O.C. Boom Gives Cities, County a Budget Break

Orange County’s booming economy is slowly beginning to offer some budgetary relief to local governments in the form of higher tax revenue and reduced demand for some types of public assistance.

Sales tax revenue, the single largest source of income for most cities, is rising at a modest but healthy pace in communities from Brea to Laguna Niguel.

The county’s two largest cities, Santa Ana and Anaheim, expect sales tax collections to rise 6% and 4% respectively over the next year. County government forecasts that tax and fee revenue this year will increase by 11%.

While the projected increases are far from a bonanza, they have brightened the outlook of government finance officials, after the gloom caused by years of sluggish revenue and budget cuts.

In some cases, the extra money is being earmarked for public works projects that were postponed in the past, or to enhance library and community services neglected or curtailed during the lean times.

Anaheim, for example, plans to use some of the money to repair sidewalks and plant trees. Laguna Niguel will save it for future public works projects. “It’s not a huge sum, but we are moving up gradually,” said William G. Sweeney, Anaheim’s finance director.

“During the recession in the early 1990s,” Sweeney recalled, “we had to make a lot of reductions to balance the budget. Now, as the economy continues to improve, we might be able to begin building up selected services.”

Orange County added 27,000 new jobs in 1996, a 2.4% increase that exceeded the national rate for the first time since 1989. The unemployment rate in April was 3.1%--the third lowest of California’s 58 counties.

Chapman University’s Center for Economic Research forecasts that employers will add even more jobs this year and continue to do so at an average rate of 2.6% over the next five years.

Not only are more people earning money, which then fuels retail spending and sales taxes, but there has also been a marked increase in tourism and convention business, which boosts the hotel occupancy tax revenue enjoyed by many cities. Moreover, increased automobile purchases are expected to yield a 6% increase in motor vehicle registration fees received by the county.

With the economy improving, the county also expects to see a significant reduction in demand for Aid to Families with Dependent Children, expected to drop by 20%, and General Relief--a form of welfare for people won’t qualify for other types of assistance--plummeting an expected 41%.

“With the economy we have now, anybody who is able to work can find a job that will provide them with the $200 or so a month they would receive through General Relief,” said Larry Leaman, the director of the county’s Social Services Agency. “So, we are left with a core caseload of disabled people and the elderly.”

Leaman said the county’s job opportunities over time have transformed General Relief from a program catering largely to young single people to one where the average recipient’s age is 62.

County budget officials cited the smaller welfare caseloads as one key factor in a drop in Orange County’s overall proposed budget, which went from $3.74 billion to $3.66 million.

Rising tax and fee revenue will allow the county to place an additional $12 million in a reserve account, and set aside another $24 million toward early repayment of $800 million in bankruptcy debts.

“Our goal is to save this additional money to get out of debt sooner,” said Stephen Dunivent, the county’s budget manager.

Like the county, several cities, including Costa Mesa, Anaheim and Newport Beach, are projecting their first increases in property tax revenue since the recession of the early 1990s, when real estate values--and tax revenue--dropped sharply.

City officials attribute the increased property tax revenue mostly to new residential and commercial development. But in other cities, collections remain flat.

While sales tax revenue is on the rise across the county, some cities are still struggling to recapture ground they lost during the 1991-93 recession.

Orange, for example, expects a 5% increase in sales taxes to $19.6 million. But the sum falls short of the $22 million the city received in 1989, said Scott Morgan, senior assistant to the city manager.

By contrast, Anaheim expects sales tax revenue to hit an all-time high of $42 million next year. Anaheim, Irvine, Santa Ana and Garden Grove also expect increases in hotel occupancy tax revenue ranging from 3% to 17%.

Not all cities are planning to use their increased revenue for service improvements. In La Palma, the slight rise in sales taxes will go to offset a portion of the $400,000 in budget cuts required as the city complies with Proposition 218, which outlawed certain types of assessments.

In Laguna Niguel, the extra revenue will be placed in reserve accounts to handle street repairs, traffic signal installations and other public works projects. “This allows us to comfortably maintain existing services while allocating sufficient funds for public works,” said City Manager Tim Casey.

But in Brea, the strong tax revenue is helping pay for a new community center and will be going to build up a reserve fund depleted during the recession.

Anaheim has established a $500,000 “neighborhood fund” that will be used to maintain sidewalks, plant trees and make other streetscape improvements.

City officials stressed that along with the revenue boosts, cities must also shoulder the increased police, traffic and other costs that come with new economic development. Still, they said the trend is encouraging.

“As the economy improves, it will help our situation for years to come,” said Sweeney, the Anaheim finance director.

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Fiscal Foothold

A growing economy is expected to increase ever so slightly the county’s property tax revenue but provide bigger boosts in motor vehicle license fees and income from Proposition 172, a statewide sales tax benefiting law enforcement. Demands for two major kinds of public assistance are projected to decline precipitously. All data in millions:

Revenue

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Motor Property vehicle Proposition taxes fees 172 1993-94 $187.8 $97.9 $130.8 1994-95 $130.7 $99.8 $139.9 1995-96 $121.2 $90.4 $151.9 1996-97* $110.1 $100.0 $159.0 1997-98* $111.4 $106.1 $167.0

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Assistance Demands

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General AFDC** relief 1996-97* $255.9 $7.9 1997-98* $205.4 $4.6

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* Projections

** Aid to Families with Dependent Children

Note: Proposition 172 revenue goes 80% to Sheriff’s Department, 20% to district attorney’s office

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Buying Power

Cities will benefit too, as sales taxes revenue, the largest single income source for most municipalities, will show a modest increase. Projections from a sampling of cities, in millions:

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City 1996-97 1997-98 Anaheim $40.6 $42.1 Brea $11.5 $12.6 Costa Mesa $28.0 $29.4 Garden Grove $13.0 $13.8 Irvine $28.4 $30.6 Laguna Niguel $4.3 $4.7 Orange $19.1 $19.6 Santa Ana $32.2 $34.2

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Sources: Individual cities, Orange County auditor-controller, 1997-98 county budget

Researched by SHELBY GRAD / Los Angeles Times