Lack of Funds Hindering Trials, Judge Says : Bankruptcy: Jurist threatens to hold Orange County officials in contempt for failing to pay lawyers and investigators assigned to major cases.

An Orange County judge threatened Friday to hold the Board of Supervisors and other top officials in contempt and said their failure to pay private lawyers assigned to major murder cases amounts to obstruction of justice.

Superior Court Judge David O. Carter lashed out after defense attorneys complained that investigators and expert witnesses have also not been paid for upcoming trials, including the cases against a Dana Point computer consultant accused of poisoning his wife and an ex-convict charged with sexually assaulting and murdering a young woman outside a nightclub in Orange.

Carter said the courts have been “exceedingly gracious” by giving the county time to resolve its financial issues in the wake of the Dec. 6 bankruptcy.

“It seems to me now we can’t delay too much longer,” the judge said during a court hearing for Edward Patrick Morgan, who is awaiting trial in the nightclub murder.

Supervisors were hit with more bad news as the district attorney’s criminal investigation into the county’s financial collapse moved into their own offices. Three aides to Supervisors Gaddi H. Vasquez, Roger R. Stanton and William G. Steiner have been summoned to appear before the Orange County Grand Jury.

A fourth aide--Santa Ana Councilman Robert Richardson--confirmed Friday that he was questioned by two investigators this week about his dealings with the county treasurer’s office. Richardson, who works for Stanton, declined to elaborate.

The district attorney’s inquiry apparently is focusing on whether any brokerage firms received county business in exchange for campaign contributions or gifts to county officials, sources close to the investigation said.

County sources said one of the aides, Dean Olsen, who works for Steiner, was approached by investigators Wednesday, but attorneys for the Bryan Cave law firm, which is representing members of the Board of Supervisors, advised county aides not to talk without a lawyer present. The other two aides subpoenaed were Kathleen Freed, who also works for Stanton, and Tiffany Kretzschmar, who works for Vasquez.

On Thursday, authorities were back with subpoenas compelling the three aides to appear before the grand jury next week.

In other developments Friday:

* Teachers in the Irvine Unified School District, which stands to lose millions because of the county’s financial collapse, said they placed a newspaper ad seeking donations of paper, pencils, even cleaning supplies. Officials in the much-touted district have already discussed selling their headquarters and possibly using parent work crews to help with light school maintenance work.

* Standard & Poor’s, a major rating agency, said investor confusion and concern resulting from Orange County’s bankruptcy filing could cost governments across California millions of dollars in increased borrowing costs for short-term debt.

Still, the ratings agency expressed confidence that Orange County will be able to meet $4 million in interest payments in February if a U.S. Bankruptcy Court judge approves its plans for disbursing money in the portfolio, which lost $2.02 billion in the past year.

Standard & Poor’s also predicted the court will release to local cities about $175 million in property taxes that was collected before the county declared bankruptcy.

* Officials of Merrill Lynch & Co. said they did not engage in an unauthorized sale of $800 million of Orange County collateral, as the county claimed Thursday.

They said that the money in question was returned to the county through a series of eight complicated financial transactions well before the county filed for bankruptcy Dec. 6 and that further sales of county collateral were done with the consent of Salomon Bros., the county’s financial adviser. Attorneys for the county, however, disputed Merrill Lynch’s statements, saying no such consent was given.

* The brokerages of Goldman, Sachs & Co. and A.G. Edwards were selected to underwrite new debt for the county whenever officials decide to refinance the losses, county spokeswoman Sandra Sternberg said. No dollar amount has been set for any new debt, although several brokerages who competed for the business had recommended borrowings in excess of $900 million.

* Officials from the Orange County Employees Retirement System are attempting to sever ties from the county. In a series of letters to county officials, the agency’s administrator, Mary-Jean Hackwood, requested that the county relinquish payroll and other operations it handles for the retirement agency.

Hackwood is demanding that the county continue making financial contributions to the retirement fund. County officials, who have halted payments because of the bankruptcy, say they will resist any attempt by the retirement board to break away from county authority.

* A new coalition of county labor groups said it will file suit against the county Tuesday in an effort to halt hundreds of layoffs. Attorney Marc Beilinson said the coalition will seek an injunction to stop the firings and plans to argue that the county has violated collective bargaining agreements, state law and federal constitutional rights of due process.

Union leaders criticized the county for hiring more than 150 new employees since a hiring freeze went into effect Dec. 8, saying the move would bolster their lawsuit. Beilinson said county officials chose to pay hundreds of thousands of dollars to hire a public relations firm while “treating the employees poorly.”

County officials suspended provisions of the labor contracts that protect senior workers from layoffs and say they were justified because the county faces an emergency. But Beilinson contends that the current crisis is not an emergency under the state law that grants labor due process and bargaining rights.

As unions moved forward with legal action, Judge Carter criticized the logjam in criminal courts since the county halted payments to many private attorneys. Carter threatened to hold county officials in contempt after a defense attorney for murder suspect Edward Morgan said he could not move forward with the case because he had not been paid since the county’s bankruptcy.

Carter said he would review the issue at a hearing Friday and would consider holding a contempt hearing in February to hold the supervisors accountable, along with Chief Administrative Officer Ernie Schneider and Auditor-Controller Steve Lewis.

On Thursday, the county sued Merrill Lynch, blaming the Wall Street brokerage for the financial collapse. Brokerage officials have denied any wrongdoing and say that county officials charted their own financial course.

The county’s bankruptcy attorney, William Bennett, said Friday that Merrill Lynch brokers participated in the development of an investment strategy that resulted in the county incurring debt of $5,000 for every man, woman and child in Orange County. The actual losses translate into about $800 for every county resident, he said.

Times staff writers Chris Woodyard, Lee Romney and correspondent Shelby Grad contributed to this story.

* RELATED STORY: D2