Norberto just published a piece, worth reading, “Can OC Supervisors Confront Corruption Legacy?” which reminds us that this coming Friday marks the 30-year anniversary of Orange County’s legendary bankruptcy, the biggest municipal bankruptcy in history. Norberto’s point, which he’s been making for a while, is that a lot of the corruption we’ve been seeing at the County wouldn’t have happened if many of the reforms that’d been proposed 30 years ago hadn’t been resisted by arrogant business-as-usual Supervisors, progenitors of today’s Don Wagner and Doug Chaffee.

Janet Nguyen has slipped into her old seat, vacated by the scandal-plagued Andrew Do, so there wouldn’t seem to be much hope for any meaningful reforms. But Janet portrayed herself in her campaign (ridiculous as it seems) as a corruption fighter, as she relentlessly criticized her ex-friend Do, as well as surprisingly calling for investigations into Michelle Steel‘s actions when SHE was Supervisor.

Janet as a corruption fighter? As a reformist ally of Katrina Foley and Vince Sarmiento on the Board? It sounds far-fetched, but she could probably pull it off for a couple of years, especially if her eyes (as I suspect from her attacks on Steel) are on the 45th Congressional seat in 2026. (Others doubt she’ll want to leave her young children for DC, but we’ll see soon enough.) And what Katrina and Vince are demanding is audits of the Board during COVID, which would show wrongdoing by Do and Steel (and possibly Wagner and Chaffee) but not Janet, who was safely in Sacramento by that time.

Anyway, on to the late Tom. C Rogers. (Left, with wife.) I’ve been reprinting his out-of-print 2000 tome on OC political corruption, “Agents’ Orange,” in installments for a while now, and it’s been slow going. But one of his last chapters is on the bankruptcy, and I thought I should skip forward and print that for this week’s anniversary. After all, he was intimately involved.

Tom headed up the OC GOP in the 70’s, before parting ways with his Party in disgust over its symbiotic servitude to OC’s developers, and the effects on Tom’s beloved South County environment. Tom was intimately involved in 1984’s failed Proposition A, the “Responsible Growth Initiative,” which he mentions and ties to the bankruptcy in his first sentence here. He was also part of the SUCCESSFUL resistance to Measure R, which would’ve taxed us OC residents to pull us out of the bankruptcy – a resistance in which he was joined by folks who are still amongst us – Steve White, Bruce Whitaker, Sandy Genis, Carole Walters, and the late, crazy William Fitzgerald.

So, enough intro, here’s Tom. And remember – “Those who forget their history…” you know the rest. – VERN.

Agents’ Orange Chapter 20:

Supervisors Say OK to BK

Background

After Proposition A (the “Responsible Growth Initiative”) was defeated in 1984, the county actually escalated its policy of granting development rights as if the $5 billion was in the bank. The only restrictions were those imposed by state-mandated Environmental Impact Reports (EIR’s.) These were invariably biased in favor of the applicant, and went unchallenged by the county.

These roadblocks (no pun intended) were viewed by the developer-friendly Board of Supervisors as minor nuisances, easily overcome with a “negative doc.” A negative doc is a declaration that a development under review has no significant environmental impact and does not require a study, or that there are significant overriding considerations making compliance with an EIR unnecessary.

Major land developers had held uninterrupted control of the Board of Supervisors since the 60’s. They received whatever they needed for building out most of the available open space without any requirement to consider the infrastructure needed to adequately support the growth that followed.

Momentary pauses in the building spree were triggered by economic cycles affecting interest rates and consumer demand. (Builders knew that interest rates were critical to any large business operation, but they failed to pass those financial facts of life on to their partners on the BoS.)

Over the years the county built up an “investment pool” as a repository for funds collected and not yet spent. Included in this reservoir of cash were unspent amounts belonging to various agencies operating in the county such as school boards, community facility districts, water companies, the Transportation Corridor Authority, and OCTA. In addition, certain funds held by the courts as custodian were deposited in the pool.

For the most part, the pool consisted of amounts realized from the sale of bonds. The bonds were floated at current rates of interest usually for capital improvements, and were a cost incurred by the individual borrowing agencies. Since bond-funded projects were completed over a period of time, the unused cash went into the pool for investment.

