies. These "clinics" exist behind toy stores and gift shops throughout OC's poorer cities, patronized primarily by Latino families who lack access to licensed clinics.

At the same time, more than 70 clinicians at the county's Children and Youth Services division stand ready to mutiny against what they consider a dictatorial, penny-pinching work environment. Staff morale at the agency, which is responsible for treating the county's abused and neglected children, is at an all-time low.

These may be the most visible—and dangerous—legacies of the county's 1994 bankruptcy. Nor are they surprising: health-care spending has always been low in a county known throughout the world for its well-to-do citizenry; in California, the county has ranked among the lowest in per capita health-care spending. Officials closed two community clinics, leaving the county with 19 to serve 2.7 million residents. Perhaps to compensate, officials scissored 9,000 indigent residents from medical-assistance programs. There's still no county hospital (that was sold to a private firm in 1976), and following the bankruptcy, there's not likely to be one any time soon. County residents without health insurance now number 425,000, including 12 percent of all senior citizens. The number of children living in poverty has risen to 150,000, according to the latest available numbers.

Meanwhile, the Health Care Agency shrivels. Barely surviving before the bankruptcy on a meager $43 million per year, the agency took an outright 30 percent budget cut after the collapse, losing $12 million in annual funding along with nearly 300 jobs. Total cost to county health programs since the bankruptcy: $53 million.

The cuts were surgically precise, eliminating a $600,000 mental-health program that treated 2,000 homeless people every year. Gone, too, was a vocational-training program for the mentally ill, which cost $400,000 per year. County officials showed the door to many Spanish translators at the agency, increasing the work burden on health-care staff, who have to deal with a growing Latino population.

Today, the agency's annual budget is $32 million. There are few suicide-prevention services. Many elderly patients don't have transportation to and from clinics—which, in Dickensian fashion, helps reduce demand at those clinics. A third of the county's residents lack access to basic dental care. And a coalition of volunteer health-care professionals is trying desperately to guide residents to honest, effective medical treatment.

For a while, there was hope that manna might fall from heaven, in the form of $30 million per year from the government's tobacco-industry settlement. Such talk has been dismissed as fantasy; the only legitimate use of the funds, county experts say, is to "defease debt." Translation: even money intended for health care will be used to pay off the 1994 debt so life can go on as usual.

Big Business As Usual

The bankruptcy had no effect on the county supervisors' need to satisfy the massive infrastructure needs of the men and women who keep them in office: the county's formidable land developers. All three South County toll roads are proceeding nicely, underused and over-budget. The latest Transportation Corridor Agencies (TCA) figures indicate bonds make up 86 percent of the roads' budget—making the roads potentially the next great bankruptcy disaster in the county. In fact, displaying their inimitable talent for numbers, TCA officials recently refinanced $1.5 billion in toll-road bonds into $1.75 billion in bonds. Now county drivers will have to wait until 2040 to ride the roads for free—assuming the agencies can make the bond payments, which gradually increase as time goes by.

The proposed El Toro International Airport is even worse. Unlike the toll roads, which may someday revert to freeways, the airport will never revert to anything other than a loud, polluting eyesore sucking the life out of the cities and communities surrounding it. So far, the county has already sucked more than $50 million from John Wayne Airport funds for the El Toro planning process. The county likes to say these funds are for airport use only—and that means any airport—but they're missing the point: once built, the airport becomes a county possession. If it fails to make money—as the current low demand numbers indicate—county taxpayers will have to keep it in the air.

Last House at the End

Orange County has never been a cheap place to live, but lately the lack of affordable housing has become particularly painful. Last year, the average cost of buying a house in Orange County jumped by $10,000 in one month alone, reaching an all-time high of $236,000 in June. This year, Orange County ranked dead last among 45 major metropolitan areas surveyed for how well they provide affordable housing for low-income residents.

Part of that can be pinned on the December 1994 bankruptcy, which took place just one year before the scandal-plagued Department of Housing and Urban Development (HUD) decided to give cities in Orange County unprecedented flexibility in spending millions of dollars in federal housing and redevelopment money. To get a place at the public trough, HUD required the county and a team of city officials to create "Consolidated Plans"—five-year spending proposals designed by each city and rubber-stamped by HUD.

