Orange County Leaders Act to Place Tax Hike on Ballot : Bankruptcy: Supervisors give preliminary approval to measure that would allow voters to decide on half-cent increase in sales levy.

SANTA ANA —  Despite previous vows to oppose a tax hike after Orange County’s unprecedented bankruptcy, the Board of Supervisors on Tuesday took a big step toward putting a half-cent sales tax increase before voters on a special June ballot.

All five supervisors said they still abhor the idea of raising taxes. But in a 5-0 vote, they granted preliminary approval to a measure that would put the matter in the public’s hands.

The action set up a final vote next Tuesday at which four of the five board members must again back the proposal for the tax increase to go on the ballot at a June 27 special election. It would be called Measure R.

The move drew sharp criticism from anti-tax groups, which threatened “the mother of all recalls” if the half-cent sales tax increase is put to a public vote.

“I could take the easy political road and just dismiss the proposal as bad and uncomfortable,” said Board Chairman Gaddi H. Vasquez. “But today I can’t, because the facts are real, and they are facing me as a citizen, as a parent and as someone who has spent most of his life in this county that I am so proud of.”

Under the proposal, the county’s sale tax would increase from 7.75% to 8.25%--the same rate as in Los Angeles County--for a 10-year period. The tax would generate about $130 million and would be used to back about $700 million in new borrowing.

William J. Popejoy, the county’s chief executive officer, told the board Tuesday that the county’s investment losses and debt were so great that there was no other option except to raise taxes. Layoffs, asset sales, privatization and litigation, he said, will not raise enough money in time to pay off more than $1 billion in debt due this summer.

“What you have is a choice to vote for a sales tax or a choice to vote for bankruptcy, one or the other,” Popejoy said. “It is a necessary evil. None of us like the idea.”

If the sales tax isn’t increased by half a cent, the county will default on its loans, school districts may file for bankruptcy and the county will become embroiled in years of costly litigation, Popejoy warned.

“We’re facing a financial meltdown,” he said.

After considerable discussion, supervisors said they were ready to take the action that they publicly have vowed to avoid since the county filed for bankruptcy Dec. 6. But they told Popejoy that they wanted to amend his proposal, adding a citizen oversight committee that would monitor how the tax revenue was spent.

Supervisor William G. Steiner said he supported putting the tax increase on the ballot only if a settlement is reached between the county and the nearly 200 participants in its failed investment pool on how to allocate the monumental $1.7-billion loss. If they continue to reject the county’s settlement offer, he said, there was no reason to raise taxes to help pay the investors off.

“The two go hat in hand,” he said in an apparent malapropism.

Supervisor Roger R. Stanton said he would agree to put the tax increase on the ballot but wanted Popejoy to devise a Plan B in the event the proposal failed.

The supervisors also said they wanted to be free to let the voters rescind the tax if the county’s recovery comes quicker than expected.

In Sacramento, legislators have been reluctant to offer Orange County any assistance unless supervisors do everything in their powers to pull the county out of its financial mess--including raising taxes.

Back home, citizen groups have threatened to recall the board members if they consider a tax, while school supporters, bondholders, government workers and developers pressure them to take just that step.