The county official in charge of investing these idle funds was Robert Citron (left), county treasurer and tax collector. As in all other California counties and the state itself, these moneys are invested in interest-bearing paper at a rate above the cost of the original borrowing. This “spread” varies with the rates of instruments that also fluctuate in response to money market pressure.

Citron began to invest the county’s funds in such a manner as to show a profit. He did this by putting the cash to work in certain investments temporarily earning a higher rate of interest than the pool’s funds were themselves paying out in interest.

After a period of time, the Board of Supervisors incorporated these so-called profits into the county’s general fund as income received. At one time, prior to the bankruptcy, this figure reached $10 million. The various agencies including the county BoS and Agency directors thought they saw a good deal when they saw one, and authorized putting more cash in the pool, earning a “profit” from the difference in interest rates. The county and various other depositors used this spread to supplement their own operating budgets.

Orange County’s pool was a windfall source of cash for the Board, and they took pride in the fact that Citron showed a profit. As a matter of fact Robert Citron received various awards and citations for being so proficient at his trade! Not surprisingly, the Board had either not heard of, or ignored, the most basic precept of all gambling enterprises, the element of RISK.

For two decades the Supervisors had been operating in a fools’ paradise, approving huge projects without requiring adequate support systems, and at the same time permitting county operations to expand, relying on revenues rolling in from a system designed for disaster.

The establishment’s illogical defense of reckless county financial practices relied on trying to blame Howard Jarvis and the passage of Proposition 13, which involved property tax relief for homeowners, as the root of the insolvency.

In reality, the situation was quite simple: The Board of Supervisors approved projects that required certain ancillary expenditures to support them without having the necessary financial resources to meet their commitments. Board policies leading up to the filing of bankruptcy can be compared to a city or county contracting to build some facility such as a sports stadium after taxpayers had voted down a tax increase to fund it, and then hoping for a miracle to pay the bills. The Board of Supervisors had in effect engaged in the same type of financial malfeasance, however, in Orange County the debts exceeded $1 billion!

The Inevitable Happens…

The first inkling of possible trouble came quite by chance. In 1993, at a meeting of the Citizens’ Oversight Committee, a question was raised by members of Drivers for Highway Safety, an organization that regularly audits all public meetings held by the OCTA.

They asked the chairman of the Oversight Committee, County Auditor Steve Lewis, why interest expense had not been included in projections for Measure M costs. This question was prompted by the fact that OCTA seemed to be borrowing more funds than needed at one time, and the cost of the loans did not appear anywhere in the published operating statements. Lewis responded that the county was actually making money on borrowed funds, and implied that the questioners were dim bulbs who just didn’t understand how the system worked. Duly chastised, the citizens responded tentatively that making profits on borrowed money must entail some risk as well as defying the rules of logic. They did, however, retreat in the face of the obvious competence and expertise of that all-knowing bureaucrat.

Looking back on the sequence of events leading up to the actual filing of bankruptcy, this rather innocuous incident tends to call into question the latter assertion on the part of many county officials, particularly the auditor, that they knew nothing about Citron’s figure-skating performance on thin ice.

Citron had by now invested staggering sums of money belonging not only to the county but also to other agencies and cities as well. Spurred on by an aggressive bond salesman, Michael G. Stamenson at Merrill Lynch, the county treasurer was persuaded to invest in “derivatives” which are supposed to be instruments of exchange amongst buyers and sellers that can hedge an investor against losses if properly placed.

One of the problems of derivatives and other exotic investment vehicles is that there must be a buyer and seller in order for them to work. In Citron’s case it seemed that he was investing in instruments backed by blue sky.

All of Citron’s investments were predicated on low interest rates; however, legitimate hedges should have kept him out of trouble when the interest rates started to rise. The scheme began to unravel and instead of treading water, he kept investing good money in futile pursuit of bad. To do this he was forced to cross account lines and apparently used money from various accounts to try to rescue the pool.

The securities firm that created these financial investment strategies for Citron, Merrill Lynch, made millions from the numerous transactions, and Orange County was the broker’s most lucrative customer. Their salesman Stamensen (right) became the number one producer worldwide!

