Ex-Budget Director’s Role in Crisis Is Scrutinized : Orange County: Officials say Ronald Rubino promoted large-scale borrowing to sink into the ill-fated investment fund. Supervisors say questions were raised.

Two years ago, during a budget crisis triggered by the state government’s commandeering of county property taxes, then-Orange County Treasurer Robert L. Citron and then-Budget Director Ronald S. Rubino came up with a plan to replace some of the lost revenue at a time when the closing of some fire stations and libraries seemed inevitable.

For the first time, Orange County would take advantage of its excellent credit rating to sell $400-million worth of taxable short-term notes at the low interest rates prevailing at the time for the sole purpose of investing all of it in long-term notes and bonds paying a higher rate of interest.

The profit that they promised to earn the county from these transactions was $17 million.

Although they were loath to turn down the money such an investment would bring, two county supervisors and the county’s auditor-controller were nonetheless worried about this first venture into a new type of arbitrage--new, that is, for the county.

“I raised a lot of questions about it,” said Supervisor Gaddi H. Vasquez. “I questioned the whole structure and whether there was any risk or exposure to the county. I took my concerns all the way to the board floor until Ron Rubino and Bob Citron sold it as a good proposition for the county.”

Supervisor Roger R. Stanton and Auditor-Controller Steven E. Lewis recall having voiced similar concerns.

That transaction, approved by supervisors in June, 1993, opened a $2-billion floodgate of borrowing over the ensuing 14 months, much of it pitched personally to elected officials by Rubino, and most of it with Rubino’s future employer, Leifer Capital, as the well-paid financial adviser for the deals.

In February, 1994, Rubino scored another coup for county supervisors.

Some of the county’s investments were doing so well, he said, that he wanted authority to transfer into an Economic Uncertainty Fund enough surplus interest to begin earning the county an extra $8 million to $10 million a year for the foreseeable future.

What the supervisors have since learned is that some of the $126 million eventually transferred into the fund did not belong to the county.

Rubino’s role in Orange County’s financial calamity is now being examined by Orange County district attorney’s investigators, who recently questioned him during one tape-recorded meeting for 5 1/2 hours.

The former budget manager surprised many in county government last year when he walked away from 20 years in county government and his $99,500-a-year job in April to join Jeff Leifer’s company in Santa Monica. In the past six years that Leifer has done business with the county, his company has been paid about $3 million.

Rubino, 43, lasted six months in his new job. During that time, the county rolled over the $400 million in taxable notes in a $600-million offering, and did another $344 million in borrowings as well, all through Leifer.

Last week, Rubino said his involvement with Orange County after leaving government service was limited to getting cash flow statements from the auditor-controller’s office for several borrowings, including tax revenue anticipation notes.

He said he obtained a legal opinion from county Counsel Terry C. Andrus stating that he would not run afoul of the county’s “revolving door” ordinance by doing business with his former government colleagues, so long as he worked on existing projects and did not solicit new business.

But Leifer, his new boss, prohibited him from dealing with Citron in any way, Rubino said.

“Everything I did was aboveboard,” Rubino said in a brief interview last week. “I wanted to go into the private sector and it didn’t work out.” Rubino now works for the accounting firm of Ernst & Young.

Authorities have questioned Rubino at length about his relationship with Citron and the county’s decision to raise vast sums of money to invest in Citron’s portfolio.

Since the county’s bankruptcy, outside accountants have discovered that at least $70 million in interest earnings belonging to other participants in the county’s collapsed investment fund--including schools, cities and other public entities--ended up being skimmed into the Economic Uncertainty Fund reactivated by Rubino.

It was also Rubino who first suggested the implementation in Orange County of the “Teeter Tax Allocation Method,” a financial mechanism that permits some governmental agencies to get the lion’s share of their property tax revenues earlier than usual from the county, which in turn gets all delinquent tax penalties and interest for its trouble.

And in a midyear financial report presented to county supervisors a year ago, Rubino wrote the section of that report that not only endorsed those investment strategies, but praised Citron’s use of reverse repurchase agreements, in which government securities were used as collateral to leverage further purchases.

