No Fallback Plan if Tax Vote Fails, Popejoy Says : Recovery: Opponents of Measure R dismiss county executive’s dire warning as political rhetoric.

Orange County’s chief executive talks in cataclysmic terms of what might happen here if a proposed half-cent “bankruptcy recovery” sales tax doesn’t pass in June: plummeting property values; bankrupt schools; a state government takeover, and nothing less than the transformation of one of the richest areas of the globe into a “Third World economy.”

The ballot argument in favor of the tax is filled with doomsday descriptions of a “deadbeat county” falling into default as teachers are laid off and Sacramento assumes control of the schools, while the construction of jails, hospitals and roads screeches to a halt.

But even though Measure R is trailing badly, according to a recent Times Orange County Poll, and even with the county’s long history of opposing tax proposals, top county leaders insist there is no fallback “Plan B” should the tax initiative fail.

“People have said to me, ‘Bill, what the hell are you talking about? There must be a Plan B,’ ” says William J. Popejoy, the county’s chief executive officer. “They say, ‘You have to know you have a long shot at getting this tax done, and you can’t just blindly place your bets on this.’ Well, I wish there was a viable Plan B, but there’s not,” Popejoy said.

Without a sales tax, Popejoy and other officials say, the county will be $750 million to $800 million short of being able to fill the $1.7-billion crater left by its investment fund losses.

And that shortfall already takes into account the $188 million in spending cuts made to the county’s annual budget, and a budget financing plan that envisions selling county assets, refinancing some short-term debt, and allowing neighboring counties to dump their garbage, for a fee, in Orange County landfills.

Despite the qualified denials, there are dozens of other options--plans C, D, E and beyond--that are under consideration should the sales tax fail. And tax opponents believe it is disingenuous for tax supporters to suggest there is no life without Measure R.

“It’s a lot of rhetoric, and they have to say there’s not an alternative because that’s the way to sell a sales tax to people in the community who want to be responsible,” said state Assemblyman Curt Pringle (R-Garden Grove). “You keep that as your single focus and tell people there’s no other way out.”

Some of these fallback options have already surfaced, such as the county’s fledgling plan to ask a judge to invalidate $600 million of its bonds, arguing that this particular borrowing was illegal because it exceeded state debt limits. The county would like to avoid this because of the storm of protest it would cause on Wall Street and the cloud it would cast over future county bond issues. But it is nonetheless being considered.

“That’s an option, and it’s an option we are going to keep open. But it’s not a happy option,” Popejoy said. “It’s still going to hurt us going forward in the bond market. If we do default, it will be awfully hard to come back to the marketplace to build bridges and schools and the infrastructure that this county needs. We are not going to be a good place to live and do business. I don’t care how much sunshine we have.”

Officials have talked about refinancing or extending Orange County’s debt with some bondholders, holding out the hope that they could expect a higher rate of return if they agreed to roll over the debt for another year or so.

Although the county’s original proposal made no mention of paying higher interest, and in fact suggested the possibility of default, county Supervisor William G. Steiner says, “I feel that if the bondholders extend out the debt, they should be paid additional interest for that consideration. It is not my expectation that there shouldn’t be a benefit for bondholders.”

One investment banker, who asked not to be named, said rescheduling the debt would be neither difficult nor unusual. “If Orange County walked away from its debts completely, that would be a problem, but that’s not going to happen. The county is not going to go away.”

Another much-discussed option is allowing the Orange County Transportation Authority to assume ownership and control of John Wayne Airport in exchange for at least $466 million in financial incentives. One proposal calls for OCTA to assume the county-owned airport’s $250-million debt, purchase $84 million in county recovery bonds being sold to pay off participants in the ill-fated investment pool, and write off $132 million the county owes the agency for investment pool losses.

Popejoy dismisses this talk of transferring the airport to OCTA as unworkable or impossible, at least for several years, because federal law would have to be changed for airport revenue to be used for anything but an airport. If the sales tax fails, the transportation authority wouldn’t get back much of the $132 million owed by the county anyway. The recovery bonds, he says, can be purchased by anyone.

In fact, Popejoy late Monday withdrew an item from the supervisors’ board meeting today that would have asked potential airport buyers to submit bids on how they would overcome the numerous legal and financial obstacles prohibiting the airport’s transfer.

The issue will be sent back to the airport commission for further study, said Paul Nussbaum, an adviser to Popejoy. The issue is expected to be brought back to the board in 60 days, he said.

Yet another idea is to divert vehicle license fees into a special “intercept fund” that could be used to issue $750 million in bonds. The plan still needs state approval. A state Senate committee also has offered to loan the county up to $200 million a year, if it agrees to let three state-appointed trustees oversee its finances.

In January, the financial advisers to the bankruptcy case committee representing vendors and bondholders developed a menu of choices for the county to raise money, only one of which was a sales tax.

A “property tax bond issue,” which the committee’s advisers estimated could raise $1.7 billion within four years, would dedicate all growth in property values on the county’s tax rolls against a new bond issue. The problem with such a measure is the impact it would have on cash-strapped public schools, which rely on property taxes to operate.

Popejoy says he continues to look at ways to raise money, including more attempts to tap into sales tax revenue dedicated to transportation needs, and to package a number of county buildings to sell for lease-back to the county.

He has already identified about $100 million in property to sell, and hopes to do more to parcel out county services to private interests, although he is wary of the clamor over privatization.

Even if the county could transfer all of the services in its $275-million general fund budget, Popejoy said, it would probably save only 10%, or $27.5 million in county money, which is a very small part of what they need to raise.

Pringle said more can be done to find bidders for such big-ticket items as the county landfills.

“There are companies falling over themselves ready to negotiate,” Pringle said. “I would call on the county to issue requests for qualification and find out how many companies are out there and what the streams of revenue are. But the county doesn’t want to do that. The fear is that if they do, there might be another option.”

Pringle predicts that proponents of a sales tax measure will inaccurately trumpet the ill effects on schools if it fails, even though the recovery warrants it takes to get schools up to 90% of their investments will cost the county less than $200 million.

“Saving the schools is going to be the marketing technique for Measure R,” Pringle said. “They’re going to be using the fate of schoolchildren as a way to settle this.”

But Popejoy disagrees.

“Right now, it would be intellectually dishonest to say that we have viable options,” he said. “If we can come up with something that’s better than a sales tax between now and June 27, we’ll go public in a flash and say a sales tax isn’t necessary.”

* KEY VOTE: Bill to give the state control of Orange County fails test. A15

* VOLUNTARY PAIN: Ordinance would let O.C. officials cut their own pay. A15