There may be one exculpatory part of the complicated process leading up to the collapse of the investment pool: In April 1994, the Securities and Exchange Commission (SEC) looked over the portfolio at their LA office, and with Citron and others from the County Finance Department in attendance, declared the funds to be properly invested to the best of their knowledge.

But rumors began to grow louder and escalated despite the Feds’ sanguine assessment. At the same time, the primary election was near at hand for Citron. This would have a direct effect on an already desperate situation.

The ’94 Treasurer Election

Incumbent Treasurer, Democrat Robert Citron, was being challenged by a Republican, CPA John Moorlach, a quiet unassuming (did John really used to be “unassuming?” – Vern) who had the benefit of political support from GOP grassroots organizations and financial advice from a very knowledgeable person in the stocks and bonds issues, Chriss Street.

Moorlach was campaigning on the basis that his opponent Citron had not handled county funds judiciously, and against the backdrop of the contest for Treasurer, the whispers grew in volume. Prior to the actual election, Moorlach had gained the endorsement of Marian Bergeson, a state Senator who ran for supervisor in the 5th district when General Riley decided not to seek reelection.

Citron had always had enthusiastic support from Republican supervisors and other elected officials, and with good reason if you are pragmatic – he owned the cash cow. He was concerned about the upcoming election however, since John Moorlach was an impressive opponent with his reasoned and low-key presentation. Citron felt that he would have to run an all-out campaign to defeat such an obviously qualified opponent.

Peer Swan, a Republican who served on the board of an investment pool depositor, the Irvine Ranch Water District (we came to know Peer in recent years as one of Poseidon’s most persuasive and effective opponents – Vern) called Supervisor Roger Stanton in April ’94 with a suggestion. Swan’s idea was for Stanton to appoint an oversight committee to get a better idea of what Citron was doing and thereby “put a stake in Moorlach’s heart.” The idea never got off the ground, perhaps because the board may have feared the worst while heaping the treasurer with praise.

In his campaign literature, Citron’s consultants featured a glowing letter of endorsement from Chairman of the Board of Supervisors Tom Riley. “There can be no doubt that Orange County owes you a debt of gratitude for the outstanding job you have done in guiding our financial ship through such turbulent times,” gushed the Chairman.

On another page of Citron’s campaign flyer appeared this letter: “Managing $7.5 billion is a big job that cannot be trusted to political appointees or other amateurs.” This letter was signed by the head of the Association of OC Deputy Sheriffs! (One of whom would later arrest Citron on charges related to the bankruptcy.)

In case any voters still had some reservations about Citron’s investment expertise, we have none other than the county’s chief financial watchdog adding his plaudits to the campaign piece: “As the County Auditor Controller, responsible for assessing the adequacy of controls over the financial assets of the county, I have confidence in your long proven ability to manage the entire Treasurer-Tax Collector Office. Audits by my staff and the county’s outside independent auditors support this conclusion. This was signed by Steven E. Lewis, Auditor-Controller.

Yet another revealing endorsement came from Stan Oftelie, CEO of the OCTA. “There are countless road projects that are completed today due to Bob Citron,” asserted Stan in the same campaign mailer. The question arises from this factoid as to whether any of these roads had previously been voted down by the electorate on the basis that their cost should have been borne by the developers of the communities they enhanced. (Many of those in the land development business, Citron’s most enthusiastic supporters, were among the first to demand that he be prosecuted and hung out to dry. Lucky for both Citron and his former friends that being under-qualified did not carry the death penalty.)

Despite all of these impressive endorsements, the fact that Supervisor Bergeson (left) had endorsed Moorlach was disconcerting to Citron. He was to tell Ernie Schneider, the county’s chief administrative officer, that Moorlach was spreading false rumors back east, by telling Wall Street insiders that the county pool was in trouble. Citron went on to complain that these rumors might have an adverse effect on county finances particularly if their bond rating went down and borrowing rates up.

Schneider believed that Citron was telling the truth, and apprised Bergeson of the conversation. Marian then withdrew her support from Moorlach in favor of Citron, for whom she then actively campaigned.

As it turned out, Citron did not have the story right – it was not Moorlach who’d warned the New York brokerage houses, it was someone else. Bergeson discovered the truth later on, and never forgave Schneider.