One year after a bankruptcy that displayed the bottomless ignorance and avarice of local officials, HUD granted those same officials tens of millions of Community Development Block Grant dollars. One might have hoped that funds from an agency with the word "Housing" on its letterhead would be used for something like homes. Instead, the cash was spilled out like water on the sand of debts and obligations arising from the bankruptcy. Anaheim and Garden Grove redirected their HUD money into tourist-related redevelopment projects, which include hotels and restaurants but no affordable housing. Santa Ana spent the bulk of its money on everything from police helicopters to the modern-looking Santa Ana Jail.

"From what I know, Santa Ana's approach was dictated entirely by the bankruptcy," said Ron Jauregui, a community-development fellow at HUD's Santa Ana regional office. "HUD allowed them to use their money to pay off construction of the jail."

The county and the various cities in the Consolidated Plan are now preparing their "funding priorities" for the next five years. With the bankruptcy supposedly behind them, said Jauregui, HUD is going to demand that the county's cities spend federal money on projects more directly tied to housing.

Few cities are prepared for those tougher standards. So far, only Santa Ana and Irvine have held the public forums mandated by HUD as part of the funding process. Thanks in large measure to the efforts of City Councilman Larry Agran, Irvine is making a bold effort to draw public support for creating as much affordable housing as possible over the next five years.

Ken Domer, a project manager with the Orange County Housing and Community Development Department, told the Weekly that his agency has earmarked $10 million for new affordable housing projects in Orange County.

"We provide money to a developer to help finance a project, and they have to provide affordable housing for 55 years," Domer said. The county is acting as a third party to give the developer a lower-interest loan. In exchange, the developer "has to give up 20 percent of the units at 80 percent of the rent."

That's where the county's formula begins to break down under the harsh pressure of reality, however. Because rents don't have to be truly affordable but rather only relatively affordable compared with the average rent in a given area, "affordable housing" in Orange County will always remain out of the reach of many low-income people. Eighty percent of "too high" is still pretty high.


On July 11, the Orange County Transportation Authority (OCTA) raised county bus fares for the first time in eight years, unilaterally ending its policy of providing each rider with a free transfer. OCTA officials attempted to put the best face on the news. They pointed out, for example, that raising bus fares for most riders would allow them to reduce prices for senior citizens.

But before your heart gets too warmed by thoughts of OCTA's fondness for the elderly, consider the real reason for the fare hike: OCTA is taxing tens of thousands of poor, hard-working people to help fatten its own budget, thanks in large measure to the Orange County bankruptcy.

Flash back to December 1995, exactly one year after the county went belly-up. That's when county officials decided to bleed OCTA by a whopping $38 million per year, cutting bus drivers' already meager salaries by as much as $6,000 per year, among other things. They earmarked the money to help pay off the county's massive debt.

Simultaneously, officials took $23 million per year away from the county's road-building Environmental Manage-ment Agency (EMA), announcing that the money would also go toward bankruptcy relief.

That never happened because new roads are essential to Orange County's rapidly developing landscape, and therefore of significant interest to the county's most powerful men and women. Instead of sending EMA's $23 million to the county's creditors, officials secretly shifted the money to OCTA, thus consolidating the vital task of road building in that one agency.

There were two problems. First, the money arrived in OCTA's ledgers with a footnote: by law, it could be used only for building new roads. Second, even if OCTA officials could deliver on their promise to work out a complex deal to transform the money into usable mass-transit funds, the bus agency would still find itself $15 million poorer.

"You can't lose $15 million per year without some pain," Jim Kenan, OCTA's chief financial officer, said in 1995.

OCTA officials quickly assured critics of their already-languishing bus system that they had a plan to swap the extra $23 million per year with local cities. By giving the cities road funds in exchange for no-strings-attached cash, OCTA said, it could use the money to pay for maintaining bus service.

But not one of the cities approached by OCTA had any interest in swapping their highly flexible general-fund revenue for money that could only be spent on new roads.

Nonetheless, for the next two years, the unflappable OCTA continued to advertise its revenue-swapping plan at various public meetings. The agency even managed to float a proposed state law, Assembly Bill 168, that would facilitate the revenue swap through legislative fiat. While the bill collects dust in Sacramento, the end result of OCTA's efforts is little more than a heap of flowery, hopeful-sounding talk about keeping bus service affordable.

