Residents Reassured Over Frozen Funds : Claremont: Daily operations will continue despite $5 million in city investments tied up in the Orange County investment crisis, officials say. But long-term outlook on bond repayment is unclear.


The Claremont City Council assured residents Tuesday night that although $5.38 million of city investments are frozen in the Orange County fund, the city’s day-to-day operations will continue as usual.

“We are able to continue providing the same level of police, maintenance, trash collection and all other city services,” Mayor Algird G. Leiga said.

Leiga said the city, along with other agencies that invested in the fund, has been placed on “CreditWatch” by Standard & Poor’s investment rating agency and is also under review by Moody’s rating service.


The $5.38 million now tied up in the Orange County pool is about half of the city’s total investments.

Although the city does not yet know the status of that money, Leiga said, “we believe that when all of the facts are known, a significant portion of Claremont’s investment in the fund will remain intact.”

City officials said they have not begun to figure out what they will do if their money remains frozen in the Orange County pool when the bonds come due next July. They said they are assuming they will be able to obtain the money by then.

At Tuesday night’s City Council meeting, Leiga said that the city manager is looking at nonessential projects that might be postponed because of the bond crisis.

Some residents this week questioned the city’s investment of the money, which was raised through municipal bonds called Tax Revenue Anticipation Notes (TRANs) that help ease cash flow shortages during the six-month periods between property tax payments.

“As I understand TRANs, it is to be used to smooth out cash flow,” Claremont resident Tom Deno said at the council meeting. “I’m concerned that the city has gathered over $5 million in TRANs and used it not to smooth out cash flow but to reinvest in the Orange County fund.”


The city issued between $4.5 million and $5 million in TRANs each year since 1991, Leiga said. It then invested the money in the Orange County fund and withdrew it at the end of the fiscal year in July, when the bonds came due.

Although the city did not use the money raised through the TRANs in its daily operations, Leiga said, “the idea is to have the reserves in case we need it.”

The city’s 1994-95 budget identified $120,000 in expected interest earnings from the Orange County fund investment. Leiga announced Tuesday that the city has revised the budget on the assumption that there will be no interest earnings from the fund, but that the principal will be intact.

Because TRANs are issued as tax-free notes, cities and other public entities are able to sell them at lower interest rates. In general, any profits they raise by investing the funds at higher rates must be refunded to the federal government.

However, cities that issue $5 million or less through TRANs bonds can keep the interest they make, said Jim Bajari, a government finance consultant in Carmel. Claremont is within the $5-million limit; the additional amount is interest earned through TRANs that was reinvested in the pool.

The treasurer for another San Gabriel Valley city, who asked not to be identified, questioned the propriety of issuing TRANs to raise money that is not actually needed for the city’s operation. The treasurer said Claremont’s decision to issue $5 million in TRANs, which is equal to about half of the city’s main operating fund, was “very aggressive.”


But Claremont City Atty. Wynne S. Furth said, “This is a qualified, legal TRANs. It meets the letter and intent of the federal guidelines.”

Leiga said the decision to invest that money in the Orange County fund seemed a prudent one.

“It had a track record of being safe for 10 years or more,” he said.