ORANGE COUNTY IN BANKRUPTCY : Troubled Orange County Investment Pool Includes Public Funds From Throughout State

The problems with Orange County’s investment fund are being closely watched far beyond the county’s borders--in Claremont, Montebello, Santa Barbara and even some cities in Northern California that have invested money in the troubled fund.

“It was a good investment a year ago,” Santa Barbara finance director John Paul said Tuesday of the fund, whose $1.5 billion in paper losses this year have triggered a financial and political crisis. “Everybody was killing to get into it. Now it’s let’s string ‘em up by the thumbs.”

Although the bulk of investors are cities and other government agencies in Orange County, others with public money in the pool include Atascadero, Mountain View and Milpitas.

School districts in Los Angeles County invested $45 million in self-insurance funds in the pool. Montebello has about $46 million invested--the majority of its investment portfolio. Santa Barbara has about $26 million, or about 25% of its portfolio, in the fund.

“If they can work it out to where everybody stays in and we just suck it up for a couple of years, we’re probably fine,” said Paul, expressing the attitude that Orange County officials have hoped will prevail among investors. Indeed, several municipal finance officers said what they feared most was a “run on the bank”--a development that should be averted by the county’s filing for bankruptcy protection.

John Stark, treasurer of Claremont, said Orange County officials acted “prudently” by hiring investment specialists to deal with the financial crisis.

Paul said Santa Barbara has the reserves to cover any losses from its investment. “If we had to take major losses, we wouldn’t have any cuts in services,” he said. “But, of course, any loss is a loss. So it would require us to eat into our reserves.”