Policy Study

Rescuing Orange County

Executive Summary

Orange County’s bankruptcy presents an opportunity to rethink, redesign, and rightsize the county government. The County-run investment pool has lost $1.7 billion in principal, and the County general fund has lost annual income of over $160 million.

Orange County can cope with these shortfalls without a tax increase by making use of techniques common to other bankruptcy situations. It can sell assets to raise cash to replenish the lost principal in the pool. It can increase the tax base by shifting enterprises into the private sector, thereby increasing public agency revenues without a tax increase. And it can significantly reduce operating costs by reducing County payrolls and OUTSOURCING additional services.

Specifically, the County could save $91 million per year by reducing its workforce by 10 percent, and another $82 million per year by reducing pay and/or benefits by 10 percent for those remaining. OUTSOURCING a number of services now provided in-house-including animal control, fleet maintenance, jail operations, paramedics, and fire protection-could yield annual savings of $56-60 million. Expanding the tax base could produce $44-50 million in new property tax revenues per year, of which the General Fund’s share would be $4-4.5 million. Altogether, these changes would generate a net gain to the County of $233 to $238 million per year-well above the $160 million-per-year loss of interest income.

The County has a number of salable assets for which it would find willing and capable buyers. Some $259 million of County office buildings could be sold, with the majority leased back for continued County use. Another $67 million could be realized by the sale (with repurchase rights) of County properties now leased to others. Another $40 million in surplus lands could be sold. In addition, the County could raise $250-500 million via selling John Wayne Airport and the right to develop El Toro Airport, $100 million by selling its correctional facilities, and $261-522 million by selling its landfills. In addition, water supply and Wastewater utilities now owned by special districts could be sold, raising another $2.5 billion to pay off these districts’ debt and shift these enterprises into the County’s tax base.

In several cases, the authority to take these actions would have to be granted or clarified by the state or federal government. This new authority to act is all Orange County needs to solve its fiscal problems. It does not need a bailout from either level of government, nor does it need a tax increase.