O.C. Developers, Big Business and Labor Are Throwing Money and Muscle Behind the County Half-Cent Sales Tax Hike. Call This Unlikely Alliance... : THE TAX TEAM

COSTA MESA — It’s a strange alliance even by bankrupt Orange County’s standards.

Business giants such as the Walt Disney Co., Rockwell International Corp., the Irvine Co. and Charles Schwab Corp. are abandoning their traditional corporate code: Always be on the winning side, work behind the scenes, avoid taxes at all costs.

Instead, in what some call an “unholy alliance,” big business has joined forces with both county leaders and its old enemy organized labor in a very high-profile, uphill battle to impose, of all things, a tax increase.

While polls show many Orange County voters angrily refuse to give more tax money to the same government they blame for the fiscal collapse, corporate citizens have stepped up to the plate in favor of Measure R, the countywide half-cent sale tax increase.

Although many small companies and local auto dealers oppose the tax, most of the county’s bedrock businesses believe Measure R is the best way to prop up this region’s crippled local government and ensure its long-term economic health and stability.

“There is a tremendous amount of anger out there among the voters. Corporations just don’t have that emotion,” said Todd Nicholson, president of the Orange County Business Council, a group of 2,000 local businesses supporting the tax increase.

“As a business, you’ve got to move through the anger and do what’s in the best long-term interests of this county. We hope that’s what the voters will eventually do. We don’t like taxes either, so this is a very difficult situation for business to be in,” Nicholson said.

Leaders of commerce argue that unlike voters--many whom are still confused and furious at the failings of their elected leaders--they have pragmatically come to the conclusion that the tax is the best way to stabilize government finances and make sure the county makes good on its bond debts.

With only 16 days until the June 27 Measure R vote, business is ponying up big advertising bucks, sending out pro-tax letters to their workers and holding strategy meetings throughout the county.

Since badly placed interest-rate bets pushed Orange County into bankruptcy Dec. 6 with $1.7 billion in losses, the county has already laid off workers, cut back services and eyed defaulting on nearly $1 billion of bonds.

The tax increase, to 8.25% from 7.75%, would raise $1.3 billion during 10 years and cost Orange County’s 2.6 million residents an average of $50 a year if it passes. Proponents claim about 20% of the tax would be paid by tourists.

However, many believe corporate support of the tax is just another example of the cozy relationship between business and government in Orange County, a place where, some opponents charge, big land developers and big business have operated the Board of Supervisors as their own private puppet show for more than 30 years.

“What you have here is a public-private partnership trying to shake down Joe Citizen taxpayer,” said Bruce Whitaker, a Fullerton anti-tax activist. “We have to break this. It’s time to separate their alliance and get back to an adversarial relationship between business and government.”

Prof. Mark Petracca at UC Irvine disagreed: “What you really have here is private control of the public sector. This is no partnership,” Petracca said. “The reason Disney is giving is that they want the county to have money to spend on development and infrastructure.”

Business leaders agree that they have vested interest in seeing the county return to normal but argue that their motives are in the county’s best long-term interests. Major projects such as the expansion at Disneyland and new housing developments do require continuing public investment, but return jobs and improve the quality of life, they argue.

For corporations to continue to do business in the county, they say, stability and a healthy government are needed.

Disney, which has opposed every other sales tax hike in Orange County because it adds to Disneyland ticket prices, decided to change its stance this time, said Ray Watson, a director on the boards of both Disney and the Irvine Co.

While Disney still opposes taxes that affect its business, it sees Measure R as “an insurance policy” that will promote fiscal stability here in the long term and let the county make good on its debts in a responsible way, he said.

“This time, Disney has pragmatically decided to stand up and say this problem is bigger than just our self-interest,” said Watson, who has served on the Disney board for more than 20 years.

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Still, for many confused voters trying to make heads or tails of the arguments of both sides, the jury is still out.

On one side, proponents portray Measure R as vital to the future of the county, saying that its defeat would mean a sharp decline in property values, bankrupt schools and even a state government takeover of the county. They have reported raising $528,825, and expect to show more than double that amount in the next filing Thursday.

While not all big business interests here supports the tax, the list of supporters reads like a who’s who of Wall Street’s municipal finance club and the heavyweights of Orange County business circles.

They include: Chevron, Kaufman & Broad Corp., the Boston Co., Pacific Mutual, MBIA Insurance, Charles Schwab Corp., Disney, Rancho Santa Margarita and the Federal Home Loan Mortgage Corp, known as Freddie Mac.

Also in favor: the Orange County Central Labor Council, AFL-CIO and the 41 local hospitals that make up the Health Care Assn. of Southern California.

Opponents, operating on a shoestring budget, have raised about $300,000. They are sending faxes and mailers and pounding the pavement. Opponents include the Orange County Auto Dealers Assn. and the exclusive Lincoln Club, an influential group of Republican activists. Also in opposition: Firms hoping, once the tax fails, to pick up the county’s assets at fire sale prices.

