ORANGE COUNTY IN BANKRUPTCY : Officials Seek to React Without Scaring Public : Crisis: Many city and school district leaders adopt wait-and-see attitude. But a few insist on tough talk and call for immediate cutbacks.

By SHELBY GRAD and DANIELLE A. FOUQUETTE

Dec. 26, 1994 12 AM PT

SPECIAL TO THE TIMES

As they respond to an unfolding financial crisis, city and school district leaders say they face a dilemma: How to deal swiftly and soberly with the situation without unduly alarming the public.

It is a balancing act that leaders say they must perform at public meetings, in their offices as they field phone calls from residents, and even at the supermarket as neighbors approach them.

Many officials have adopted a wait-and-see attitude, wary of frightening residents even when the financial picture appears grim.

At a Santa Ana school board meeting in which officials announced that the bond debacle might mean larger classes, trustee Audrey Yamagata-Noji warned against publicizing a “hit list” of potential cutbacks until the district’s losses are clear. “People freak out, and I don’t blame them,” she said.

But other officials insist that the financial crisis must be met with tough talk and austere planning, even though its full effects probably won’t be known for months.

In Irvine, school board member Hank Adler suggested that officials immediately draw up a list of deep cutbacks, declaring that “the time for denial is over.” Another board member then accused Adler of needlessly frightening residents and employees.

“Hank’s approach is where you draw out the worst-case scenario in very large terms,” board member Mike Regele said. “The scenario I want to follow is a little more conservative and incremental. Certainly we need to be thinking about worst-case scenarios, but we need to be careful of that.”

Officials’ efforts to address the crisis in any decisive way have been complicated by its fluid nature. With high-level meetings occurring continually, they said, it is often difficult to speak with certainty about what’s going on.

Not surprisingly, concern about the collapsed fund pool is more intense in cities with large investments.

Irvine, with $209 million in the pool, has held several emergency council meetings over the last month. The city has gone from twice-monthly meetings to weekly meetings. In Cypress, with only about $5 million in the pool, the crisis has not emerged as a major issue.

The county announced two weeks ago that the fund has lost about 27% of its value over the last year. But many local officials refuse to concede that their agencies will suffer any long-term losses, insisting instead that they are due back every penny of their investments.

So far, cities and school districts have responded to the crisis by delaying capital projects, imposing hiring freezes and clamping down on spending. But many officials fear that the worst is yet to come.

“We still don’t have the full story. That makes it difficult,” said Paula Werner, Irvine’s mayor pro tem. “For now, I don’t want to allude to cuts. . . . I want to know all the facts.”

Officials said they are cautious in part to spare city and school employees any needless panic. Many employees have experienced several rounds of belt tightening and layoffs as agencies adjusted to the statewide economic downturn.

“We’ve gone through this recession. Restructuring government has changed people’s lives,” Werner said. “Staff morale is low. People are nervous to begin with.”

A case in point is Cathy Ann Brooks, a newly elected trustee for the Placentia-Yorba Linda Unified School District. She proposed last week that an independent committee of residents be formed to advise the board on bond matters.

“Unless you believe in the tooth fairy, there is going to come a time when there will be cuts,” Brooks said.

Others on the board disagreed, saying that there may be no need for cuts. The district has more than $53 million in the pool.

A similar debate is going on in the Irvine Unified School District, with $102 million frozen in the fund, the most of any Orange County school system.

Adler, a newly elected board member, said it is time for the district to act. He urged preparation for a $30-million loss and called on school board members to eliminate their $400-a-month stipends.

“In this situation, my philosophy is: Prepare for the worst and hope for the best,” said Adler, an accountant.

But a veteran board member said Adler is moving too fast.

“If we really did have, as Mr. Adler suggested, a $30-million problem, we are bankrupt,” Regele said. “It’s not possible to cut $30 million out of a $100-million budget. But I don’t believe that is the magnitude of the problem.”

Adler’s comment also could send the wrong message about how the board is responding to the crisis, Regele said. “The implication was made that we were not embracing the magnitude of the problem and we are not moving. That simply is not true,” he said. “But we also need to get a realistic assessment of it.”

Times correspondents Russ Loar and Jon Nalick contributed to this story.