Citron was reelected on June 7, 1994, and on June 14 the Board of Supervisors unanimously voted to approve the county’s borrowing $700 million to “earn extra interest.” On July 12, by a 3-2 vote the City Council of Irvine voted to borrow $62 million to invest with Citron, which was to have given their city a profit of a 0.5 spread or $300,000 in real money. Not every city was taken in. Costa Mesa and Westminster began withdrawing funds later in the year and dodged the bullet.)

Sky Falls.

As late as August ’94 Moody’s Investors’ Service awarded Orange County an Aa1 rating, the highest of any California county. Ernie Schneider passed the good news on to the board with a “well done,” but the storm clouds were now in clear view. In October Citron admitted he may have lost some profits but insisted that the fund was safe. By November Schneider confided to other county execs that losses would now force the county to use all its cash to meet the calls.

Realizing by now that he had been misled, Schneider was sufficiently alarmed that he engaged Capital Risk Management, a New York firm whose only service consisted in reviewing portfolios and assessing the risk factor of investments contained in them. They confirmed Schneider’s worst fears. The cash cow was not only terminally ill, her imminent demise would bring down all of the milkers. After a thorough analysis, these experts discovered the true status of Citron’s investment practices – the Wizard of Odds had lost over $8 billion of OC taxpayers’ money in the collapse of the collateral.

Capital Risk Management, on completion of its audit, suggested a meeting with county management to reveal the extent of the exposure of the portfolio. It was decided to hold the meeting in a congenial setting, Prego in Newport Beach, since most of the county executives, with the possible exception of Matt Raabe, thought that while serious, the losses were only on paper. Most believed that with time, the county could weather the storm. In attendance at the Saturday night dinner December 3, 1994, were CAO Ernie Schneider, Matt Raabe, Terry Andrus, Eileen Walsh, and attorneys Jean Costanza and John Cotton.

As the grim facts were laid before those present, the congeniality turned to dismay and gloom. The situation was more disastrous than anyone’s worst fears. Not only were the investments in jeopardy having plummeted in value, Wall Street brokerage houses were frantically selling off the bonds which insured their value would drop even further at “fire sale prices.”

The following day, December 5, Robert Citron was forced to resign. The parted curtains revealed the Wizard as nothing more than a befuddled old-timer, clueless as to what had happened much less how to get out of the mess he had created. He even resisted resignation. How could the same Supervisors who had heaped his candidacy with such effusive praise just a few month earlier try to force him out now? It did not take long for the facts to sink in, however, Citron resigned, and for him, the worst was yet to come.

First District Supervisor Roger Stanton, on the subject of Citron’s resignation, was relieved if not elated, since he believed that Citron’s departure would prove it was the treasurer’s problem alone, and that “We [the BoS] don’t take the hit.”

Also on December 5, Board chairman Tom Riley asked the SEC to freeze the pool since the county did not have sufficient cash to meet imminent interest payments. The board believed that government intervention would prevent the panic disposal of county bonds by financial firms, but the Feds refused to intervene.

On advice of attorneys, on December 6, 1994, the OC Board of Supervisors decided to file for bankruptcy, the largest of its kind in history. The avowed purpose for the precipitous filing was to prevent lien holders from selling off the collateral, which happened regardless of the board’s desperate legal maneuvers.

A few citizens made a futile last attempt to head off the bankruptcy proceedings, but on Monday December 7 it was a fait accompli and the attempt to block the county’s action was too late. The rationale for petitioning the courts to halt OC’s descent into bankruptcy was based on a previous court case. The City of Bridgeport, Connecticut had filed for bankruptcy and its petition had been denied by the court on the basis that no governmental entity having the power to tax could be declared insolvent, a prerequisite for protection under bankruptcy law.

The Recriminations begin…

The supervisors were in a state of shock and denial. Now in the deepest of water, their woeful lack of competence became apparent. Up to that time, their only qualifications for running a municipality as large as Orange County consisted of their individual ability and predisposition to say yes to major campaign donors’ perpetual requests for special treatment when their interests came up for board consideration.

Instead of shouldering the blame and finding a reasonable way out of the self-excavated hole they found themselves in, the board tried to find a scapegoat and deflect attention away from their own incompetence.

