Plan Would Give O.C. Investors 77% Cash Back

Business leaders, stepping up efforts to resolve the county’s financial crisis, are expected to propose today a settlement that favors schools over cities but gives no one an immediate 100% return of money invested in the county’s collapsed investment pool.

The plan provides for all investors to get an immediate 77 cents for every dollar in the pool, plus additional cash notes and IOUs for the balance. Schools would get more in cash notes than the other pool participants, and less in IOUs.

The settlement is being proposed by the Orange County Business Council, a group of influential and increasingly assertive business executives who are also pushing county supervisors to quickly hire a chief executive officer with broad new powers over county government.

The settlement proposal was to be presented to representatives of the schools, special districts and cities at a 9 a.m. meeting at Santa Ana City Hall, and to the Board of Supervisors at a closed morning meeting.

While the plan must be considered by investors, the supervisors and U.S. Bankruptcy Judge John E. Ryan, it offers a first glimpse at the fruits of weeks of closed-door meetings between business leaders, county bankruptcy attorneys, accountants and investors.

A trio of the county’s top business leaders helped broker the proposed settlement and will be meeting with individual supervisors today. The executives are developer George Argyros; Gary Hunt, Irvine Co. executive vice president, and Thomas C. Sutton, chairman of Pacific Mutual Life Insurance Co.

The plan gives school districts 77 cents on every dollar in the pool, plus marketable notes worth another 13 cents, and a county IOU for the remainder.

Cities and special districts would be offered 77 cents on the dollar and a marketable note worth 3 cents on the dollar and could get in line with the county’s other creditors, as can the schools, to press their claims for the remainder. Terms and backing for the marketable notes were not immediately available.

While the proposal attempts to treat schools more generously than their counterparts, school officials--who have loudly called for a 100% return on their investments--are unlikely to welcome the formula.

For county department heads, Monday offered a first glimpse of just how much they will need to cut in the fiscal year that begins July 1--roughly double the annual cuts they already made.

While the $127 million in budget cuts are not as stark as the $141 million proposed in January by former County Administrative Officer Ernie Schneider, some panicked county officials questioned how they could whittle any more.

Others bitterly observed that the Sheriff’s Department and the Health Care Agency--whose department heads sat at the helm of the committee directing cuts--took softer hits.

Health Care Agency Director Tom Uram, now acting county administrative officer, said his general formula for making the cuts--with some notable exceptions--was to double the half-year cuts each department suffered earlier this year, and then double them again.

“We felt those cuts were the most fair,” said Uram, adding that the emphasis again was on health, safety and welfare.

Both Uram and Sheriff Brad Gates, who along with Dist. Atty. Michael R. Capizzi recommended the initial cuts, said department heads who have seen the latest budget proposals are not happy. “The discomfort level is very high,” Gates said.

“People are very upset,” Uram added. “And that’s probably appropriate. These are very, very difficult.”

The budget adjustments increased the spending allowances for some county departments, but proposed even deeper cuts for others than the ones presented Jan. 19 by Schneider. Schneider was demoted two weeks ago.

The biggest beneficiaries of the adjustments were the sheriff-coroner’s department, which regained more than $3 million Schneider sought to cut, and the Probation Department, which had a similar gain.

Uram said the Sheriff’s Department was given a $2.5-million cushion because it must absorb the planned “double-bunking” of the Theo Lacy Branch Jail and the Central Jail, where additional bunks are being added to existing cells to accommodate more inmates.

The Health Care Agency also was granted a break because it must absorb some of the cost for caring for additional prisoners, Uram said.

Some department heads, who wouldn’t allow their names to be used, said it appeared all too convenient that the Sheriff’s Department eluded the ax that Schneider had been willing to wield. “Funny that happened, isn’t it?” said one department head.

In other developments Monday:

* Schneider made the rounds of county supervisors in an attempt to learn what his new job with the county will be. Schneider has been on a two-week leave since being demoted by the supervisors. Schneider wouldn’t say what position he’s angling for, but word among county leaders is that he would be a perfect fit to head the beleaguered Integrated Waste Management Department. “Within a day or so I hope to have a decision,” Schneider said.

* The Huntington Beach City Council voted Monday night to sue Merrill Lynch & Co., alleging that the brokerage house violated state and federal laws in its dealings with Orange County’s collapsed investment pool. Huntington Beach has $43.6 million frozen in the pool, and city officials said Monday that the action was the only way to ensure that all city funds would be returned.

* Merrill Lynch disclosed that its dealings with Orange County earned the firm roughly $50 million in revenue during 1993 and 1994, substantially less than the $100 million claimed by county lawyers. In a letter to the special Senate committee looking into the county’s financial mess, the firm said it made a profit of $10.2 million in 1993, and $2 million in 1994 on its Orange County deals. In a separate letter, a lawyer for Michael Stamenson, a Merrill Lynch account executive for Orange County, revealed that the broker received $3.06 million in compensation in 1993 and $1.25 million in 1994.

Correspondents Debra Cano and Shelby Grad contributed to this story.

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Comparing the Budget Cuts

The budget proposal released Monday by acting County Administrative Officer Tom Uram increased spending allowances for many departments, while cutting allowances for others even deeper than former CAO Ernie Schneider’s Jan. 19 plan. The biggest beneficiaries of Uram’s budget are the Sheriff’s Department regaining more than $3 million Schneider had cut, and the Probation Department, getting back almost as much. The Alternate Defense fund that pays attorneys for poor people accused of serious crimes suffered one of the biggest cuts.

Selected Items From the Two Budget Proposals for Fiscal Year 1995-96

Former CAO Acting CAO Ernie Schneider Tom Uram Change Sheriff-Coroner $13,711,500 $17,000,000 +$3,288,500 Probation 31,697,800 34,625,000 +2,927,200 Detention Release 827,400 1,034,253 +206,853 District Attorney 4,464,100 4,600,000 +135,900 Alternate Defense 5,221,300 3,221,334 -1,999,966 Health Services 27,370,800 29,215,000 +1,844,200 Environmental Mgmt. 902,900 1,000,000 +97,100 Social Services Agency 28,042,500 25,400,000 -2,642,500 HazMat Coordination 64,700 -0- -64,700 Assessor 11,962,400 14,000,000 +2,037,600 Clerk of the Board 935,200 1,760,000 +824,800 Auditor-Controller 4,309,000 4,800,000 +491,000 County Counsel 3,101,000 3,400,000 +299,000 Administrative Office 1,897,900 2,085,000 +187,100 Treasurer-Tax Collector 1,732,100 1,850,000 +117,900 Employee Benefits 1,662,700 2,078,419 +415,719 Misc. Expenses 19,112,700 23,890,921 +4,778,221 Total General Fund $320,000,000 $334,847,117 +$14,847,117

Source: Orange County Administrative Office