Cities, School Districts Facing Many ‘What Ifs’

The 600 employees of Orange County’s sanitation district got paychecks Wednesday--and word that they might not get their next one.

In Fullerton, a routine order for 8,000 gallons of gasoline for school buses was turned down. The vendor would part with 1,000, but no more, because of uncertainties surrounding Orange County’s bankruptcy.

Anaheim stopped hiring. Stanton halted all major projects. The renovation of La Habra’s elementary school was put on indefinite hold.

“We’re asking everyone to batten down the hatches. We won’t be spending a nickel we don’t have to,” Huntington Beach Treasurer Donald Watson said. “If this were a household, it’d be kind of like putting meat and potatoes on the table, but not getting to have the apple pie.”

Across Orange County on Wednesday, officials in cities, school systems and special districts sought to calm worried staffs and constituents even as they struggled to come to terms with an economic landscape that was drastically changed.

Most officials said they have the funds to meet immediate payrolls, buy supplies and honor commitments to vendors but expressed concerns about the future, especially if their money remains frozen for long in the county’s troubled investment pool.

Many of the county’s city managers and city attorneys huddled in an emergency meeting Wednesday afternoon, working out strategies for coping with the crisis brought on by Orange County’s decision Tuesday to file Chapter 9 bankruptcy. The group, which will meet again today, is considering hiring a single law firm to represent its interests as it attempts to recoup its investments from the county.

Leaders of the county Department of Education also spent all day behind closed doors with two attorneys from a Riverside firm that specializes in bankruptcy and bonds. The California School Boards Assn. and the state Department of Education also have been asked to help and will send representatives to a meeting this afternoon of the county’s 31 superintendents and finance officers.

“We’re the child of the county, and the children have to be taken care of. It’s as simple as that,” said Paul Possemato, superintendent of the Laguna Beach Unified School District.

One of the most disturbing aspects of the current situation, many officials said, is that they have had little communication with county authorities and, one day after the bankruptcy filing, have only limited knowledge of what impact it may hold for them.

“We just entered a whole new world and it is a little scary,” said Gerard Goedhart, assistant city manager of Los Alamitos. “It makes us nervous when we don’t have any communication with the county. We’re not panicked at the moment, but we would like more information from the county.”

Suddenly tainted by their association with the once-respected county government, many cities that had invested in the troubled bond pool saw their own credit ratings tumble Wednesday. Standard & Poor’s rating service announced that as a precautionary measure it had placed participants in the county fund on a lowered status known as “credit watch.”

Several cities and agencies also announced Wednesday that they had taken steps to stop investing revenues in the county fund. At least two cities, Orange and Mission Viejo, have asked the county to send city property tax payments directly to them, not to the investment pool.

Orange County Transportation Authority officials announced Wednesday night that they had stopped depositing Measure M sales tax receipts in the fund. The measure, passed in 1991, authorized a half-cent sales tax to pay for transit and freeway improvements throughout the county.

“These are significant and serious issues. We are proceeding cautiously and professionally. We’re doing everything possible to maintain the integrity of our transportation program,” said Stan Oftelie, chief executive officer of the transit agency.

Even as some city officials sought to curtail payments to the fund, others worried about the impact of the bankruptcy on the county’s disbursement of city property taxes that are due Saturday, questioning whether those funds also might be frozen.

If so, warned Huntington Beach city treasurer Watson, chaos could result for many cities--like his--that count on the money for operating expenses.

Even without that, Huntington Beach is entering an era of severe belt-tightening, he said, since it had counted on withdrawing $3 million to $6 million a month for operating expenses.

“We will try to find other ways to keep ourselves afloat,” he said. “Anything that can be put off will be. We will continue to meet our payroll, our obligations to our vendors, but we will not take on new and additional projects.”

In Santa Ana, City Manager David Ream said the city’s day-to-day operations will not be affected, but he was troubled about the possible impact on such major projects as a $100-million city jail and police administration building now under construction in the civic center.

With the structure 20% completed, “we will definitely need some answers within the next 30 to 60 days to determine whether these projects will go forward,” Ream said.

Anaheim, which has $169 million invested in the county pool, said it is delaying capital improvement projects and instituting a hiring freeze until the full impact of the county’s bankruptcy is known.

