Warning that Orange County will default on its debts this summer without state help, Chief Executive Officer William J. Popejoy made a personal plea to a panel of state senators Friday, urging them to guarantee loans for the county.
"I don't believe in the tooth fairy, but I do believe that we can, with your help, overcome the problems," Popejoy told the senators, who took turns praising the millionaire executive for steering Orange County out of its fiscal crisis.
"We're not looking for a handout," Popejoy said. "We're looking for a helping hand to get this thing behind us."
Popejoy's pitch to a special state Senate panel probing the county financial crisis was tarnished by the refusal of former county Assistant Treasurer Matthew R. Raabe to testify, increasing legislators' suspicion of his involvement in the improper or illegal management of the county's failed investment fund.
His eyes downcast and nearly closed, Raabe refused to answer the senators' queries after receiving a standard warning that the panel would not grant him immunity from criminal prosecution.
"I do not choose to testify under these conditions," said Raabe, 38, who was flanked by two attorneys at the hearing in Irvine City Hall.
Legislators later said they were not surprised by Raabe's decision, but noted that his silence hurt Orange County's bid for help.
"After that? A bailout? Are you nuts?" an irate Sen. Tom Hayden (D-Santa Monica) said after Raabe's abrupt exit. "He just reminded us of all the reasons not to bail this place out, after Popejoy did such a good job selling us."
Earlier, Popejoy had warned legislators that despite his severe cost-cutting efforts, the county will probably not be able to meet $1 billion in bond debt due between June and August. The county needs the state to serve as co-signer, Popejoy said, by backing a loan the county would use to either pay off the debt or borrow more money.
But Popejoy cautioned that the state's "helping hand" would not be risk-free. The aid "should . . . cost you nothing," Popejoy told the panel. "(But) if something goes wrong it will cost you plenty.
"We know that you're going to be criticized for bailing out Orange County--those fat, old rich cats who didn't care until they got in trouble."
Before each of them spoke, the senators praised Popejoy's willingness to serve the county for free.
"This isn't a very chivalrous era in which we live," Kopp said. "Your offer . . . emblemizes the Latin term, 'pro bono ' . . . in the very best sense of the term."
But despite their admiration, the legislators reacted coolly to Popejoy's request for aid.
State Sen. Robert Hurtt (R-Garden Grove) said legislators might be willing to guarantee a loan to Orange County if it were backed by county assets. Hurtt, however, cautioned that the state's own budget woes might reduce its ability to help.
"I can't imagine any entity out there that would say, 'Yes, I will loan you money even though you're bankrupt, as long as it's guaranteed by another entity, which is also bankrupt,' " Hurtt said. "I say that a little bit tongue-in-cheek, but unfortunately, it's closer to reality than most people understand."
Sen. Quentin Kopp (I-San Francisco) was also hesitant. "If I were asked to guarantee a private loan in these circumstances, I doubt that I would do it," he said. "Now you're asking all the taxpayers of California to guarantee a loan."
Popejoy's pleas for help came as Standard & Poor's bond rating agency said it was extremely skeptical that Orange County could meet its debt obligations without state intervention, debt restructuring or a tax increase.
The agency said that state intervention may not take place in time for the county to pay its summer debts.
"Several significant legislative, logistical, political and legal hurdles exist that must be overcome," the agency said. "S & P has strong doubts Orange County will be able to meet its debt obligations on time and in full."
Popejoy suggested John Wayne Airport and the county's landfills as potential collateral for loan guarantees to help the county meet its debt obligations. But Kopp indicated that he would be more likely to support the plan if there were cash collateral. Kopp also said he would prefer a short-term loan, for six to 18 months, instead of a five-year loan, as county officials have previously suggested.
"It would have to be something that was acceptable to you . . . there are a number of things that we can and are working on to propose," Popejoy said.
Popejoy's warnings were echoed Friday afternoon by two of the largest mutual funds that had purchased millions of dollars of Orange County bonds. Both firms told legislators that Wall Street will not be kind if Orange County defaults on its debt. They called for the state to step in and help oversee the county's recovery process.
"Why would Franklin Templeton lend any money to the County of Orange again unless they feel there is a good plan in place?" asked Tom Kenny, a portfolio manager for the Franklin Templeton Group of Funds.