County Picked Moderate Path to Fiscal Health

When Orange County went bankrupt three years ago this weekend, there was excited talk about turning the beleaguered county government into a “laboratory” for radical change.

Hire an executive from the private sector to whip the bureaucracy into shape, experts said. Run government like a business. Sell county assets such as the airport, landfills and perhaps even the jails.

Orange County government is a different place today from what it was before Dec. 6, 1994. But the most radical ideas discussed in the wake of the historic bankruptcy filing have failed to take hold.

To see more sweeping experiments in government reform, some argue, you should drive down Interstate 5 to San Diego County.

Last year, the Board of Supervisors there hired a TRW executive named Lawrence Prior to run the county in a more “businesslike” fashion.

So far, Prior has sold the county’s landfill system, arranged for a private firm to build and operate a new jail on government land and given favored department managers bonuses of as much as $39,000.

“It’s instructive to compare the two counties,” said Robert Poole, president of the Reason Foundation, the libertarian think tank that prepared a report suggesting the sale of many Orange County assets. “There’s clearly a difference in the approach.”

Orange County declared bankruptcy after a county-run investment pool holding the money of more than 200 local government agencies was found to have lost $1.64 billion on risky securities.

While county officials struggled to meet payroll and pay bills, some political activists and academics saw a chance to remake government.

Many of the ideas came from conservative groups that saw the county bureaucracy as bloated and wasteful.

Poole’s organization, the Los Angeles-based Reason Foundation, said the county could earn as much as $1 billion by selling or leasing John Wayne Airport, its landfills as well as the El Toro Marine Corps Air Station.

The foundation also suggested privatizing a variety of government services, including such vital functions as paramedic response and jail operations.

“We heard a lot of talk but saw very little action on it,” said Bill Ward, a leader of the Committees of Correspondence, a government watchdog group that became active after the bankruptcy.

County officials said all of the privatization ideas that percolated up after the bankruptcy were reviewed carefully, but most either proved unworkable or ended up not making financial sense.

“We studied all the angles,” said Supervisor Jim Silva, who entered office a month after the bankruptcy. “What we came up with was the best plan for the county.”

Selling John Wayne Airport, for example, probably would not be permitted under federal law, and the county--because of federal laws restricting the use of surplus aviation revenue--could not have used proceeds to settle its bankruptcy debts.

The county could have sold its landfills, but the process would have taken several years. Many county and city leaders also expressed concerns about turning over such crucial assets to private industry, which could have unilaterally dictated trash rates and might have relaxed environmental standards.

“If the landfills were sold, we would be dependent on [large corporations] to dispose of our trash,” Silva said. “I am convinced that would have resulted in higher trash fees into the next millennium.”

The county ended up unloading some public parcels. Some government buildings and courthouses were used as collateral. It finally emerged from bankruptcy in June 1996 by selling $800 million in bonds and using the proceeds to pay off creditors.

The county will pay off the new debt over the next 30 years by diverting, with the approval of the state Legislature, some tax and fee revenue that had previously been dedicated to public transportation, harbors, beaches and parks, as well as to flood control projects.

Silva and other officials said residents would benefit from this approach because the county was able to emerge from bankruptcy without imposing higher sales taxes--which voters rejected--or resorting to the radical service cuts some people suggested.

“We went in with the attitude that everything was a good idea worth studying,” said Orange County Chief Executive Officer Jan Mittermeier. “But some of the options just turned out to be not viable.”

San Diego County faced its own--albeit less severe--budget problems during the same period.

The Board of Supervisors there moved to restructure the government by hiring Prior, who at the time was vice president of TRW Inc.’s Tactical Systems Division.

His first move was to finalize the sale of the county’s landfill system to Allied Waste Industries for $184 million.

The sale provided a significant infusion of cash into the county’s coffers and allowed it to unload a troublesome drain on its resources. In contrast, Orange County’s landfills are self-sufficient and are actually providing $15 million a year to help pay off bankruptcy debts.

Last week, Prior won approval for a plan that will allow a private security firm to build a private jail on county property. The firm would operate the detention facility for federal prisoners for about two decades before handing it over to the county for use as a jail.

Prior’s tenure has not been without controversy.

Some residents complained when Prior instituted a merit pay system and gave pay bonuses to some top managers of as much as 30% of their salaries. Prior stressed that other managers who did not perform had their pay cut, but he acknowledged that he might modify the system next year.

“I see this job as a great turnaround opportunity,” said Prior, who likened the Board of Supervisors to his board of directors and constituents to shareholders.

Soon after the bankruptcy, Orange County turned to the private sector for a leader. But retired Newport Beach executive William J. Popejoy often clashed with the board and was forced out after a few months.

The current chief executive officer, Mittermeier, is a former airport director and longtime county employee.

Mittermeier said the county has made great strides toward operating more efficiently over the last three years. She pointed to a reorganization that resulted in the elimination of two big agencies and the layoffs of several dozen managers.

The county also is developing its first long-term financial plan and is building “performance measures” and management audits that will be used to determine the effectiveness of departments and managers.

Officials also are trying to move toward performance-based salary increases for employees rather than granting across-the-board raises, as has always been done in the past.

“We’ve gone from being a laughingstock to being a leader,” Mittermeier said.

“I think it’s wrong to say that because we didn’t sell an airport that we didn’t accomplish anything,” she added. “We’ve changed the structure of government--but in a way that is logical and makes sense.”

Poole, however, expressed disappointment that Orange County did not “wholeheartedly embrace” the kind of radical downsizing and privatization his group suggested.

“They had a golden opportunity with the bankruptcy to make major changes in the way government operates,” he said.

“People would have been receptive to it then. I don’t think you are going to see that opportunity again.”