Supervisors Call Emergency Session on Fund for Today : Finance: O.C. officials spend Sunday in series of briefing meetings. Dismay builds over selective no-loss guarantee.

SANTA ANA — Scrambling for a strategy after last week’s announcement that Orange County’s investment portfolio has lost $1.5 billion this year, officials spent Sunday in a series of briefing sessions, and the Board of Supervisors called an emergency meeting for today.

Some Republican activists began calling for the ouster of County Treasurer-Tax Collector Robert L. Citron, manager of the investment fund and the county’s only elected Democrat. And some investors in the county fund expressed dismay on learning that Citron had given a special no-loss guarantee to three school districts and the Orange County Board of Education, which borrowed a total of $200 million for the sole purpose of reaping profits through the investment pool.

“It was wrong in my mind,” said Andrew Czorny, treasurer for the Orange County Water District, which has $87 million in the fund. Citron “was putting potential returns of other participants in the county at risk. . . . We experienced losses because of this side deal.”

The crisis involving the county’s investment pool erupted Thursday with the disclosure that risky financial maneuvers directed by Citron had cost the equivalent of 20% of the actual amount, excluding leverage, put into the pool by 185 cities, school districts and other government agencies.

County Supervisor Roger R. Stanton, acknowledging that some of his fellow Republicans are calling for Citron to step down, said he would not pass judgment “until I get a further briefing on how bad this situation is.” But if Citron’s resignation “would facilitate a speedy resolution of this problem,” Stanton said, “I am not going to stand in his way.”

Those who know Citron, however, describe him as a fighter who is not likely to walk away, especially if he sees the likelihood of financial recovery.

Robert C. Politiski, Citron’s friend of 48 years, said he would be “very, very, very surprised” if Citron “even had any thought” of resigning. “He does not turn or run from anything,” Politiski said.

Assistant Treasurer Matthew Raabe, designated as the county’s spokesman on the investment fund crisis, could not be reached for comment Sunday. County Counsel Terry C. Andrus and County Administrative Officer Ernie Schneider worked in their offices Sunday but did not return phone calls.

“Everything is going nuts right now,” said Tustin City Councilman Jeffery M. Thomas, a longtime foe of Citron. The situation, he said, “is like a bunch of cockroaches going for cover now that the lights have been turned on.”

Citron, meanwhile, remained in his Santa Ana home and would not speak with reporters. Neighbors who have seen him over the weekend said he is handling the crisis well.

“He just says he’s focusing on straightening things out, and that he’s confident they will straighten out,” said Dan Miller, who lives next door in a neighborhood of elegant homes, expansive lawns and circular driveways.

Asked whether the treasurer had attended the rare Sunday sessions at the Hall of Administration in Santa Ana, Board of Supervisors Chairman Thomas F. Riley emphatically said, “No.”

While county officials worked on damage control, longtime Citron critics said they are considering a recall campaign. Eight local Republicans meeting Friday about the financial crisis determined that they would need about 75,000 signatures to mount such a campaign. It would cost about $180,000, said Thomas, who backed Citron’s opponent, accountant John M.W. Moorlach, in the June election.

The issue was also a topic of discussion at political gatherings Saturday, including a holiday party hosted by state Assemblyman Gil Ferguson (R-Newport Beach) and a fund-raiser for presidential hopeful U.S. Sen. Phil Gramm (R-Texas), several GOP activists said.

Assemblyman Mickey Conroy (R-Orange) “has been approached by several people to possibly head up, or be involved in, a recall campaign,” said James Bieber, Conroy’s legislative aide. “He’s still mulling it over.”

But County Supervisor Harriett M. Wieder said that the response to the investment fund loss should not be a political issue. “I think we ought to stop this partisan bickering,” she said. “Scapegoating is no answer.”

Members of several city councils--including Costa Mesa, Huntington Beach and Irvine--said they have scheduled special agenda items or closed sessions this week to discuss their investment situation.

A notice was posted Sunday at the Hall of Administration announcing today’s special Board of Supervisors meeting at 2:30 p.m. “related to the county’s investment bond pool.”

