ORANGE COUNTY IN BANKRUPTCY : 2 Cities See No Immediate Problems With Cash Flow

Although Montebello and Claremont have large chunks of money tied up in Orange County’s frozen investment fund, officials for the cities say they have enough cash to handle day-to-day expenses.

Lured by a high rate of return, Montebello and Claremont have been investing in the Orange County pool since 1991. Montebello has $47 million--60% of the city’s investment portfolio--in the fund, while Claremont placed nearly half of its $12 million investment funds in the pool.

The fund’s troubles have left Montebello in a particularly difficult position, because the city has $25 million in loan payments due at the end of the month. City Administrator Richard Torres was quoted in a wire service report Friday as saying his city “may be the next one” to declare bankruptcy after Orange County.

“I realize I created a stir by saying it, but it was just a statement I made out of frustration,” Torres said later, insisting that officials have no plans to take that action.

A bankruptcy filing “is definitely not imminent,” he said after a series of meetings Friday with Orange County officials and his city attorney. “It’s not something we’re planning to do.”

Montebello officials say they are weighing several alternatives for repaying the $25 million, borrowed in anticipation of tax and other revenues. Options include rolling over the debt to later due dates or seeking financing from a bank, said Torres, who has called a special City Council meeting today to discuss hiring a lawyer to advise the city.

In the meantime, Torres said Montebello, a city of 60,000, would be able to meet day-to-day operating expenses. “We worked out our cash flows through the end of the fiscal year and there is no problem in that regard.”

Likewise, Claremont City Manager Glenn Southard said Saturday that his staff does not expect cash flow difficulties while they try to figure out what the Orange County crisis means to their community of 33,000 people.

“You’re in an automobile accident and a person comes up to you and asks you how much is it going to cost to fix the car,” Southard said. “You have to do some analysis to come up with that figure. In this case, it was a multi-car crash so we’re trying to sort through that.

“Obviously,” Southard added, “any loss of money will have an impact, but we are not using this money for day-to-day operations so there is no immediate effect.”

Southard said cities that have contributed to the fund are forming a committee to cope with the problem and that he has formed a task force of Claremont officials to deal with the issue.

“The worst case is that you lose it all,” he said, “and the best case is that you keep it all. The reality is probably going to be somewhere in between.”

Montebello and Claremont are two of a handful of cities outside of Orange County that invested in the pool.

“We did very well and we felt all along it was a safe investment,” Torres said.

Although Montebello City Council minutes show that the council asked for a briefing on the city’s investment policy earlier this year, Torres said the questions were routine.

“When you’re talking about this kind of money, people should be asking questions and they did. And we were given assurances that there were not the type of risks that there turned out to be.

“What happened, happened,” Torres said Saturday. “And now we’re looking at what our options may be to recover in the best way we can.”

Montebello has been floating tax and revenue anticipation notes and investing the proceeds in the Orange County pool for three years. By borrowing money at low interest rates and investing it in the county’s high-paying fund, the city has made $5 million in that period, Finance Director Ted Nix said.

Times staff writers Bettina Boxall and John Hurst contributed to this story.