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ORANGE COUNTY IN BANKRUPTCY : BOND TICKER : O.C. Audit to Be Done in Phases

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County officials have decided to delay a planned management audit of county government, saying the rapid restructuring underway would hamper any effort to study the institution.

“It would be very difficult to audit against this ‘moving target,’ ” Bruce Nestande, head of the audit oversight committee named last month, wrote in a memo to Supervisor Marian Bergeson.

At a committee meeting Friday, the group decided to instead conduct phased audits of individual departments rather than a wholesale evaluation.

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Nestande said in an interview that he will soon step down as chair of the committee, adding that Bergeson should take the helm because she is more in tune with the rapidly changing events.

Schools Seek Aid in Sacramento

The Orange County Department of Education is planning to seek legislation in Sacramento to help school districts get through the financial crisis.

One likely bill would give the five school districts that borrowed money to invest in the county pool greater flexibility in repaying a total of more than $200 million in loans that must be repaid this year.

“We are trying to give (the districts) the time to restructure and make their payments,” said Michael Kilbourn, the department’s director of special services.

The county’s education department, the North Orange County Community College District, as well as the Newport-Mesa, Irvine and Placentia-Yorba Linda unified school districts each has bond payments of about $50 million due this summer and fall.

Kilbourn said the department has also asked state treasurer’s office to consider helping local school districts with the sale of tax-revenue notes this summer.

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Motion Eases Wall Street Fears

U.S. Bankruptcy Court Judge John E. Ryan on Friday approved a motion that Orange County bankruptcy attorneys said was designed to lessen Wall Street’s fears that the county is in danger of defaulting on debt.

The motion, which drew no opposition, dealt with bonds that list the county as the issuer but for which the county has no legal obligation to pay. Most of the bonds in question are funded for specific construction projects, such as low-cost housing and infrastructure in new residential developments, and are being paid off with dedicated revenue streams.

County attorneys told Ryan that the county has no obligation in connection with the bonds, but that Wall Street was fearful that the bonds were tainted by their association with Orange County.

Huntington Sues Merrill Lynch

Huntington Beach filed a class-action lawsuit Friday against Merrill Lynch & Co. in U.S. District Court in an attempt to recover money the city placed in the county investment pool.

City Atty. Gail Hutton said cities, school districts and other pool participants have a better chance of getting claims from Merrill Lynch because they never had agreements with the brokerage firms.

The county, which has also filed a suit against Merrill Lynch, bought interest-sensitive securities from the Wall Street firm and hired Merrill Lynch to sell bonds.

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“We’re innocent,” said Hutton, whose city has $43.6 million invested in the county pool. “We never even talked to Merrill Lynch. The county and Merrill Lynch were in complete control of all information.”

Complied by Shelby Grad, with contributions from Debora Vrana, Greg Johnson and Jodi Wilgoren.

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