Riley said the supervisors have also added a closed session to their regular Tuesday meeting.

Among actions to be discussed at today’s meeting, supervisors said, is whether to form an oversight committee of the pool’s four largest investors, who would be consulted before any major investment decisions are made.

One of the biggest investors, the Irvine Ranch Water District, has said it will withdraw its remaining $300 million from the fund later this month unless a committee of the top investors is given full disclosure of the portfolio’s activity and the opportunity to approve strategies for recovery.

No investor can take any money back now, beyond normal withdrawals, without waiting 30 days and suffering a 20% loss, the amount that the portfolio’s market value has fallen.

The two major credit-rating agencies, Moody’s Investors Services and Standard & Poor’s Rating Group, have been reviewing the county’s financial condition, and Standard & Poor’s Friday signaled that it may lower the rating for Orange County bonds.

If the now-stellar rating is downgraded, the county would have more difficulty borrowing and would have to pay higher interest rates.

Another proposal is for an oversight group comprising the 11 top investors, who have a total of $2.5 billion in the fund.

“When you get in a tough situation, you go into this denial thing first where you close your eyes and hope it goes away,” Irvine Ranch Water District’s chairman, Peer Swan, said Sunday. “But when you get into a tough situation, what you want to do is get smart people together immediately to help you.

“The county invested our money, then went upside-down with it. I want agreement as a non-county player that, before they do anything, I will be able to review the situation and have outside analysis.”

The idea of limiting such a committee’s membership to only large investors did not sit well with some municipal officials, though. Newport Beach City Manager Kevin J. Murphy said he is concerned that the panel might not represent smaller interests.

“We don’t have anybody fending for us,” said Murphy, whose city has $18 million in the pool. “We’re small potatoes . . . but we need our money just as badly.”

Other investors expressed concern about the special deal that Citron struck with the four school groups in June, 1993.

All 31 of the county’s school districts have money invested in the pool, including about $350 million in borrowed funds used to cover operating expenses while the districts await tax receipts.

But four agencies--Newport-Mesa Unified School District, Irvine Unified School District, North Orange County Community College District and the Orange County Department of Education--borrowed an extra $200 million and invested it through Citron, armed with oral and written guarantees that the overall pool would back their investment so that none of it would be at risk.

The districts agreed to the unconventional arrangement in an attempt to raise badly needed cash as state funding for education dwindled. Their investment earned them about $1 million each in the first year.

Other investors wondered Sunday why they were not offered the same terms.

“It’s rather upsetting,” said Don Watson, treasurer of Huntington Beach, which has $43.5 million in the county fund. “If you are in a pool, you should all be under the same circumstances.’

Fountain Valley Mayor John Collins, who also sits on the board of the Orange County Sanitation District, said he is “very, very upset” to learn of the arrangement. “I don’t see how Citron could do that, quite frankly,” Collins said.

Thomas R. Mueller, a securities attorney who specializes in public finance, said the idea of backing some investors’ risk with other investors’ money “raises some questions.”

“I don’t think I can tell you on a Sunday afternoon that it’s illegal, but it raises questions as to whether the treasurer acted within his authority in granting preferential treatment,” said Mueller, who lives in Fullerton and works in the Los Angeles office of law firm Jones, Day, Reavis and Pogue. “I just find it somewhat astonishing that he finds that authority and thinks it’s prudent to make that guarantee.”

Most investors have said they will wait for more information before deciding whether to move their investments out of the county fund.

“It’s a sad, sad day for Orange County, and we don’t need to make it worse,” said Costa Mesa City Councilman Joe Erickson, whose city earlier this year reduced its holdings in the county pool from $14 million to $2.6 million now.

Said Irvine Mayor Michael Ward, echoing the sentiments of many investors: “The big decision is, ‘Are we going to pull our money out?’ That hasn’t been decided yet. We don’t want to be the ones to start the run on the bank.”

Times staff writers Greg Hernandez, Ross Kerber and Chris Woodyard contributed to this report.