US voters snub their bankrupt county

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Los Angeles

Amid all the bickering , finger-pointing and lawsuits that followed the bankruptcy of Orange County in the worst municipal financial collapse in American history, one fact has now been unarguably established: the residents of this wealthy corner of southern California have no intention of bailing out their wayward masters.

Seven months after its bankruptcy sent shock waves around the world's financial community, officials from the county - home of Disneyland - presented voters with a proposal this week to help dig their way out the mess.

They asked the electorate to agree, by public ballot, to pay an extra half-cent in sales tax for a decade, an average of $50 (pounds 32) a head in an area where salaries are in America's top 2 per cent. This would have generated $130m a year, considerably less than the $1.7bn that was wiped off the books by the county's fatal investment strategy but promising a healthy start towards recovery, said officials.

Voters in the county were unimpressed. Final figures circulating yesterday revealed that they voted by a margin of 3-2 against the measure, delivering an unambiguous reminder of the distrust and suspicion in which they now hold government in this former Reagan heartland.

To date, most residents have been largely untouched by the fiscal crisis, watching grimly from the sidelines as Robert Citron, the 70-year-old county treasurer, resigned and pleaded guilty to six charges relating to the bankruptcy, and one of his aides was indicted on six counts of fraud and misappropriation.

But now deep cuts in schools and services for the poor and elderly, including the area's large Hispanic community, seem inevitable. The ballot results mean that, in effect, the well-paid, largely white middle-class Californians who vote have ensured that the non-voting poor will end up bearing the brunt of the fall-out.

"Our fears have been realised," admitted a dejected William Popejoy, the county's chief executive, who pushed hard for the tax increase as part of a package of proposals which included a 41 per cent cut in publicly- funded programmes and axing 2,000 jobs.

The local authority's attempts to recover from the crisis, prompted by a huge loss on its highly leveraged investment fund, are not helped by Wall Street, which now regards Orange County with a suspicion that would have been unthinkable a year ago. Even before the tax hike was defeated, Wall Street investors were demanding exorbitant interest rates on another part of the county's rescue plan, a $155m bond issue.

Californian officials will now return to the drawing board. Their strategy is unclear, but no one doubts the issue will linger for years, particularly in the courts. The lawsuits spawned by the crisis include a bid by the county to sue the bank Merrill Lynch, which it accuses of encouraging Mr Citron to get involved in risky investments.

None of this is good news for the politicians. Allegations have been flying in all directions: Mr Citron, an elected official, was a Democrat although the county is run by a Republican Board of Supervisors. But the Republicans have long harvested rich pickings in campaign contributions from the county. Governor Pete Wilson may be disappointed when he passes around the hat in the hope of raising a few bucks towards his battle for the Republican presidential nomination.