The second target, after hapless Citron, was the capable and honest CAO, Ernie Schneider. Schneider had come up through the ranks having first served under George Osbourn and then on the staff of former Supervisor Bruce Nestande. Nestande had a well-earned reputation of hiring only the best, and Schneider had advanced from Nestande’s staff up the county managerial ladder to eventually become the county’s chief administrative officer. He was not given the title nor the duties and responsibility of a chief executive officer, since the supervisors had operated in a Disneyland of their own. They all wanted to retain the perks of the job title for themselves without having to perform satisfactorily in that job. One supervisor reminded Schneider of those ground rules when during a discussion Roger Stanton reprimanded Schneider with the admonition that HE was CEO of the 1st district and would brook no interference in his running the show there.

Ernie Schneider had been a loyal, competent staff person for all of his career, and being contentious was never in his playbook. His low-key style would be his undoing as the political hacks on the board, seeking to escape public censure if not indictment pointed their collective fingers in Schneider’s direction.

Instead of resigning en masse the board went on a talent search for a chief executive officer, removing Schneider from his position, but keeping him on the payroll as a county employee while the search progressed. Schneider’s position was given to a trio of county officials: District Attorney Mike Capizzi, Sheriff Brad Gates, and Tom Uram, an agency head.

The appointment of two law enforcement officials to the team was a puzzler, since it raised the possibility of conflict of interest if criminal indictments were to result from supervisors’ conduct leading up to and during the bankruptcy. Some cynics believed that was the very reason these individuals were named – to prevent criminal prosecution

If the latter strategy was in play it didn’t work, as in December ’95 both Bill Steiner and Roger Stanton were indicted for willful misconduct in office. Gaddi Vasquez, who’d been visited by investigators earlier in the year, resigned from office prior to the filing of charges against his two colleagues.

Panic was not limited to the Board. Their mentors (the “Heavy Hitters”) were alarmed that their years of investing in the election of favored supervisors and control of county government was on the verge of going the way of investment pool funds.

Accordingly, on January 5, 1995, the OC Business Council (OCBC) took over as mediator between 180 pool depositors and bondholders. None other than the following individuals were named chiefs: Gary Hunt of the Irvine Company, George Argyros of Arnel Development, Thomas Sutton of Pacific Mutual; and Disneyland Resorts President Paul Pressler jumped in to fill the “management credibility gap” which they may have helped create. (If these names sound familiar, they are covered in the “Heavy Hitters” section of this book, in the candidate selection process as well as all the pro-tax measure that have appeared in the county over the years.)

Argyros and Hunt emerged as the de facto signal callers on the developers’ team. Their first pronouncement was that a TAX INCREASE was the only way out of the hole they had dug for themselves.

In the meantime, the OCBC formed a “task force” and went to work on a recovery plan with Brea’s Wayne Wedin, OCBC director at the time. Wedin, another familiar name to taxpayers, had served as the Building Industry Association spokesman against the Sensible Growth Initiative in 1988.

The quest for a new CEO to guide to county through bankruptcy proceedings produced a number of prospects and the list was finally narrowed down to two individuals.

One was Sanford “Sandy” Sigoloff, a corporate rescue specialist who had brought several large publicly traded corporations, on the verge of insolvency, back to health. He was known as a “whiz kid” on Wall Street, but that reputation went with the perception that he was aggressive, and did not suffer fools kindly. He was referred to in some circles as “Ming the Merciless.”

The other applicant was William “Bill” Popejoy (right), a savings and loan executive who lived in Newport Beach. He’d spent some time working for wheeler-dealer Robert Bass, as an executive with a new Bass acquisition, the ailing American Savings and Loan. Popejoy was always low-key and courteous in his dealings with the public, and his ties to “the right people” did not hurt his chances in the least. He was a regular at many charitable events put on by his “high society” neighbors.

When the board met for final interviews and Q&A of the short-list applicants, Popejoy fared poorly, obviously not prepared for the bureaucratic lexicon so necessary to maintain that aura of superiority which substitutes for ability. The former S&L exec was not at all familiar with the genesis of the financial meltdown, but probably knew more than his interrogators about the basic principles of business failures.

