Top O.C. Official Urges a Tax Hike : Bankruptcy: Chief administrator William Popejoy asks supervisors to put half-cent sales tax increase on ballot. Board members indicate they might let voters decide issue.

SANTA ANA — Convinced that Orange County has exhausted its financial options for digging out of bankruptcy, county Chief Executive Officer William J. Popejoy unveiled a controversial proposal Wednesday to boost the county’s sales tax by half a cent.

Although county supervisors are unanimously opposed to any tax increase, Popejoy asked them to decide by March 28 whether to put the matter before voters in a special election June 27.

The measure, which would raise the sales tax on purchases in Orange County to 8.25% for 10 years, would require approval by a simple majority of county voters because the revenue is earmarked for the county’s general fund.

“I have carefully examined all of our options during the last month, and I have concluded that a half-cent increase in the sales tax is a necessary component of a successful bankruptcy recovery plan,” Popejoy wrote in a news release.

The proposal would give Orange County the same sales tax rate as neighboring Los Angeles County and six other counties around the state. Officials estimate that the tax increase would raise about $135 million annually for the financially devastated county. On average, it would cost a county resident about $52 per year.

Despite the county’s reputation for fiscal conservatism, there has been growing support in recent weeks for a tax increase--although much of that support has been conditioned on earmarking the money for public schools. Some state legislators have urged the Board of Supervisors to raise taxes before asking Sacramento to help the county, which filed for bankruptcy protection Dec. 6.

Board members Wednesday reiterated their opposition, but indicated that they might be willing to let voters decide the issue. Approval of four of the five county supervisors is required to place the measure on the ballot.

“I don’t think there is any question that we have a gap that we can’t fill, and I think we have to look at all the alternatives,” Supervisor Marian Bergeson said Wednesday. “I think the public is ultimately going to be placed in the position where they are going to have to make that decision.”

However, Supervisor William G. Steiner said he still was not persuaded that all the county’s options have been fully examined. “I wouldn’t give my vote until we exhausted all the other alternatives and it received support from locally elected school board members, city councils and community organizations,” Steiner said.

Although reaction to Popejoy’s proposal was mixed, there were expressions of just such support.

“This is facing reality,” said Connie Haddad, president of the Orange County League of Women Voters. “A sales tax is regressive. However, in an imperfect world, we have imperfect choices.”

Also, a new survey released by pollster Mervin Field showed that county voters are reluctantly coming to the conclusion that a sales tax is necessary to pull government out of bankruptcy.

“The public is getting evidence that some bad medicine is being prescribed with the layoffs and the cuts in service,” said Field, one of California’s leading pollsters. “We are seeing the further erosion of the public’s reluctance to impose a sales tax.”

Although the 818 registered voters surveyed between Feb. 16 and Feb. 20 by San Francisco-based Field Research Corp., on behalf of Charles Schwab & Co., opposed a sales tax increase in general by a 60%-40% margin, tying a tax hike to education or law enforcement generated significant support.

The highest approval rating--with two-thirds of those polled in favor--was for a 1/4-cent sales tax increase earmarked for schools and limited to one year. Six in 10 voters said they would approve a 1/2-cent tax hike dedicated to education for one year. But support plunged if the extra taxes were described as lasting two years or longer.

In a Times Orange County poll published Jan. 28, 53% of county residents said they favored a tax increase if it was earmarked to help bail out schools, with 45% opposed.

In Sacramento, state Sen. Quentin Kopp (I-San Francisco), a member of a Senate committee looking into the county’s financial debacle, was enthusiastic about Popejoy’s announcement, saying a sales tax increase--if embraced by supervisors and the county’s voters--will open doors in the state capital and on Wall Street.

“It is fiscally responsible,” said Kopp, co-chairman of a Senate special committee that has examined the county’s fiscal debacle. “It will generate the confidence of potential lenders. It will generate sympathy and the approbation of most legislators and it will improve the ability of Orange County to secure legislative and gubernatorial assistance.”

Popejoy said revenue from the tax increase could be used to back about $700 million in new borrowing by the county. That would help in refinancing the county’s debt, including more than $1 billion in bond payments due this summer.

The new administrator has repeatedly said tax increases are a last resort that should be considered only after the county had explored all other ways to recover from bankruptcy. Last week, Popejoy proposed eliminating more than 1,600 county jobs, 1,040 by layoffs; announced a list of county properties to be put up for sale and offered another list of county services that could be turned over to the private sector.

But all those initiatives will not save or raise enough money to pay off the $1 billion in debt that comes due by Aug. 10 or fully repay the nearly 200 cities, school districts and special districts that lost $1.7 billion when the county’s investment pool collapsed late last year.

With the prospect of state assistance growing dimmer by the day, Popejoy said he was left with no other option but to propose a tax increase.

“This bankruptcy crisis is an Orange County problem and demands an Orange County solution,” Popejoy said.

Besides the sales tax increase, Popejoy proposed higher fees at county dumps and the controversial notion of accepting trash from neighboring counties. His statement did not estimate how much revenue those moves might raise.

Popejoy’s announcement drew mixed reviews from the wide range of interest groups who have been tracking the county’s recovery effort. The tax issue has already divided conservatives: Many business leaders support taxes as a necessary part of the county’s recovery, but many community activists adamantly oppose them.

“This is going pit the elite development community in this county against the average taxpayer,” Mark P. Petracca, a UC Irvine political science professor. “We are finally going to see who is going win that fight.”

Bruce Whitaker, a leader of the Committees of Correspondence, a vocal anti-tax group, said his organization would strongly oppose the tax increase and expressed dismay that Popejoy would consider the idea.

“We think any effort to have voters approve a tax increase would fail miserably,” Whitaker said. “This is not an option. I believe no matter how they package it, (a tax measure) would fail.”

The proposal to seek a sales tax increase was greeted most warmly by public school advocates, government workers and some business leaders.

John Smith, head of an education activist group called the Good News Coalition, praised Popejoy for proposing the ballot measure. “I believe that slowly but surely, the enormity of the problem is being impressed upon people,” Smith said. “They are concluding that we can’t get out of this without taxes.”

Smith said a portion of the tax revenues should be earmarked for schools. The county currently is proposing to make cash payments of 77 cents on each dollar the school districts had invested in the county pool, with another 13 cents per dollar to be repaid in so-called recovery notes and the final 10 cents per dollar in notes that would be made good after other county creditors are repaid.

Smith said revenue from a tax increase should be used to “make the schools whole. Education is important enough.”

State Sen. Lucy Killea (I-San Diego), who has proposed legislation to put the county’s financial affairs under a trustee, applauded news of Popejoy’s proposal, but said a sales tax increase remains “just one piece of the solution.”

“They still haven’t come up with an overall plan to plug all the holes. They need to do all the options available to them before they can feel they’re going to make it through the summer.”

On Wednesday, a Senate committee--saying county leaders had failed miserably--took steps toward toughening Killea’s trusteeship proposal.

Times staff writers Eric Bailey in Sacramento and Don Lee and Mark Platte in Orange County contributed to this report.