O.C. Officials Defend Decision Made in Heat of Fiscal Meltdown

Calling their critics “armchair quarterbacks,” Orange County officials on Wednesday defended the decision to file for bankruptcy last December after they learned that a county-run investment pool had lost nearly $2 billon on risky financial maneuvers.

That decision came under scrutiny Wednesday during a hearing of a House Banking subcommittee in Washington. But in Orange County, officials said they are not second-guessing themselves.

Former Orange County Supervisor Harriett M. Wieder said a frantic phone call in the middle of the night alerted board members that the only way to prevent a run on the money remaining in the county’s investment pool was to file for Chapter 9 bankruptcy Dec. 6.

“The fact was, it was meltdown time,” said Wieder, whose term in office ended shortly after the fiscal crisis began. “What were our alternatives? The people who were advising us at the time said there was no other choice.”

Departing Orange County Chief Executive Officer William J. Popejoy admitted during testimony before the subcommittee that he had the luxury to second-guess the bankruptcy filing decision.

“With a giant dose of hindsight and Monday morning quarterbacking . . . I do think that bankruptcy does not serve a government well,” Popejoy said, adding that the filing has forced the county to pay millions in litigation costs and has sent tremors through the municipal bond market.

“When people buy the bonds of an entity, they don’t expect that entity to go into bankruptcy . . . at least not in our state’s governments,” he said.

Popejoy said he would have preferred that Orange County follow the lead of New York City officials, who, as the municipality lurched toward bankruptcy in the mid-1970s, asked state officials to step in and help work out a financial recovery plan.

Popejoy pointed out that Orange County has not asked the state to step in.

California Treasurer Matt Fong said he is concerned the bankruptcy stands in the way of resolving the crisis.

“With the litigious and adversarial culture that surrounds this, emphasis is placed on winning in a litigation context rather than on problem solving,” Fong said.

Critics say the bankruptcy filing--the largest in U.S. municipal history--has forever tarnished Orange County’s image as one of the richest enclaves in the nation. In addition to litigation costs, the county has also had to pay millions more in interest and insurance when it returned to a skittish Wall Street.

Orange County’s bankruptcy counsel, Bruce Bennett, said that at the time of the bankruptcy filing, the county was facing the unthinkable: closing it doors.

“The question to ask is what would have happened to the county had it not filed Chapter 9 bankruptcy?,” said Bennett, who was in Washington to watch the hearings into the fiscal crisis. “The answer is very clear that the situation would have been a lot worse. The county would have run out of cash, not just to pay debt but to maintain operations.”

Orange County Sheriff Brad Gates, who was part of an emergency management committee called in to deal with the aftermath of the bankruptcy debacle, said he has no doubt that filing for Chapter 9 was “absolutely appropriate.

“We were two days away from no money in the bank to buy anything,” Gates said.

Orange County Supervisor William G. Steiner agreed.

“We had the beginnings of a run on the pool,” he said. “There was no cash. What were our options? Bankruptcy was it.”

Times staff writer Gebe Martinez contributed to this story