MISSION VIEJO : City Budget Is Safe for Now, Official Tells Council

City finance officials assured a worried City Council this week that the fiscal crisis sparked by the county declaring bankruptcy won’t mean disaster for the city budget.

At a special meeting Thursday, Finance Director Irwin Bornstein told council members that the city budget would remain balanced through the end of the fiscal year in June.

The bad news is that the bankruptcy debacle means the city’s principal in the pool and interest earned on its investment have been frozen. The city’s stake is $18.7 million and about $300,000 in interest earnings, officials said.

Until the courts are able to look at the bankruptcy filing: “No one can say how much (of the city investment) we’ll get back, no one knows when,” Bornstein said. “We are not going to get 100% back.”

The county’s damaged credit rating will also affect Mission Viejo’s ability to sell bonds.

“If we had to access (the bond market) today, we’d experience higher interest rates,” Bornstein said. “But that’s today. Presumably, the market will improve.”

Although a majority of council members praised Bornstein for the thoroughness of his report, Councilman William Craycraft pointed out that city policy specifically prohibits high-risk investments.

Holding up a city policy manual, Craycraft wondered why the city allowed the county pool to make high-risk investments on its behalf when the practice is prohibited by municipal policy.

Bornstein said the policy applied to investments made directly by the city, not pool activity, because “as contract city, we lacked the (investment) skill. . . . We assumed the county had experienced personnel to do it.”

Bornstein briefly criticized the county for not fully informing the city of how much was invested in risk-laden securities.

“As far as I’m concerned, we were not given the type of information to reflect the risk they were taking,” Bornstein said.