Transit-Tax Plan May Suffice, Pool’s Lawyer Says : Bankruptcy: Agencies would drop their own reimbursement idea if OCTA diversion allows full repayment, he says.

One day after unveiling a plan to solve Orange County’s bankruptcy, the lead attorney for participants in the county’s collapsed investment pool said Tuesday he would drop the plan if the county’s proposed diversion of transit taxes yields enough to pay all his clients in full.

The lawyer, Patrick C. Shea, said Tuesday that although he finds the concept of raiding revenue from the Orange County Transportation Authority “immoral,” he could not fight it if it enables the county to fully reimburse the 200 local agencies that had money in its investment pool when it went bankrupt Dec. 6.

“I think it’s theft. I think it’s a reprehensible, dishonest thing to do,” Shea said. “I’m not here to lecture the county on its ethical standards or its morality. What I’m paid to do is get my clients paid, period. If someone comes up with a full repayment plan . . . then I’ve done my job.”

The Legislature approved a bill this weekend that would allow the Orange County Board of Supervisors to take a quarter-cent sales tax that now supports OCTA buses and use it for bankruptcy recovery for the next 15 years. Gov. Pete Wilson has yet to sign the measure, but a majority on the Board of Supervisors said Tuesday that if Wilson gives the green light, they plan to make the transit taxes the linchpin of the recovery plan.

If approved, the diversion would give Orange County more than $1.5 billion over 15 years, if inflation and economic growth are factored in.

Although the funds--coupled with the county’s current revenue prospects--would be enough to repay note holders and vendors, it remains unclear whether there would be money left to pay pool participants.

The county had previously pegged its overall debt at $1.9 billion, and estimated that it had $325 million to $650 million in other revenue available. That does not include potential proceeds from lawsuits against Merrill Lynch & Co. and other Wall Street firms the county blames for its bankruptcy.

The pool participants have two sets of claims against the county: $342 million in senior claims, which are on par with outstanding debts to note holders and vendors, and $513 million in repayment claims, which would be the last obligations repaid.

On Monday, Shea coordinated a news conference of city, school and special district officials to announce a plan to buy the county’s airport and landfills for $415 million, enough for the county to repay its note holders and vendors. The plan also restructured the outstanding pool participants’ claims, placing them behind note holders but ahead of the money the county government itself lost in the investment pool.

But on Tuesday, Shea acknowledged that the local agencies’ asset swap plan would take longer and repay fewer creditors than a diversion of OCTA funds.

Ironically, the transit-tax diversion would pit Shea against the head of the pool participants’ committee he works for, OCTA Chief Executive Stan Oftelie. As the largest investor in the county-run pool, Oftelie has so far led the group of government agencies through the bankruptcy; now, his interest may be opposite the rest of the group.

“There are separate issues here. There’s the role you have as an OCTA employee, and there’s the role you have as a member of the committee,” Oftelie said. “If there were a conflict, or even if there were a suggestion of a conflict, I would withdraw from the discussions until it’s resolved.”

Others who worked on the pool plan proposed Monday said, however, that they will oppose the transit diversion even if it repays pool investors in full because they fear the impact on the county’s transit operations and believe it sets a dangerous precedent to allow the county to shift revenue.