ORANGE COUNTY IN BANKRUPTCY : State Senator Says He Believes Raabe, Consultant Lied Under Oath : Hearing: Quentin Kopp wants O.C. assistant treasurer and financial adviser Liefer to return for another legislative hearing.

A state senator said Friday he believes Orange County’s Assistant Treasurer Matthew Raabe and financial consultant Jeffrey Leifer lied under oath about their roles in the county’s bankruptcy and called on the pair to return to Sacramento for another legislative hearing this month.

“I think there’s some perjury,” said Sen. Quentin Kopp (I-San Francisco). “I think that Leifer perjured himself. I think (Raabe) did too.”

Kopp is a member of a special Senate committee formed in response to the county’s financial crisis. Senators, who grilled top county officials during a session last month, set a second hearing for Feb. 16 to explore the role of securities firms and the breakdown of county government accountability in the largest municipal bankruptcy in U.S. history.

Raabe, who has been suspended with pay, and Leifer, a financial adviser who had a close relationship with resigned county Treasurer-Tax Collector Robert L. Citron, are among a dozen witnesses who are being asked to testify. Those who do not attend voluntarily may be subpoenaed, state officials said Friday.

“What I’m looking for is some lying,” Kopp said.

The senator said he believes Leifer lied when he told committee members that he did not act as a financial adviser to the county, and that Raabe told untruths “about his whole role in the thing.”

Neither Raabe--who was Citron’s top assistant--nor his attorney could be reached for comment Friday.

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Leifer’s defense attorney said the senator’s comments were mistaken and “inflammatory” and blamed part of the misunderstanding on “the looseness with which people use the term ‘financial adviser.’ ”

Attorney David Siegel said Leifer worked with the treasurer’s office, but did so only in a limited capacity. He said Leifer testified he was only involved in advising the county about borrowing, not making investments.

“He did not act as an overall or general financial adviser to the county,” said Siegel, who estimated the county paid his client $3 million since 1989. “There is a world of difference. I’m only sorry Sen. Kopp did not understand the difference.”

“From my understanding of what the senator is saying, he is either misunderstanding Mr. Leifer’s testimony or for some purpose or agenda not clear to has chosen not to understand that testimony,” Siegel said. “He didn’t work on the investment side at all. This is very, very unfair.”

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As the Orange County financial crisis enters its third month, the Board of Supervisors has set aside $12 million to pay outside attorneys, publicists and financial consultants hired to assist the county’s financial recovery through June 30.

The money came from the $20 million that had been earmarked for an array of projects, including buying a new countywide police communications system, revamping the system for assessing property taxes and studying the future of the El Toro Marine Corps Air Station. County officials said those projects may be put on indefinite hold. Other potential targets: millions earmarked to pay employee sick leave and maintain a county fleet of vehicles.

In other developments:

* County attorneys have drafted new legislation that would allow cash-hungry Orange County to sell new bonds backed by the county’s $147-million share of motor vehicle license fees. The legislation would create a separate stream of revenues that current county creditors can’t touch.

“Even if you’re a bond buyer and you don’t trust the county, this setup would give you some security because the revenues . . . never go to the county,” said Dean Misczynski, director of the state Research Bureau.

* Bondholders and county officials are discussing whether existing bonds can be refinanced to defer payments on the county’s debt--a move critical to staving off possible loan defaults. It remains unclear what type of deferments bondholders would agree to, said Daniel Harrow, managing director with Chanin & Co., who works with the creditors committee.

* Former state Treasurer Thomas W. Hayes, who ended his tenure as the county’s top financial adviser this week, was hired by San Diego County to review its investment pool.

* County Supervisor Marian Bergeson called a closed-door meeting with Orange County’s legislative delegation this morning to update the leaders on the bankruptcy fallout and review proposed laws that would assist the county.

The meeting could lay the groundwork for Gov. Pete Wilson to possibly declare a special session of the Legislature to deal with any such bills. Proposals include allowing the county to contract out for some services, cut wage rates for employees, sell or lease various lands and buildings, and relieve it of some state-mandated programs, including welfare.

Assemblyman Curt Pringle (R-Garden Grove), Sen. John R. Lewis (R-Orange), Assemblywoman Marilyn C. Brewer (R-Newport Beach) and Assemblymen Ross Johnson (R-Placentia) and Jim Morrissey (R-Santa Ana) are expected to attend.

On Friday, the county’s efforts to pay its bills for outside consultants prompted new criticism from some city officials who questioned using money already earmarked for other projects.

A key point of concern is an $82-million, state-of-the art communications system by Motorola Corp. that would replace the existing 23-year-old radio network that police and fire officials say has not kept up with county growth.

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Before the bankruptcy, cities and the county agreed to share the cost. But $12 million in city funds for the project is now frozen in the county treasury. And supervisors this week pulled $2.5 million--previously set aside for the new radios--to pay outside lawyers, advisers and publicists.

“For them to risk (jeopardizing the radio system) to pay for a PR firm that has the most outrageous billing I’ve ever seen would be ridiculous,” said Tustin Mayor Thomas R. Saltarelli, referring to the more than $240,000 billed by a Los Angeles public relations firm. The project still has a chance, however. If the board approves the project next month, Motorola officials have indicated they may help finance any shortfalls.

But Brady said he is worried the county could still lose out if the project doesn’t move forward soon. He fears the Federal Communications Commission might reassign the limited radio channels to other agencies.

County Budget Director Fred Branca said that after analyzing the general fund, county officials had to make tough choices about belt tightening.