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Many of Orange County’s small business owners are also critical of a citizen bailout of the county, contending the tax would hurt their sales.

“I’m a small business. If I make a mistake, I’d be out of business. Why is that not true for the county?” said Kenny Lau, who owns the Santa Ana Food Market on 1st Street.

Lau, whose family has owned the market since 1949, grew up in Santa Ana and said he has known many of his customers since they were children. The majority of his shoppers are Latinos who make about $5 to $7 an hour, he said.

“I see people here just struggling to live in Santa Ana, with the crime and the costs. To add another burden on them is just not right,” he said. “Those taxes could mean a couple gallons of milk, an extra packet of tortillas or a birthday cake for the kids. They count every penny.”

Lau questioned why the people who can least afford it should pay for the mistakes and misdeeds of elected officials such as former Orange County Treasurer-Tax Collector Robert L. Citron, who has admitted to mismanaging money and violating securities laws.

“If it was a natural disaster I could see it,” he said. “But in a situation where someone abuses the money and takes up gambling, I just don’t think it’s right.”

But not all small-business owners are so sure--with many confused about which way to vote. Supporters of Measure R are planning a last-minute campaign blitz designed to persuade these voters to approve the tax.

Mike Jacobs, owner of Creative Screenworks, a Yorba Linda sign maker, is in a unique position. Although his company printed up pro-Measure R bumper stickers for a client, he doesn’t know where he stands on the tax.

Compounding the problem: the county still owes his eight-person company about $5,000 for work he did last year, and he doesn’t know when he will get paid. On one hand, he said, a sales tax would be good, because tourists visiting the county will help pay to clean up the mess. But, on the other hand, he said, it seems a vote for the status quo.

“It’s a dilemma. Being a business owner I’m taxed to the hilt already, so it makes me think I’m opposed to it,” he said. “But as a citizen I think if they met their word and the tax could help the county, I would consider it. It’s confusing.”

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One group with a clear idea of its position is area hospitals and some health care companies. Concerned that failure of the tax could mean more burdens for local hospitals, the Health Care Assn. of Southern California supports the tax.

Hospital officials, as corporate citizens, believe that if voters shoot down the tax, it could “compromise our ability to preserve the public health,” said John D. Gilwee, vice president of the association.

“Our emergency rooms are already flooded. And if the county starts providing even less money for indigent services it will get worse,” said Gilwee. “As citizens of Orange County, we’ve been victims, we’ve been robbed. But our elected officers really are us. We have a responsibility now to repair the damage.”

But opponents see a vote for the tax as a vote for the status quo, and say a rejection of the tax gives citizens an opportunity to take back control of county government from big business interests.

The bureaucratic structure of county government should be overhauled, they say, with more workers trimmed from the payroll and more departments closed.

“I think it’s time to for the people who have been left out to take over this county,” said South County anti-tax advocate Tom Rogers, a former Republican county chairman who three times opposed the half-cent county transportation sales tax.

“These developers and big business have controlled this board of supervisors for years. Now it’s time for the people who don’t belong to the Lincoln Club or go to Don Bren’s cocktail parties. I think it’s their turn now.”

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Linking failure of the sales tax to a restructuring of local government is just short-sighted thinking, say most business leaders such as Edgar D. Brower, chairman and chief executive officer of Pacific Scientific Co., an electric products maker in Newport Beach.

Brower, 64, a Republican, said this is the first time in his life he has ever supported a tax increase. While a defeat won’t impact the bottom line at his firm, as an Orange County citizen Brower said he wants to maintain the quality of life here for his workers and the quality of schools for his grandchildren.

“People here are angry at their local officials but they have forgotten that it’s their government and they are responsible for it. At some point you have to look in the mirror and say you are them,” said Brower. “The are calling for a meltdown of the county. But they are the county, so the only people they will hurt are themselves.’

Officials at Rockwell, Orange County’s biggest employer, agree.

B.J. May, director of community affairs, said the company sent out letters to 6,200 of its employees who live in Orange County explaining the pros and cons of the tax in an attempt to get workers to approve the measure.

“It’s one of those bitter pills, but we want to preserve the quality of life here, especially the schools, for our workers. Rockwell is based here,” May said.

And Rockwell, which has promised $50,000 to the campaign, thinks it and other companies that have donated money could turn the tide.

“Money can buy votes,” agreed Petracca of UCI.

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But Measure R supporters disagree with a characterization that the tax is somehow business-driven.

“That implies that business is going to get this money. And that’s just not the case,” said Stu Mollrich of Butcher, Forde and Mollrich, the political consulting firm running the pro-Measure R campaign. “Not only do you have virtually every industry segment represented here, but you have labor as well, which is very unusual. Sophisticated business and major companies are worried about higher borrowing costs for the county if this tax doesn’t pass and they default on bonds.”

While polls show the tax failing and even County Chief Executive Officer William J. Popejoy has expressed doubts about its passage, others, such as Petracca, said it could pass. They point to 1988 when early polls showed most voters would approve Measure A, a slow-growth initiative.