The practice helped cripple Citron’s investment pool when interest rates rose. But a year ago, Rubino was full of praise for the transactions. “This overall investment strategy has been extremely successful” in fiscal year 1993-94, and “it is anticipated that favorable market conditions will continue past this fiscal year” into the next, the report said.

Rubino said he did endorse the Teeter plan and came up with the idea to reactivate the dormant Economic Uncertainty Fund to give Citron more to reinvest. But the other investment plans, including the $400 million in taxable notes, were Citron’s ideas, Rubino said, and he simply passed them along to the Board of Supervisors.

He said he had no idea that interest from other investors had been improperly diverted into the county fund.

“The information that I got, that was put in that report, came after I talked with Mr. Citron and (then-Assistant Treasurer) Matthew Raabe. I took notes and rewrote what they told me,” Rubino said.

Others, including auditor Lewis, his chief assistant, Chuck Hulse, and several other county officials, believe that Rubino was much more involved in figuring out how to get the county extra money--particularly in 1993, when the state Legislature took $2.6 billion away from local governments to give to California’s public schools.

Rubino and Citron were so close that when assistant treasurer Ray Wells retired in early 1993 Citron first offered the job to Rubino, and only gave it to Raabe after Rubino had turned it down.

“When Citron testified at the special Senate committee meeting that he felt pressure to come up with extra interest, I think the No. 1 person who was pressuring him was Rubino,” said county Clerk Gary Granville, who knows both men well. “I don’t mean that in an unpleasant way. Ron was an enthusiastic Citron supporter, and Ron knew how to move funds around. He was the closest one to the funds other than Citron himself.”

Because Citron could come up with money and Rubino was able to present those dividends to the supervisors as a way to balance the budget, both men became intertwined as financial saviors.

While Citron was applauded in executive management meetings, Rubino was lauded by county supervisors, often overshadowing his boss, then-County Administrative Officer Ernie Schneider, Granville said.

“Ron was a very valuable person to the county,” Granville said. “He handled the county budget when the sky did fall and the state was out of bailout money. And he handled things beautifully, just by piecing things together and cajoling people.”

Rubino was looking to move out of the budget director’s office, his colleagues said, but when he saw that Schneider would not be abandoning his job, and he failed to get a city manager’s post in Orange, he took a job with Leifer.

“I was really stunned,” Granville said.

When he joined Leifer, Rubino was assigned to municipal clients in Northern California, particularly in San Mateo and Humboldt counties.

A description of Leifer’s eight-person team provided to potential clients lists Rubino as a vice president who specializes in “investor and rating agency relations, certificates of participation, pension bonds, TRANS (Tax Revenue Anticipation Notes), and Teeter Plan financings and long-range capital and infrastructure financing plans.”

But Rubino also worked on Orange County issues, including TRANS and Teeter notes.

“When I left the county, I checked with (County Counsel) Terry Andrus and the rule was that I could not directly solicit business from the county for one year. But I could work on county of Orange (projects) or for other agencies in Orange County, as long as I didn’t solicit new work.”

Although he could have worked directly with Citron, Rubino said Leifer prohibited him from doing so, and allowed him only to gather cash flow statements and demographic information for inclusion in note offerings. Rubino added that he worked only with lower-level staffers in the accounting section of the auditor-controller’s office.

Rubino said he also tried to meet with various treasurers and finance committees in cities throughout Orange County but was unsuccessful.

David Siegel, a lawyer for Leifer, said Rubino “served Leifer Capital internally in the sense that he brought to the team some accounting expertise. He is a well-regarded public official and his name is known and respected by county administrators and budgeting staffs. Jeff had hoped that he would have grown into a senior role with the company.”

As recently as June, Leifer tried to get the county to select his firm as the financial adviser for a special assessment district under consideration for Northwood Point, a planned community in Irvine being developed by the Irvine Co.

County administrator Schneider offered up a slate of consultants and financial advisers, one of whom was Leifer.

Though the Board of Supervisors did not select Leifer as either the primary financial adviser or the alternate, Leifer’s written proposal to win the county’s business listed Rubino as one of the senior staff members who would be “assigned at each phase of the transaction.”

Rubino and two others on his staff, Leifer said, would handle “feasibility analysis and credit review” as well as “document review and due diligence.”