ORANGE COUNTY IN BANKRUPTCY : City, School, Transit Officials Map Strategy : Reaction: Schneider talks to city managers. Schools get state advice. Tollway agencies say work to go on.

As Orange County’s financial crisis deepened Thursday, city managers, school administrators and transit agency officials huddled in closed-door sessions across the county, struggling to determine what implications it may hold for them.

About 50 city managers and finance officers gathered at Irvine City Hall for a two-hour meeting that included a question-and-answer session with County Administrative Officer Ernie Schneider.

Schneider, who spent an hour with the city representatives, “was very candid,” Orange City Manager David F. Dixon said later. “To be very frank, I had a lot of empathy for him.”

Other officials said they emerged from the meeting supportive of the county and its weary leadership, but anxious for more information about the likely effects of the crisis on their cities.

“I think they are doing the best they can,” Anaheim City Manager James D. Ruth said. “It’s a very complex thing and there is a lot of uncertainty.”

Irvine City Manager Paul O. Brady Jr., president of the Orange County City Managers Assn., said after the meeting that none of the cities were considering filing bankruptcy, at least for now.

But the administrators also complained of difficulty in keeping up with the quick pace of events and frustration with their inability to get answers from the county.

“It is hard to . . . keep informed and that is part of the value of this meeting,” said Costa Mesa City Manager Allan L. Roeder, who added that cities must play an active role in resolving the issue. “We can’t afford to just wait and see what happens.”

The administrators also formed an advisory committee of city managers from each of the county’s supervisorial districts. Brady will chair the group, which will include Ruth, Santa Ana’s David N. Ream, Huntington Beach’s Michael T. Uberuaga, Fullerton’s James L. Armstrong and Laguna Niguel’s Tim Casey.

The committee, which will act on behalf of all of the managers, is scheduled to meet for the first time today.

“We will talk about where we go next and will consider if we want to hire legal counsel,” Brady said. “We want to formulate a game plan on how to keep the cities involved and up to date.”

Brady said many in the group have mixed feelings about the county and its actions.

“I think we feel let down, concerned that we weren’t at least told about this sooner so we may have taken individual acts as cities to protect our monies we’ve invested,” he said.

While the managers met in Irvine, about 100 county school superintendents, district financial officers, school board members and attorneys met at the Orange County Department of Education headquarters in Costa Mesa.

The 90-minute meeting included a conference call with state Secretary of Child Development and Education Maureen DiMarco, who urged school officials to find a way to keep their incoming tax revenue out of the county pool, according to Capistrano Unified School District Supt. James A. Fleming.

Fleming said DiMarco suggested that school districts try to divert their revenue to the San Diego or Los Angeles County treasuries, or even to deposit the money in banks of their own choosing.

Fleming, for one, was comforted by the session. “Yesterday my comfort level was a 1. Today it’s a 3,” he said.

Participants said school districts received assurances that they will be able to make today’s payroll for classified employees. They were also promised that they will be able to make the payroll for teachers in two weeks.

The school districts also decided to join together to share the costs of legal counsel. It is too early to say whether the County Department of Education itself will file for bankruptcy or sue the county, said Ronald D. Wenkart, the department’s general counsel.

Some officials said they are frustrated with the situation because it might tarnish the reputations of the school districts.

“All the school districts have been in excellent financial condition,” said William Habermehl, assistant superintendent of the Department of Education. “Because of its impact on schools, to many people it looks like schools have been mismanaged. This happened to us, not because of us.”

It was announced at the meeting that the county is establishing a separate fund for school district revenues, said Ron Walter, superintendent of Garden Grove Unified School District.

Still, several districts took steps Thursday to demand that their incoming tax revenues be kept separate from the failed county investment pool.

At a Thursday night meeting, trustees of the Fullerton Joint Union High School District unanimously adopted a resolution to stop their tax contributions from going into the county fund, with the La Habra City School District Board of Education taking the same action a short time later.

Transit and toll road agency officials also met Thursday to assess the widening repercussions of the county’s financial trouble.

Officials of the Transportation Corridor Agencies met for nearly an hour in closed session and said later that Orange County’s major toll roads will be completed, although $324 million earmarked for their construction is frozen in the bankrupt county’s money-losing investment pool.

“There is a commitment . . . to completing these projects. This is one more hurdle we will overcome,” said Scott Diehl, chairman of the Foothill/Eastern Transportation Corridor Agency.

Nonetheless, the corridor agencies’ two boards of directors, in charge of developing the San Joaquin, Foothill and Eastern corridors, authorized their chief executive, William C. Woollett, to take any action necessary, including hiring consultants, to offset any negative effects of the bankruptcy’s impact.

The agencies’ board members also agreed that at their next public hearing, on Jan. 12, they will review the track record of their financial team, including their investment bankers.

Robert L. Richardson, a board member who recommended the action, said afterward that he expects the investment bankers to do whatever they can to help and not to further undermine the agencies’ financial position.

“If they don’t work with us now, they won’t be working with us in the future,” Richardson warned.

Among those most interested in knowing what effect the county bankruptcy may have on the fate of the highway projects are the environmentalists who have been fighting the projects in court.

“I am truly loving this,” said a gleeful Patrick Mitchell, a representative of Earth First, a group opposing construction of the Eastern Corridor. “We have been saying the whole time the projects are a bad deal and now there is economic evidence to suggest that might be true.”

Mitchell, who attended the Transportation Corridor Agencies public hearing, said he believes construction of the Eastern Corridor will be delayed because money for its construction has yet to be raised in the bond market. He predicted that the county bankruptcy will sour the market for the bonds.

Mike Phillips, executive director of the Laguna Canyon Conservancy, which last week lost an appellate court case challenging the adequacy of the environmental studies paving the way for construction of the San Joaquin Hills tollway, said he also hoped the bankruptcy would add to the delay of that project.

But Woollett said construction on the San Joaquin Hills tollway, which cuts through environmentally sensitive Laguna Canyon, will begin “the instant” a federal appeals court lifts an injunction on the project. The court last week ruled against the environmentalists’ legal challenge.

Woollett said he had advised board members that the Transportation Corridor Agencies would have no trouble continuing to pay the salaries of their 44-person staff.

Woollett acknowledged, however, that a bond offering planned this spring to raise construction funds for the Eastern toll road might have to be postponed.

Also Thursday, the Orange County Transportation Authority, which operates the county’s bus system, said it is making efforts to ensure that revenue remains available for debt service, bus operations and payments to construction contractors and other vendors.

OCTA officials said they have asked Orange County to release state transportation funds deposited in the county treasury and to ensure prompt receipt of the authority’s portion of county property tax revenue.

The authority has asked the county to establish a trust fund for deposit of its future state revenue, which would be separate from the county treasury and thus not affected by the county’s bankruptcy action.