But after big developers such as the Irvine Co. contributed millions of dollars to the campaign, it was defeated.

“What you have here is a food chain of business,” Petracca said. “If people at the top of the food chain go along with it, those in the middle aren’t going to come out and oppose it. They might get punished.”

With Measure A, opponents argued that the price of homes would increase dramatically if the slow growth measure passed. Now, proponents of Measure R say that if the sales tax fails, the value of homes will dramatically plummet.

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But opponents such as Lau and Orange County’s car dealers argue that the tax will hurt sales.

“It’s not that Measure R is a bad idea, it’s that all the options were not investigated at the time of increasing the sales tax,” said Kevin Allen, president of the Orange County Motor Car Dealers Assn., which represents 106 new car dealers in Orange County. “And it could hurt our sales.”

But where some see harm in failure, others see opportunity. Many firms, hoping to buy county assets, such as John Wayne Airport on the cheap or take over county services, may want the tax to fail.

Some say the worse off the owner, in this case Orange County government, the better a deal for the buyer.

“Some people see Orange County as a wounded animal and think they can come in here and buy things for fire sale prices,” said pro-Measure R Mollrich. “There is concern that if Measure R is defeated, the county will have to get involved in more costly deals.”

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Measure R Funding

With just 16 days to go, the anti-tax forces have raised an estimated $300,000, most of it in small donations, while tax advocates estimate they have raised $1 million. Complete campaign contribution reports are to be filed Thursday. Some of pro-measure R contributors of more than $10,000, as of last week: Charles Schwab Corp. * Business: Brokerage firm that owns $41 million of Orange County notes * Headquarters: San Francisco * Amount: $150,000 California Teachers Assn. * Purpose: Education political action group * Headquarters: Burlingame, Calif. * Amount: $141,681 Irvine Co. * Business: Orange County’s largest landowner * Headquarters: Newport Beach * Amount: $100,000 AMBAC Indemnity Corp. * Business: Bond insurer (backing $17 million in Orange County bonds) * Headquarters: New York * Amount: $60,000 Orange County Employees Assn. * Purpose: Represents county employees * Headquarters: Santa Ana * Amount: $80,532 Walt Disney Co. * Business: Entertainment * Headquarters: Burbank * Amount: $50,000 Rockwell International Corp. * Business: Aerospace * Headquarters: Seal Beach * Amount: $50,000 Chevron USA * Business: Oil company (owns land in Coto de Caza) * Headquarters: San Francisco * Amount: $25,000 Pacificare Health Systems * Business: Health maintenance organization * Headquarters: Cypress * Amount: $25,000 Rancho Santa Margarita Joint Venture * Business: Developer * Headquarters: Rancho Santa Margarita * Amount: $25,000 Boston Co. * Business: Investment firm (owns $20 million in Orange County notes) * Headquarters: Boston * Amount: $25,000 Federal Home Loan Mortgage Corp. * Business: Wholesale buyer of mortgages * Headquarters: Washington * Amount: $12,000 Mortgage Bond Investors Assurance Corp., MBIA * Business: Bond insurer (backing $295 million in Orange County recovery bonds) * Headquarters: Armonk, NY * Amount: $10,000 Orange County Building Industry Assn. PAC * Purpose: Building industry trade group * Headquarters: Santa Ana * Amount: $10,000 Sources: Orange County Registrar of Voters, Citizens Against the Tax Increase, Citizens for Economic Progress, Times reports

Researched by JANICE L. JONES / Los Angeles Times

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Weighing In on R

Measure R, which proposes an increase of local sales tax to 8.25% from 7.75% for 10 years, would raise about $130 million annually. The county would borrow against this money to pay debts. What proponents and opponents say about the bankruptcy recovery measure:

Proponents * Alternatives do not raise enough money. * Would stop decline in home values. * Schools need the money. * Business climate suffers from prolonged bankruptcy. * “No” vote increases county borrowing costs. * Financial obligations fulfilled with least delay. * Only costs residents $50 each year. * Provides fiscal stability so that county government can be reformed. * County services, including law enforcement, would be jeopardized if measure fails. * Faster, cheaper way to get out of bankruptcy.

Opponents * Alternative financing exists but has not been presented. * Declining home values are caused by poor economy, not bankruptcy. * Funds not earmarked for schools or law enforcement. * Could drive a weak Orange County economy back into recession. * Debt rollover creates more time to pursue alternatives. * County may receive $1 billion in Merrill Lynch lawsuit. * Orange County taxes and cost of living already too high. * Would remove incentive to reform county government. * Money would go into county’s general fund; controlled by same people who oversaw bankruptcy. * Tax would be difficult to repeal if county borrows against it. Sources: Orange County Registrar of Voters, Citizens Against the Tax Increase, Citizens for Economic Progress, Times reports Researched by JANICE L. JONES / Los Angeles Times