Some Cities Want County to Pay Off Debts With Land : Bankruptcy: They see it as helping all parties. But county officials say money from many parcels sought by Orange and other municipalities could not be spent directly on fiscal recovery.

In the financial chaos that followed the county’s Dec. 6 bankruptcy filing, Orange Mayor Joanne Coontz saw an opportunity she thought would benefit both her community and the cash-needy county.

Her suggestion: The city would forgive a portion of Orange County’s roughly $6-million debt to the city for investment pool losses, in exchange for various county-owned parcels of land around the city of Orange.

She raised the idea both at League of California Cities forums, where she sought the support of other cities for her debt-forgiveness plan, and during a meeting with County Chief Executive Officer William J. Popejoy.

But so far, the county has reacted coolly. Coontz received a letter last week from Popejoy, who expressed concerns about her plan but requested more information.

“I’m still hoping this will work out. It’s a darn good idea,” she said. “This is an age-old way of taking care of problems. A little bartering. . . . It seemed like a way to handle this creatively.”

Coontz’s experience is shared by officials from at least half a dozen other cities whose land-swap proposals have garnered little support from the county.

To some critics, the county’s unresponsiveness to such initiatives reinforces their view that the county isn’t doing enough to dig its way out of the financial crisis. Critics point out that county leaders are paying little attention to money-saving barter proposals while at the same time asking voters to approve a half-cent sales tax increase.

“They want a sales tax. But they don’t want to give up their land,” complained Carole Walters, president of the Orange Taxpayers Assn. and an opponent of the proposed tax hike. “That’s just wrong. They need to get rid of these assets.”

But county officials defend their stance, pointing out that money generated from the sale or swap of many parcels sought by cities could not be spent directly on bankruptcy recovery efforts.

If the county turns over a park, for example, money associated with the transaction must stay in a special district fund and is not be available for general county operating expenses.

Moreover, the veritable mountain of county debt far outweighs the value of idle county land.

Because it agreed to absorb all of its investment pool’s losses, the county will be left owing $1.1 billion to the cities, schools and special districts that had invested in the pool. By the most optimistic estimate, the county’s salable real estate assets might be worth half that amount.

County leaders and others also questioned the fairness of providing land as part of a settlement for some pool investors, but not others.

“You can see from the standpoint of fairness that if you have a special exchange of assets with one city, you could get criticism from other cities,” said Chuck West, the county’s director of real estate. “That makes it difficult.”

The idea of bartering pool debt for county land has been considered by numerous cities, schools districts and special districts. But so far, only a handful have held direct discussions with the county concerning specific parcels.

In Fountain Valley, officials have their eyes on two assets in the county’s Mile Square Regional Park. One 25-acre site is adjacent to Fountain Valley’s recreation center. City Manager Ray Kromer said the city is interested in possibly building athletic facilities or installing recreational equipment on the vacant land.

“Right now, it’s just a field,” said Kromer, noting that in light of the bankruptcy Fountain Valley might be in a better financial position than the county to improve the land. “We think this would be a win-win situation.”

The city is also interested in acquiring Mile Square Park’s two golf courses. Kromer and other city officials said the courses would generate revenue for Fountain Valley. By selling them, the county would be relieved of maintaining the courses, they added.

Irvine officials have held informal discussions with the county about acquiring the Bowerman Landfill and the James A. Musick Branch Jail.

City Manager Paul O. Brady Jr. said the landfill is a strong revenue generator. Irvine could also benefit from acquiring the jail, Brady said, although it is too early to know what the city would do with the detention facility.

Anaheim is holding talks with the county about several parcels of land, but city spokesman Bret Colson declined to discuss specifics while negotiations were ongoing. “It would be fair to say that talks are continuing,” he said.

In Orange, officials are interested in a variety of small parcels, mostly in the city’s east end. Coontz said the land would allow the city to expand parks and widen roads. The city and Orange Unified School District are also eyeing a larger county parcel that could be used for development.

But county officials insisted that land bartering is not as simple as some city leaders might think.

The county’s bankruptcy lawyers have strongly advised against using assets to settle with pool participants, in part because such arrangements could give an advantage to agencies willing to acquire land.

Moreover, the county stands to gain little if its sells or barters many of the parcels sought by pool investors, said West, the county’s real estate director.

Money generated from the sale or swap of parkland, libraries or any other parcels purchased with special district money cannot be used for general operating expenses, West said. The sale of parkland involves a complex process that can easily be derailed by public opposition, he said.

While the county hasn’t agreed to the barter idea, it does plan to sell off $20 million to $30 million worth of county assets, including buildings, libraries and vacant parcels. Because these assets were purchased with general fund money, proceeds from the sales can be used to help the county make debt payments and fund general operations, West said.

Santa Ana recently purchased a small county building for $120,000, and Anaheim is likely to spend $500,000 for a building on Anaheim Boulevard. West said both deals were in the works before the bankruptcy and neither involves pool settlement money.

Still, some city officials hope the county will eventually warm to some sort of barter arrangement. Irvine’s Brady said his City Council might consider purchasing some county assets with a combination of cash and whatever debt the county still owes after the pool settlement agreement is completed.

Bartering “seems like something that needs to be given more study before it is dismissed,” said Fountain Valley Mayor Guy Carrozzo, who opposes the half-cent sales tax increase. “I think they need to exhaust all their options before asking for a tax increase.”

Walters of the Orange Taxpayers Assn. is more blunt. “The county’s not doing what it’s supposed to be doing,” she said. “They need to get rid of these (assets). . . . But all they want is their tax.”

Times correspondent Lesley Wright contributed to this report.