O.C. FINANCIAL CRISIS : Officials Say They’ll Manage if Investors Keep Cool : Impact: But worst-case scenario--a run by investors--is grim indeed. The cash-flow crunch could stop project dead and leave cities strapped.

It is a bureaucrat’s worst nightmare. Stan Oftelie, executive director of the county transportation agency, doesn’t think it will happen. He prays it won’t. But with Orange County now in the grips of a dismal investment crisis, Oftelie and others can’t help but shudder at a simple doomsday scenario.

If the cities, school districts and other agencies who invest in the county’s flagging investment portfolio made a run on the bank, the funds would all too quickly begin to dry up. The resulting cash-flow crunch could stop road and sewer projects right in their tracks and hurt municipal coffers in cities all over Orange County.

“I can dream up a scenario that would cause us grief,” Oftelie said. “It could become a real liquidity issue.”

The agency oversees transportation issues ranging from street widenings and freeway car-pool lanes, to the county’s bus and shuttle systems. With $1 billion invested in the county portfolio, substantial loses could conceivably impact motorists on the county’s roadways and those reliant on public transportation.

Despite such gloomy talk, Oftelie and other local government officials remain confident that the county investment portfolio will ultimately rebound and the crisis will have virtually no short-term effect. Despite the tsunami of concern in recent days, they say, the average taxpayer won’t feel a ripple. Parks will be maintained, roads will be built, schools will bustle with activity, buses will run.

“If no one gets panicky, this isn’t a major problem for us,” predicted Oftelie, whose agency has assets totaling 15% of the investment funds worth. “This whole exercise will likely end up meaning we’ll be getting a little bit lower investment return for the calendar year.”

Some analysts aren’t so certain taxpayers will be free of fallout from the crisis.

“It will trickle down to the individual people that live in the community,” said Nancy Zambell, a securities industry analyst at J.W. Charles Securities in Boca Raton, Fla. “It’s far removed from Wall Street.”

Indeed, a few Orange County cities are already expecting more than just paper losses. In Villa Park, a $200,000 road repaving project will be scratched because of investment losses. Cypress may also have to slow street repairs, said Richard Storey, finance director. The 4,600 residents of Cypress have $6 million invested in the fund.

“If there is an adjustment it will be the street contract,” Storey said. “It’s the easiest cut to make because we won’t have to lay people off.”

Some local officials said they will be able to manage their cash flow needs without touching the slumping portfolio funds. Other are confident they can make due for now because their budget projections were based on a modest expected return of 6%. They expect the annual return this year to sink to about 5 1/2%.

The level of discomfort depended in part on the amount an agency had invested in the county pool. The Newport-Mesa Unified School District, for instance, has about $80 million in the county portfolio. While the district’s budget gurus don’t anticipate any problems in the near future, they’re holding all bets beyond that.

“We need to replan future years,” said Michael Fine, the district’s director of fiscal services.

Orange County had the largest share of the portfolio, with 37%. The county’s 37 school districts accounted for 13%, while the Orange County Sanitation Districts have 6% of the holdings and Irvine Ranch Water District has 4%. Among cities, Irvine has 2 3/4%, Anaheim holds 2 1/4% and Santa Ana 2%.

Even the most bullish were well aware of the possible consequences. While most of the cities do not rely on their investments for day-to-day operating expenses, a long-term drop could serious hinder big projects--park expansion, a new recreation center--not deemed absolutely necessary.

“I don’t think anyone knows when it will have an impact or how,” said state Sen. Marian Bergeson (R-Newport Beach), who will assume a seat in January on the Orange County Board of Supervisors. “But it’s obvious we have a problem, a very serious problem.”

Investor Roster

Orange County’s investment pool includes 185 cities and special districts. Here are some of their investments, in millions of dollars:

Agency Amount Anaheim $169 Buena Park 28 Capistrano Unified School District 60 Costa Mesa 3 Cypress 5.85 Fountain Valley 30 Fullerton 18 Huntington Beach 43.5 Irvine 196 Irvine Ranch Water District 300 La Habra 8 La Palma 5 Laguna Niguel 18.7 Lake Forest 9 Mission Viejo 18.7 Newport Beach 18 Newport-Mesa Unified School District 80 Orange County Employees Retirement System 57 Orange County Sanitation District 450 Orange County Transportation Authority 1,000 Orange County Water District 87 City of Orange 24 San Clemente 34.6 Santa Ana 55 Santa Barbara 26 Saddleback Valley Unified School District 44 Transportation Corridor Agencies 306 Yorba Linda 13.5

Source: Individual agencies