Popejoy looked to Ernie Schneider for help, since the interview, it was decided, was not the final one in the selection process after all. As a matter of fact, the supervisors were terrified of having to deal with Sigoloff, who could spot losers in a matter of minutes. Fearful they might be forced to choose Sigoloff by default, they gave Popejoy another opportunity. So Popejoy called Schneider and request help in the form of a one-on-one crash course in county problems and solutions. And a better-prepared Popejoy was able to pass the exam and got the job on Feb. 10, 1995.

Bill Popejoy, always the gentleman, called Ernie that evening and expressed his gratitude for helping him cram for the interview, and promised to see that the board’s commitment to appoint Ernie head of a county agency would not be forgotten.

But then on Feb. 25, despite all his promises, Popejoy fired Schneider. Schneider’s dismissal not only caused him to lose his eligibility for pension benefits which he’d paid into over the years, but worse, it gave the appearance that he’d somehow been responsible for the financial debacle caused by his bosses, the Board of Supervisors.

(Schneider’s obituary is worth reading, with reminiscences from the Moorlach)

Bill Popejoy appeared ill at ease in his new role, and later he would have a bitter falling-out with Supervisor Roger Stanton over Popejoy’s meeting with officials of Merrill Lynch in New York, whom the county was suing for their role in the peddling of securities to Citron.

But Popejoy’s sponsors, the developers, had a large stake in the county’s pool since many of the special districts that had been established to administer the infrastructure needed to support existing and future developments had funds invested in Citron’s dry hole. Conservative estimates placed The Irvine Company’s exposure alone to be about $20 million if the pool failed completely.

The chickens had come home to roost with a vengeance. The individuals, elected with the help of the “Heavy Hitters,” had by their own incompetence placed their mentors at huge financial risk. Taxpayers were to say, ruefully, “It only hurts when you laugh.”

Pressure built on the Board from within the bureaucracy for a quick solution to the looming cash crunch that would soon cause a shutdown of all county services including the public school system. The remedy invariably suggested as the only possibility was a tax increase.

Citizens Revolt!

Citizen groups, however, were beginning to gather their forces to offer some course of action other than a tax increase in order for the county to continue in an efficient manner. County taxpayers were not receptive to the notion that THEY should bear the burden of the misdeeds of an entrenched hierarchy with a history of operating on the basis of how much could be given away to the developers.

Citizens’ first call was for ousting all board members, in one way or another. From the beginning, no Supervisor indicated any willingness to take responsibility and resign.

When it became obvious that no board member was willing to accept responsibility and step down, many citizens’ initial reaction was for a Recall movement. The recall process is difficult at best, and those most vociferous in calling for that approach had never been involved in the hard work entailed. When the realization of how difficult it was to mount a successful recall campaign in Orange County became apparent, cooler heads concentrated on preventing the board from calling for a tax increase as a first resort. To that end, the Committees of Correspondence were able to extract from the board at a public hearing a promise that they wouldn’t put a tax measure on the ballot. This pledge lasted as long as it took the news to reach the county elite who had already determined to look to the taxpayer to rescue them from the quagmire.

The two most active members of the OCBC mediation team, Argyros and Hunt, had already been quoted on February 7 that a tax increase was essential. The OCBC was a cinch to prevail over the citizens, and on March 29, the supervisors unanimously agreed to place a half-cent sales tax increase on the ballot for vote at a special election. This measure was named Measure R (for Recovery), and the election was set for June 27, 1995.

The pro-taxers designated Sheriff Brad Gates and CEO Popejoy to head the Yes on R campaign. Gates had worlds of experience backing county tax measures, but Popejoy was new at the game. Assure by the Heavy Hitters that there would be adequate campaign funding, they gathered the same old bunch of corporate groupies in the county, ready for yet another campaign to pluck the average citizen.

The tax hikers hired Butcher Forde as campaign consultants and spent over a million in a futile attempt to fool the voters.

The opposition was split into two camps. Buck Johns, a member of the Lincoln Club, headed up one group. That group hired Mark Thompson as consultant at the suggestion of the Car Dealers’ Association who also joined forces with Johns. Attending the meetings at Buck’s office were representatives from the Republican Party who had come out publicly in opposition to Measure R. Some Republicans even allowed their names to be used on that campaign’s DRIBBLES of campaign material.

