Montebello Defends Investment in Fund : Government: Financial squeeze left no choice but to borrow heavily in the belief that the Orange County pool would return maximum interest, officials say.

While officials in other local governments point fingers and look for scapegoats in the failure of Orange County’s investment pool, Montebello City Council members say they have no regrets about having put $47 million into the fund.

The five council members, who had maintained a solid front of silence after the city became engulfed in the crisis last month, spoke up at a council meeting late Tuesday.

Their aim, they said, is to keep providing quality police, fire and other services. A continuing squeeze on city funds--along with their aversion to raising taxes--left them with no choice, they said, but to borrow heavily in an effort to generate greater investment earnings.

“I make no apologies for our aggressive investment strategy,” Councilman William M. Molinari said. “What else were we to do?”

Councilman Edward C. Pizzorno concurred.

“Yes, we pushed for more investment income,” he said. “But we asked a lot of questions before getting into Orange County.”

Mayor Art Payan, who anticipates a prolonged public outcry over the city’s financial woes, challenged residents to not only point out where the city went wrong, but also to offer ideas to set things right.

“If we all work together, things will come out well,” said Payan, who had opposed keeping 60% of the city’s money in the Orange County pool.

Montebello has relied for years on a strategy of leveraging its funds--borrowing against its resources to invest at what it hoped would be higher rates of return. Leverage played a big role in the collapse of Orange County’s investment pool, and it has exacerbated the problems of Montebello and other municipalities that borrowed to boost their bets on the county’s investment prowess.

As of last month, two-thirds of Montebello’s $78-million investment portfolio was borrowed money. It included $31 million in notes the city sold last summer specifically to invest in the Orange County pool and $21 million in certificates of deposit that were bought on credit.

Molinari said the city had reaped almost $19 million in investment income over the past six years. It was counting on $3.9 million in investment earnings this year, but $1.9 million of that sum was wiped out by the Orange County pool’s collapse. Montebello barely averted defaulting last week on $25 million of the $31 million in notes sold last summer.

Gene Whitcomb, a Montebello resident, blasted the council Tuesday for “leveraging for greed.”

Whitcomb, a retired probation officer, also criticized city officials for not getting a prospectus from Orange County before putting money in the pool.

Ted Nix, city finance director, said he did obtain a list of the pool’s holdings, “but we didn’t realize it was incomplete.”