MONTEBELLO : Orange County Fiscal Crisis Felt in Heavily Invested City

Orange County’s growing financial crisis has created anxiety among Montebello officials, who are trying to determine the status of $47 million that the city has invested in the county’s troubled investment pool.

City officials have been huddling to figure out how to deal with the county’s decision this week to seek federal bankruptcy protection. Their most pressing concern is whether they can pull out about $25 million from the pool to meet a Dec. 31 deadline to pay off some city bonds.

“We’re still optimistic that the county will make that payment,” City Administrator Richard Torres said. “We’re extremely concerned, but we’re not panicking yet.”

Montebello is one of about 180 government agencies--Orange County, cities, schools and special districts--that have pooled $7.42 billion in the county-run investment fund. Before the crisis, their holdings were worth $20 billion. Orange County officials reported last week that the pool lost $1.5 billion in value--about 20% of what investors had put up--because of a risky investment strategy.

The county’s investment strategists used the pool as collateral to borrow more than $12 billion in short-term loans to buy long-term bonds that were paying higher interest rates. But interest rates on the long-term bonds dropped while those on the short-term loans rose.

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Torres said the city has had money in the Orange County investment pool for most of the 5 1/2 years he has been city administrator.

“We saw it as an absolutely safe investment that offered the best return we could get for our money,” he said.

The $47 million that Montebello has in the Orange County pool represents 60% of its $78-million investment portfolio. The city has $21 million in certificates of deposit and $8 million in the state investment pool, Torres said.

Montebello’s $32-million operating budget includes $3.8 million in income from investments. Torres said he did not know how the Orange County crisis would affect those earnings.

Mayor Art Payan said he was concerned because that $3.8 million pays for a lot of city services.

“At this moment we don’t know what this means,” he said. “We’ve been told (recently) that as long as the municipalities and school districts don’t make a run on the pool, everything will be OK.

“But then they filed Chapter 9 (seeking bankruptcy court protection), and we don’t know what that means. There are so many unknowns at this time.”