“I think the city is going to be reasonably safe,” City Manager James D. Ruth said. “The best thing that can happen is if everyone remains calm and we work through this together and not panic.”

City officials also said that despite Orange County’s financial woes, they will continue negotiating with the Angels to build a new stadium, and the group working to keep the Rams in Southern California will continue pursuing construction of a new stadium.

As part of a wide-ranging proposal to prevent the Rams from fleeing to St. Louis or Baltimore in 1995, the Save the Rams task force last summer offered to renovate Anaheim Stadium, a $60-million project that would have been funded, in large part, by revenue bonds, which are guaranteed by taxpayers but paid for with stadium revenues.

But the local group recently began exploring the possibility of building a new football stadium, as part of a lavish sports and entertainment complex, on the Anaheim Stadium lot, a project that would cost about $200 million but would be financed by area corporations and individuals.

“There’s a pretty strong plan in the works that I can’t say too much about, but it’s all based on private financing,” said Frank Bryant, president of Irvine-based Traveland U.S.A. and a Save the Rams member. “It might also include (financial) input from the NFL.”

Though Bryant said county funds or bonds would not be needed for the project, he believes the county’s bankruptcy filing will make it even more difficult to save the Rams.

“The impact will be more psychological than real,” Bryant said. “Other NFL owners might not think we’re as good an area as we were before. I’m sure the Rams will be skeptical, but luckily county funding was never part of any guarantees we gave the team.”

Although Ruth said a master planning study of the stadium area might be delayed, that won’t slow discussions with the Angels.

“A new stadium would be contingent on whatever impact (the bankruptcy filing) has,” Ruth said. “But we intend to proceed with negotiations and try to resolve any issues.”

Officials for the Walt Disney Company, who have proposed a $3-billion expansion for Disneyland, said they planned to meet with Anaheim officials next week to discuss the situation.

“We don’t want to speculate on what the impacts might be,” said David Malmuth, vice president of Disney Development. “We remain very optimistic about long-term business projects and doing business with Anaheim and Orange County.”

Ruth said the city’s $172-million urban face lift of the area surrounding Disneyland will continue for the time being.

School officials, meanwhile, reassured by the county’s promise late in the day to process payroll as normal Friday for 28,000 school employees, said they believe Orange County’s bankruptcy filing will stabilize the financial crisis and allow them to continue business as usual.

Still, many administrators spent the day in crisis management, fielding phone calls from anxious employees, vendors and community members and scrambling to understand the complex, unprecedented legal and financial situation.

“One of the worst parts of this whole debacle is the lack of information,” said Paul Reed, deputy superintendent of Irvine Unified.

Most districts were not communicating directly with the county treasurer’s office, but going through the Department of Education instead.

Ronald Wenkart, the county Department of Education’s attorney, said Wednesday the private attorneys were researching all options available to school districts to free them from the legal requirement that all their money be funneled through the county treasury.

“What does it mean? What’s the effect of the bankruptcy? What are our options?” Wenkart said, summarizing the questions he’d been asking the experts all day. “We’ve got a lot of ideas, but I can’t comment on those.”

In other districts, administrators attempted to calm employees with memos promising on-time paychecks and to reassure vendors wondering whether they would be paid for providing services. Several districts called emergency board meetings for the coming days to brief trustees.

But John Steele, an administrator in the Saddleback Valley Unified district, said principals were told that essential spending would be approved. La Habra Supt. Rich Harman said the remodeling plans for Las Lomas Elementary--in the works for years--were in jeopardy.

And Possemato, who runs the Laguna Beach school system, said the district might consider filing bankruptcy itself.

“Looking at all the options, I think it becomes necessary for us to protect ourselves. I think school districts will look at that option,” he said. “That’s not alarmist, that’s just trying to find the answers. For superintendents, trying to hold the fort down here, it’s very difficult for us.”

But after marathon meetings and long hours of telephone briefings, most administrators were still urging a united front and a wait-and-see attitude.

“I remember a quote of FDR’s that ‘the greatest thing we have to fear is fear itself,’ ” Saddleback Valley Supt. Peter A. Hartman said. “The fear of the unknown is always something that isn’t productive.”