Finally, on July 11, the inevitable happened: OCTA raised bus fares from $1 to $1.50—the same day it eliminated all bus transfers, thereby forcing a majority of bus riders to pay triple what they had before. The total savings to OCTA: $1.5 million per year.

News of the July fare hike had hardly hit the press before OCTA announced yet another 50-cent increase, to a total of $2 per bus trip. The new fares are scheduled to go into effect on Jan. 1.


One of the agencies hardest-hit by the December 1994 Orange County bankruptcy was the county's welfare-providing Social Services Agency (SSA). Its annual budget was slashed by millions of dollars, which forced the agency to shed numerous services and programs. Then, in a massive bloodletting, 884 SSA employees lost their jobs. A May 25, 1998, Los Angeles Times report claimed the bankruptcy was responsible for the closure of four of the agency's Family Self-Sufficiency Program offices that month. Nearly 500 of the program's employees were fired, and pay was significantly slashed for those who remained behind.

The only good news for SSA came when President Bill Clinton and congressional Republicans joined forces two years ago to tear down the nation's 60-year-old welfare system, transferring responsibility for the poor, in our case, to a county government dedicated to serving the rich.

In December 1997, Orange County Supervisors Spitzer and Silva took local stewardship of the federal war on the poor, joining forces to defeat a proposal that would have forced welfare recipients to work 26 hours per week in return for receiving modest public assistance. That proposal, favored by supervisors Steiner, Wilson and Smith, also had the support of Felix Schwartz, executive director of the Health Care Council of Orange County.

But working 26 hours sounded too easy for Spitzer and Silva. On Jan. 8, the hard-nosed duo got what it wanted when the entire board voted to force OC welfare recipients to work 32 hours per week—six hours more than the minimum work requirement for welfare recipients living just about everywhere else in the United States.

"For too long, our welfare system has served as a disincentive to work," Spitzer argued at the time, trumpeting his successful collaboration with Silva. "We both favored the 32 hours from the start and strongly felt that we should not start welfare reform with built-in excuses for welfare recipients on why they cannot wean themselves off public assistance."

Other than making Silva and Spitzer seem tough on the all-important issue—the laziness of the lower orders—the chief effect of welfare reform in Orange County was to throw thousands of poor people, many of them single mothers, from a hard place onto a rock.

But it didn't take long for the bright side of welfare reform to shine through. On May 27, 1998, the Times ran a front-page story trumpeting the arrival of a leaner, meaner county government. Orange County's proposed budget for the 1999 fiscal year, the Times reported, would be $3.6 billion, $223 million less than the 1998 budget. But the reduction was achieved, the Times reported, "from reduced demands on county funding, not from cuts in any programs." "Reduced demands" turned out to be a euphemism for the "transfer of 1,553 court positions to the state" (a savings of $138 million) and the postponement of some capital spending. The rest of the savings was achieved through "reductions in welfare rolls."

Exactly how much savings to Orange County's bankruptcy-addled budget was achieved through welfare reform? $85 million per year. But the death of welfare hardly spelled the end of the county's SSA. In fact, last year, the SSA saw its first increased budget since the bankruptcy: 15 percent of the county's overall budget, up $4 million from the SSA's total allocation the year before. Some of the money was used to add 87 new staff positions to the SSA. No less than 73 of those workers, however, went straight to the Orangewood Children's Home to meet federal mandates requiring one staff person for every three patients.

Bob Griffith, chief deputy director of SSA, said his agency's budget is currently running at $532 million, down from $537 million in 1994. But he added that the county's share has dropped from $72 million in 1994 to a current level of only $45.7 million. Meanwhile—and thanks mostly to welfare reform—both California and the federal government have increased their shares of the SSA's funding. Both the agency's child-abuse intervention program and a similar program for disabled people and senior adults have received substantial increases in state funding. The third program whose funding has also swollen is CALWORKS.

"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 (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.


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?



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."

That's how Mittermeier's office put it in the county's gloom-and-doom-genre work, the Strategic Financial Plan. That's the same document that tells us nothing of the role of the bankruptcy in the potential financial disaster of 2005 but holds out this promise should officials fail to imagineer a way out of it: if nothing else works, Mittermeier has promised benign-sounding "strategic reductions" in the county's already strategically reduced budget. Those, one presumes, would take place immediately before the haphazard cuts.

Contributors: Matt Coker, R. Scott Moxley, Anthony Pignataro, Nick Schou and Will Swaim.


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