The OTHER GROUP, recognized by the Registrar of Voters as the official opposition organization, was called “NO ON R.” This group was the campaign arm of the Committees of Correspondence, which had formed a committee to finance and run a grassroots campaign against the proposed sales tax. (This campaign for and voter rejection of Measure R will be described in a chapter entitled “Benchmark Ballot Propositions.”)

In an attempt to force voters to accept Measure R, the Board of Supervisors continued to maintain that “there is no Plan B.” The backers of Measure R felt that the “Yes or APOCALYPSE” disjunction would surely force unwilling citizens to vote Yes. Whether there ever was an alternate plan in the event Measure R failed cannot be determined, since any activity by the Board during this period was based on reaction to some allegation or perceived disaster, and Popejoy either did not have the authority or confidence to restore order. Taxpayers were not fooled, and Measure R went down to a resounding defeat – 39% yes, 61% NO.

In this sea of confusion, it was inevitable that the Supervisors would react unfavorably to Popejoy’s efforts. It was a short matter of time until he clashed with board chairman Roger Stanton who criticized the interim CEO in a particularly vituperative manner. (Bill Popejoy had agreed to take the thankless job with no pay.)

By this time the County had filed lawsuits against Merrill Lynch, the brokers of record, as well as against other professionals such as attorneys and accountants.

One of the fallacies alleged by the Board was that after December 6 certain measures had been taken to reduce overhead. It was claimed that the county payroll had been reduced by massive layoffs. In fact there were few if any staff reductions, as the Board grasped for some tangible program to deflect the public outcry away from “The Fifth Floor.”

There is little or no evidence that the supervisors did anything to reduce overhead, other than hold endless hearings and form committees to discuss “privatization,” “leasebacks,” and any other scheme whose real purpose was to disguise the Board’s own incompetence.

Vultures Feast.

Instead of reducing overhead, the Board engaged scores of “experts” and “consultants,” along with a battery of attorneys, each one coming to work at a very high hourly billing figure. The county’s own calculations place the amount paid to outside professionals at $45,021,838.

The official county total was at great variance with other educated estimates. In a feature story, The Register published an article which detailed bankruptcy-related expenditures as totaling $86,612,457, almost double the figures released by the CEO’s Community Media Dept.

The animosity between Chairman Stanton and CEO Popejoy grew to the point where it was obvious the situation could not continue.

The Board, in closed session, voted to restrict some of Popejoy’s authority, given to him when he first came aboard. 55 days after his hiring, on July 12, Bill Popejoy threw in the towel and resigned.

Another talent search was set in motion, with the supervisors showing no signs of remorse or admission of their own total lack of credentials to manage the financial morass they had created. By this time it had become obvious that the board could not engage a qualified outsider for fear of being publicly revealed as the incompetents they were.

The search narrowed down to finding someone within the county structure that was competent and diplomatic. These qualities were not difficult to find individually, since there was a large pool of talented agency heads and management personnel within county executive ranks. The problem was to hire someone who would not expose the board to any more ridicule than they had already been subjected to.

On Sept. 24, 1995, the board awarded the title of CEO to Jan Mittermeier, general manager of John Wayne Airport. Ms. Mittermeier (right) had been a highly regarded career county employee with an accounting background. Competent? Yes. Diplomatic? Perhaps, but it was not the board’s desire to take any chances, and they fashioned a plan whereby the new CEO would be given unprecedented powers to run the county, while supervisors faded into the background, taking a passive role in unraveling the mess of their own making.

Despite protests from citizens who had been monitoring board activities for years, the supervisors turned over their duties to an un-elected individual answerable to no-one.

Residents from South County communities were fearful that Mittermeier’s appointment and unrestricted authority would put the El Toro Airport proposal on the fast track.

Supervisor Marian Bergeson was the only board member in the beginning who expressed reservations about the appointment of Mittermeier. Later, after his election in 1996, Todd Spitzer also saw potential danger in granting the CEO such broad-based authority. The former policeman and deputy DA began to ask Mittermeier some pointed questions, a practice heretofore unheard of. Spitzer was the first board member in years to show some independence and real talent for the job.