The county also has targeted $2.1 million of a $3.8-million fund set aside for employee sick leave pay.

“We are totally against them using money that is reserved for employees for sick leave,” said Linda Pierpoint, staff manager for the Orange County Employees Assn., which represents 11,000 of the county’s 18,000 workers.

“The Board of Supervisors has panicked and abdicated a lot of power,” she said. The board should get rid of its outside consultants and “get back to running the county by themselves,” she said.

Irvine City Councilman Greg Smith said he was disappointed that county officials also targeted $750,000 from an El Toro Marine planning study after telling South County cities near the base that they would examine a variety of development options.

Smith said the move reinforces fears that the county doesn’t plan to consider options other than a new airport. “This show that their minds are already made up,” he said.

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In Sacramento, Sen. Kopp said members of the special committee on Local Government Investments also plan to call Orange County Auditor-Controller Steve E. Lewis to return and testify at the upcoming hearing.

Al DeSpirito of Dean Witter Reynolds, who was named during the first hearing as a financial adviser who spoke with Citron daily, also is on the tentative agenda, as is Ken Ough, of Rauscher Pierce Refsnes, an investment banker who orchestrated several of the most controversial deals in the county’s investment pool.

Others on the tentative agenda include:

* Paul Sachs of Arthur Andersen & Co., chief of the county’s special accounting team.

* Ernie Schneider, former county administrative officer, who was demoted last month.

* Terry C. Andrus, county counsel.

* Jean Costanza, the county’s former bond counsel.

* Richard Fuscone, Elke Chenevey and J. Timothy Romer, of Merrill Lynch & Co., the brokerage that handled the county’s investments.

* Douglas Montague and Anthony Hughes of CS First Boston.

Scott Johnson, chief counsel for the special Senate committee, said he expects testimony at the hearing to “continue to paint the picture of the utter breakdown of accountability over how public money was spent and audited” as well as raise further questions about the role of the securities industry in making matters worse.

“The argument that it was one renegade investor doesn’t add up,” Johnson said. “It was much more than that.”

Price of Advice

Orange County supervisors have set aside money to pay a team of consultants and lawyers hired to handle the county’s financial crisis. The bill is expected to reach $12 million by June 30. A look at who was hired and what the county expects to pay for services rendered:

Consultant: Contract: Estimated cost*: Service:

Financial consulting

Consultant: Thomas W. Hayes Contract: $67.24/hr. Estimated cost*: $50 Service: Restructure treasurer’s investment pool

Consultant: Thomas E. Daxon Contract: 50.17/hr. Estimated cost*: 40 Service: Advise, assist Tom Hayes

Consultant: Arthur Andersen & Co. Contract: 350 max./hr. Estimated cost*: 2,000 Service: Financial, accounting consulting services

Consultant: Salomon Brothers Contract: 1,400** Estimated cost*: 2,000 Service: Investment advice, asset management services; liquidate, restructure county investment portfolio

Bankruptcy attorney

Consultant: Stuttman, Triester & Glatt Contract: 435 max./hr. Estimated cost*: 3,000 Service: Creditor advice; required Chapter 9 aspects

Complex litigation attorney

Consultant: Howrey & Simon Contract: 395 max./hr. Estimated cost*: 2,500 Service: Litigation from county bankruptcy

Bond counsel

Consultant: Wilkie Farr & Gallagher Contract: 375 max./hr. Estimated cost*: 1,400 Service: Municipal finance aspects of Chapter 9 filings

Consultant: Squire, Sanders & Dempsey Contract: 250 max./hr. Estimated cost*: 500 Service: Determine bankruptcy effect on county indebtedness

Securities and Exchange counsel

Consultant: Bryan Cave Contract: 310 max./hr. Estimated cost*: 100 Service: Represent supervisors in SEC, other proceedings

Underwriters

Consultant: Goldman, Sachs & Co. Contract: Unknown Estimated cost*: Unknown Service: Terms to be negotiated, submitted for approval

Consultant: A.G. Edwards Sons Contract: Unknown Estimated cost*: Unknown Service: Terms to be negotiated, submitted for approval

Communications

Consultant: Sitrick, Kranz & Co. Contract: 350 max./hr. Estimated cost*: 600 Service: Public relations

Repository services

Consultant: Firm to be selected Contract: 75,000 Estimated cost*: 75 Service: Assist county counsel

Total contracts: $12,265

* Through June, 1995; in thousands of dollars ** Minimum; in thousands of dollars

PAYING THE PROS

County officials have identified $20 million in the general budget--money already earmarked for other projects and services--out of which the $12 million in consultant fees will be paid. Officials said some of the projects might have to be put on hold. The $20 million includes:

- $2.5 million previously set aside for a law enforcement communications system. Supervisors will consider the project next month. If the board approves the project, Motorola, the company furnishing the system, might be tapped to finance the project.

- $2.1 million of $3.8 million set aside for employee sick-leave payoffs. These payments have been frozen by bankruptcy proceedings.

- $5.7 million in SB910 funds, a probation and social service administration payment due the

state. County officials say they are hoping they will not have to make the payment.

- $9 million in internal service fund contributions, used primarily to buy and maintain county vehicles, and to improve the county’s tax assessment system. County officials expect to postpone buying new vehicles and to delay revamping the assessment system.

- $750,000 for a study on the future of the El Toro Marine Corps Air Station. County expects to withdraw from El Toro Reuse Planning Authority.

Source: County Administrative Office; Researched by LEE ROMNEY / Los Angeles Times