ORANGE COUNTY IN BANKRUPTCY : O.C. Supervisors Back Refunds to School Districts

SANTA ANA — A majority of the Orange County Board of Supervisors supports a plan to fully refund the losses that local school districts suffered in the county’s ill-fated investment fund and want to borrow $100 million to repay the schools.

Supervisors William G. Steiner and Supervisor Marian Bergeson will meet this morning with the county’s bankruptcy attorney to present the plan.

“It is my position that if anyone should have a high priority for 100 cents on the dollar, it’s the schools,” Steiner said Friday. “First, they were involuntary participants and second, we need to invest in the children of this county.”

Besides Steiner and Bergeson, who co-authored the plan, county sources close to Supervisor Roger R. Stanton said he recently changed his position and now supports a plan to bail out the schools, who were required by state law to put their money in the county pool.

Stanton declined to comment Friday. Previously, he has maintained that all of the 187 school districts, cities and other public entities in the pool should share the pain equally.

Supervisors said that none of the refunds will come from the money that is to be paid back to any of the other investors in the pool.

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Steiner and Bergeson said the proposal calls for covering the school district’s $220-million losses in the pool by having the county borrow $100 million and then paying the remaining $120 million from damages the county expects to win from lawsuits filed against brokers who sold the county risky securities.

The three supervisors are sympathetic to the plight of the 31 schools districts that funneled virtually all of their operating funds through the county treasury. But sources said Stanton is undecided about how to handle refunds for the five school districts that took the unusual step of borrowing additional millions to invest in the fund.

Lured by the promise of high returns and a pledge from the county treasurer’s office that their principal would be protected, Newport-Mesa Unified, Irvine Unified, the Orange County Department of Education and the North Orange County Community College District each borrowed about $50 million--more than half their annual budgets--to put in the pool in the spring of 1993. The four groups earned about $1 million each during the first year of the special investment, and last June renewed the deal.

A fifth district, Placentia-Yorba Linda Unified, launched a separate, but similar deal in August, 1993, and continued it for a second year last summer.

While concerned that some school districts gambled with their money, Steiner and Bergeson said they favor full refunds to all districts.

“I really feel that for us to allow any school district to go bankrupt would be irresponsible,” Bergeson said. “You have to do what you’ve got to do and set some priorities. And we are doing that.”

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Bergeson and Steiner, both former school board members, fear that without the county’s assistance, the schools might have to be taken over by the state, such as the Compton Unified School District in Los Angeles County and the Richmond Unified School District in Contra Costa County.

Steiner said that the county’s refund payments would be made over time, perhaps over the next two or three years. Until then, he said, the schools will be able to run their daily operations and meet debt payments by relying on their own capital reserves.

In order to raise $100 million for the schools, Steiner said, it would cost the county $22 million a year in principal and interest over the next five years--in addition to the other significant debt the county faces since declaring bankruptcy Dec. 6.

“That’s a significant burden in addition to our own financial obligations,” Steiner said.

School officials rejoiced over the supervisors’ proposal.

“That’s wonderful. We can’t do with anything less. We’d have school districts going belly up if we don’t get 100% back of our principal,” said County Supt. of Schools John F. Dean.

“They were all singing the same song about not being able to do that, but I think they had to commit. We’re delighted,” Dean said. “To hear them say that is just most reassuring, most reassuring.” Although school districts countywide would still have to cut about $60 million from their budgets because of interest they expected to earn through the pool, Dean said: “That will make everybody rest a bit easier. That’s outstanding news.”

Stan Oftelie, the chief executive of the Orange County Transportation Authority and chairman of the pool participants committee, said he believes all agencies should eventually receive 100% of their investments back. But Oftelie said he supports the schools getting paid first.

“That’s extraordinary,” Oftelie said. “I personally think they need their money first. That doesn’t mean I’m saying someone else doesn’t get their money. I think we have to deal with those very immediate and real needs of the schools. Some of the others are willing to stay in this longer.”

Oftelie said all 186 agencies with money in the pool should be repaid in full even if the county has to absorb the bulk of the $1.69-billion loss itself.

“The pool participants provide services that touch people’s lives. Water. Sewers. Roads,” he said. “It’s important that we don’t curtail those services.”

Steiner and Bergeson are planning to present their proposal to county bankruptcy attorney Bruce Bennett.

* ASK AND RECEIVE

Minors with settlements in fund need only ask for it. A10

* MANY CALLS, FEW SALES

Broker phoned often by Citron did little county business. A12