In the 1996 general election, citizens would reject the concept of an all-powerful CEO when it came up for a vote as a key component of a charter adoption proposal named Measure T.

At any rate, shortly after her appointment, Ms. Mittermeier wasted no time in preparing a recovery plan. Without competitive and open bidding the newly crowned CEO hired an establishment favorite, the Diamond Group, to come up with a PR paper suitable for public consumption, with certain controversial elements carefully glossed over.

While containing the usual self-congratulatory platitudes, the most important of the recommendations was one that confirmed what had formerly been a poorly kept secret: The Heavy Hitters, under the nom de plume of the OC Business Council in the report, were publicly and officially confirmed as non-elected members of the county decision-making process. The Diamond Group itself had been consultants to the Industrial League, a charter member of the OCBC, and at the same time they were under contract to the county for this project. According to Irvine Company sources, the corporation assumed the Diamond Group’s contract from the Industrial League around this same time.

The formalization of the OCBC/county partnership simply confirmed what many observers had been claiming for years, namely that the Heavy Hitters had called the shots all along. It also surreptitiously eased the board aside and tended to screen them from public view. (In 1999, some members of the board, led by Jim Silva, resisted attempts to publicly telecast board hearings.)

But even the most cynical did not expect that this arrangement would result in a financial windfall for the OCBC. This group received a $2.25 million contract to provide a tourism package, and the county awarded them another $750,000 for business development.

Another person who fared quite well from the financial collapse of the county was Tom Hayes (left), a Republican who had served for a short while as state treasurer, appointed by then-Governor George Deukmejian. The Governor’s first choice had been Dan Lundgren, but the state senate would not confirm Lundgren.

Hayes was defeated when he ran for election to the post, and Kathleen Brown (Jerry’s sister) was elected state treasurer. Hayes had been a favorite of the Lincoln Club and they supported his candidacy for elected office with generous donations. He was called in as an adviser under contract after the fiscal disaster struck OC. He must have served the county well, since he was eventually named as overseer of the various lawsuits filed by the county and other parties against the financial institutions, attorneys and other professionals who played a role in the unwise investment practices. Hayes was promised a 1.5% commission for the amount of judgments collected as a result of his litigation. The settlement amount had reached a figure of over $781 million by 1996. Haye’s remuneration, based on a first $200 million deductible, amounted to a whopping $8,715,000 commission for the former state treasurer.

Another palace favorite, Robert Nelson & Associates, garnered a no-bid contract with the county to do public relations during the bankruptcy proceedings, and were paid $25,000 for their services. Later the same firm was awarded another contract to promote the proposed El Toro International Airport, but that contract was scaled down after public outcry convinced the supervisors that spending any large sum of money on an unpopular project might look imprudent for an impoverished county.

Enabling legislation was passed in Sacramento to provide some relief for the county, despite the initial insistence on the part of of Speaker Willie Brown that a tax increase MUST be part of the rescue package.

As it turned out, the inherent strength of OC’s citizens plus a robust economic climate made it possible for Orange County to work itself out of the pit dug by the county establishment.

A lesson had been learned earlier by the citizens of Bridgeport, Connecticut, who did approve a sales tax increase in order to recover from THEIR bankruptcy. The community’s economy took a nosedive after the tax was imposed on retail sales, leaving the city with even fewer resources. In desperation, the Connecticut politicians turned to legalized gambling as a way out.

Fortunately for everyone in Orange County, California, voters rejected the Measure R sales tax increase, and the dire predictions of the tax takers never came to pass. On June 12, 1996, OC was officially declared out of bankruptcy.

The lawsuits were finally settled, and with a payment of $140,000 from S&P, the last case was closed. The county had sued S&P for more than $2 billion and the smaller amount was accepted by the defendant on June 15, 1999, without admitting any liability. The total amount of settlements received by the county as a result of legal actions exceeded $860 million, nearly $450 million of that from Merrill Lynch.

No one will ever know, but opponents of the $3.5 billion tax increase ask themselves what would have happened if voters had approved Measure R, and a year later the windfall bucks from the lawsuits began rolling in?

Next: The story of the fight against Measure R, featuring Republicans and Democrats who are still among us!