County Told Debt Repayment Near Impossible : Finances: With defeat of tax hike, bankruptcy attorney says he can’t see ‘anything even close’ to a way of making about 200 schools, cities and special districts whole.

Orange County’s top bankruptcy lawyer and financial adviser told the Board of Supervisors on Thursday that the defeat of a proposed sales-tax hike this week makes full repayment of the county’s debts--particularly the money owed about 200 local schools, cities and special districts--all but impossible.

“We doubt very much that there is any 100-cent plan or anything even close,” said bankruptcy attorney Bruce Bennett, one of the principal architects of the settlement plan that gave the schools 90 cents in cash--and other investment pool participants 80 cents--for every dollar invested with the county, and IOUs for their unpaid balances.

“Something else good has got to happen,” Bennett said, before prospects improve for repayment of the last 10% owed to all of the pool participants. Altogether, this final 10% owed the schools, cities and other local agencies totals $513 million.

Supervisor William G. Steiner asked whether county assets might be offered in settlement of some of those debts, but Bennett and Christopher Varelas, the Salomon Bros. vice president heading the county finance team, said prospects for such swaps are also dim.

Because these repayment claims became subordinated to other county debts in an agreement approved by the bankruptcy court, they cannot be repaid until all senior claims against the county--including more than $1 billion owed bondholders, vendors and employees--are satisfied.

Varelas told the supervisors that he would present a refined analysis of the county’s revenues and debts, as well as a new set of financial alternatives, at their next scheduled meeting July 11.

Dolores Otting, one of dozens of county gadflies attending Thursday’s session, proffered an original idea for bankruptcy recovery. She suggested a countywide boycott of Merrill Lynch & Co., the giant Wall Street brokerage the county blames for its financial crisis, to pressure the firm into settling the $2-billion lawsuit the county has filed against it.

“That’s the type of approach we, as taxpayers, have to take,” Otting said. “We have to work together.”

Also at Thursday’s meeting, Supervisor Roger R. Stanton reiterated his request for a full accounting of the $360 million in losses incurred by various county accounts and agencies when sour investments made the pool go belly up last December.

Stanton has suggested the county reduce its debt estimates by eliminating the money it owes itself. But legal and financial consultants say that is difficult, because of restrictions that govern some 600 pool accounts held in the county’s name, but actually belonging to someone else.

Among those accounts are trust funds for minors who won court settlements; federal money funneled through the county for specific programs; and cash dedicated exclusively to roads, landfills and John Wayne Airport.

Varelas and Bennett promised to present a thorough analysis of the accounts to the board but estimated that it would take at least a month longer.

“Many of the county-administered accounts are either held for the benefit of a third party or enforceable by a third party,” Bennett warned. “It’s not really the county paying itself. As we work our way through them, we find more and more county-administered accounts to be liabilities and not assets.”