Law, Accounting Bills Ballooning in O.C. Debacle

The meter keeps running.

The lawyers, accountants and financial advisers providing bankruptcy-related expertise to Orange County will cost nearly $19 million by June 30--55% more than previously estimated--according to a new county risk management analysis.

“The bankruptcy is very costly,” sighed Supervisor Marian Bergeson. “The longer we’re there, the higher the tab. It’s going to get a lot worse, unfortunately.”

In a memo to the Board of Supervisors, Chief Executive Officer William J. Popejoy--who is working for nothing--noted that “while the cost estimates for some firms have been reduced from the original estimates, others have increased materially.”

Popejoy also noted that costs would continue through the next fiscal year and said it was “difficult to project” the impact.

The bulk of the latest jump is for Arthur Andersen & Co., the county’s accounting firm, which is expected to bill $5.3 million instead of the $2 million anticipated in January.

The accounting firm has assumed a much larger role in the financial crisis in recent months, handling many day-to-day operations in the treasurer’s and auditor-controller’s offices, and number-crunching for major projects such as the investment pool settlement agreement.

Another $2.8 million in previously unbudgeted bills is coming from the county’s creditors, whose lawyers and financial advisers will be paid, in part, by the county.

Popejoy said more than $6.6 million would have to be added to the $12.2 million originally budgeted for the Professional Consultants Recovery Agency, which the board created to pay legal and financial advisers the county turned to in the wake of its Dec. 6 bankruptcy filing.

The latest estimates also do not include underwriting fees for bond issues and refinancings the county has underway.

In January, county analysts projected the consultants’ bills at $12.2 million for the next six months. In March, the state auditor predicted the fees would double that amount by June 30.

The new analysis shows that county bankruptcy attorney Bruce Bennett and his associates have dropped their estimated expenses from $3 million to $2.7 million through June 30. Salomon Bros. the county’s financial adviser, has also reduced its expected bills, from $2 million to $1.55 million.

But James Mercer, the county’s lead litigator, has upped his prospective fees from $2.5 million to $3.6 million. Mercer and Bennett recently left the law firms they had been associated with and formed a new partnership.

The supervisors approved the first round of payments in March, giving $4 million to lawyers, accountants and Wall Street bankers and handing authority for paying the bills over to Popejoy.

Popejoy’s memo, dated May 22 but delivered to the Board of Supervisors only Tuesday, indicates that $5.9 million has already been paid to county consultants, with another $1.5 million “in process.” Lawyers and financial advisers for the creditors committee have already been paid $1.6 million.

“You’re kidding,” said Carole Walters of the Orange Taxpayers Assn. “In other words, the attorneys are the ones that are making out in the bankruptcy. That makes me mad. We’re paying these high-priced attorneys money and they’re not solving any problems. What worries me is that the attorneys can prolong things and make more money by the hour.”

But Dennis Bunker, who processes the bills for the county, said the high fees are “just something that you can’t get away from. You’ve got to have the attorneys and the accounting firms that have the expertise.”

Bunker echoed the reassurances in Popejoy’s memo that the risk managers are reviewing invoices in detail and meeting often with consultants to discuss their planned work and expected fees. But the risk management report shows that everything that has been billed by the eight firms working for the county has been paid or is in process.

“It seems like they make plenty of money in good times and in bad,” Bruce Whitaker, a spokesman of the citizen-activist Committees of Correspondence, said of the consultants. “These kinds of professionals feeding heavily around the trough is standard operating procedure.”

The new report shows the following estimates through June 30:

* Arthur Andersen: $5.3 million.

* Howrey & Simon; Hennigan, Mercer & Bennett, litigation attorneys: $3.6 million.

* Wilkie, Farr & Gallagher; Squire, Sanders & Dempsey; Hawkins, Delafield & Wood, bond counsel: $2.9 million.

* Stutman, Treister & Glatt; Hennigan, Mercer and Bennett, bankruptcy attorneys: $2.7 million

* Salomon Bros., financial advisers: $1.55 million

“I think we knew this was going to be a very expensive proposition,” Supervisor William G. Steiner said Tuesday. “While the additional charges are unfortunate, I think we need these professional services to get back on track. That’s the reality. That’s part of the price of coming out of the bankruptcy.”

Supervisors Gaddi H. Vasquez and Roger R. Stanton could not be reached for comment Tuesday. A spokesman said Supervisor Jim Silva had just received Popejoy’s memo Tuesday and was not ready to comment on it.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Costly Expertise

Bankruptcy advice and services from January through June will cost Orange County considerably more than originally estimated. A look at the revisions:

Original Revised estimate estimate Firm 1/95-6/95 through 6/95 Arthur Andersen & Co. $2,000,000 $5,300,000 Salomon Brothers Inc. 2,000,000 1,550,000 Stutman, Treister & Glatt 3,000,000 2,700,000 Howrey & Simon 2,500,000 3,600,000 Willkie Farr & Gallagher 1,400,000 2,400,000 Squire, Sanders & Dempsey 500,000 230,750 Hawkins, Delafield & Wood not listed 266,086 CPT Group Inc. not listed 75,000 Chanin/Sutro N/A 670,000 Marschack and Goe N/A 350,000 Murphy, Weir & Butler N/A 1,800,000 Other expenses 865,000 N/A Total $12,265,000 $18,941,836

Source: Orange County administrative office