O.C. and State Join in Shaping Recovery Plan

Facing a deadline from the governor to develop a comprehensive bankruptcy recovery package for Orange County by next week, local and state officials on Thursday worked feverishly to cobble together a plan that would be both widely supported by all parties and financially viable.

As county officials continued to narrow a list of six recovery options into a single definitive plan, representatives from various cities, in an effort to dissuade the county from raiding their tax revenue, renewed their offer to take a back seat to the county’s other bankruptcy case creditors.

Meanwhile, legislators from Orange and Los Angeles counties discussed joining forces in Sacramento once again to push through bills that would help both counties dig out of their financial morass.

“It’s a crazy, crazy scene right now,” said one county official. “It’s like Texas weather. If you don’t like what you’re getting now, stick around, because it will change on you in five minutes.”

In spite of the hubbub in Sacramento and clandestine meetings in Orange County, when all was said and done Thursday no consensus had been reached on how to pull the county out of the nation’s worst-ever municipal bankruptcy.

County and city officials said they expected to work throughout the weekend, and the Board of Supervisors was tentatively planning to hold a special session meeting Monday to approve a final recovery package.

“I think everybody is rushing to make the [Monday] deadline, and I think that is healthy,” Supervisor Marian Bergeson said. “I’m confident there will be a plan ready by the deadline.”

“We are in the eighth or ninth inning,” said Board Chairman Gaddi H. Vasquez. “I’m optimistic we’ll have our plan.”

Earlier this month, Gov. Pete Wilson linked legislative assistance from the state, including the diversion of annual transportation tax revenue, to a comprehensive recovery plan that he said the county must have ready when the Legislature reconvenes Monday.

If the county fails to produce such a plan, state lawmakers have threatened to appoint a trustee over the Board of Supervisors, and give that trustee sweeping powers to control the recovery effort. Most county and city officials are opposed to such a trustee, because they fear the trustee would have unlimited authority to reallocate existing tax revenue.

On Thursday, the governor, who was campaigning for the Republican presidential nomination in New Hampshire, said the county alone created its problems, and restated his position that county officials must solve their own crisis.

“Orange County, having unhappily been guilty of indulging in a Ponzi scheme with public funds, is now in the position of having to work out of the mess they have created,” Wilson said. “We’re willing to provide assistance but not a bailout. I don’t think it’s fair to the taxpayers to bail out that kind of . . . mismanagement [and] malfeasance in office.”

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Senate President Pro Tem Bill Lockyer (D-Hayward) issued an equally stern message during a news conference in Sacramento on Thursday. He indicated that the Legislature is unlikely to produce significant relief for the fiscal troubles of both Los Angeles and Orange counties until local officials submit a plan.

“In the case of Orange County, we’ve been waiting since December for a plan,” Lockyer said. “We’re still waiting for ‘The Plan.’ I assume Los Angeles [County] will produce something of that sort. . . . We still need a plan.”

Orange County supervisors said they were not worried about the ominous tone of comments coming from up north. They said they will have a plan by Monday, which will contain elements of the six recovery options approved by the Board of Supervisors earlier this week.

Those options involve taking tax revenue from cities, special districts and the Orange County Transportation Authority to infuse the county treasury with $74 million to $160 million annually for 15 to 20 years, enabling it to make up for the $1.7 billion lost on risky investments.

The supervisors also pledged to continue pursuing other options, including selling county assets, privatizing services, downsizing government and cutting costs.

The county’s proposals also envision the imposition of a state trustee with the authority to implement a recovery plan if the county fails to do so. The board members, however, said they did not believe a trustee would ever be needed.

One element that may eventually be eliminated from the recovery package is the option of tapping city tax revenue. Bergeson, for one, said she was “opposed to that idea.”

Janet Huston, executive director of the Orange County division of the League of California Cities, said cities, which are still owed about 20 cents on every dollar they invested the county’s failed investment pool, are willing to subordinate their claims.

Under the cities’ plan, their claims would be totally contingent upon litigation proceeds, Huston said.

She said the Orange County Business Council, which helped broker a settlement between the county and investors in the county’s pool, is working behind the scenes to try and find a recovery plan that is acceptable to all involved.

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The council is apparently trying to produce a plan without significantly redirecting the tax revenue of cities, special districts and the transportation agency. To make this possible, those agencies must be willing to make such concessions as the League of California Cities has proposed.

For example, if both cities and special districts agreed to subordinate their claims, effectively taking a back seat to all other creditors, the county would not have to worry about immediately repaying roughly $763 million.

Attorney Patrick C. Shea, who represents the pool investors, said the options are still very fluid. After meeting with members of the business council Thursday, he said he wouldn’t “be surprised if none of the six options are part of the final plan.” He did not elaborate.

Todd Nicholson, president of the Business Council, said that no options “have been dropped, no options have been added” as of late Thursday. “All I can say is we’re going to do whatever it takes to find a recovery solution that is acceptable to all parties.”

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State lawmakers from Orange County, who have forged an alliance with the cities, applauded the move to subordinate claims.

“I think that is tremendous progress that will help resolve the county’s bankruptcy,” said Assemblyman Curt Pringle (R-Garden Grove). “For the cities to take that position takes bold leadership. The cities are interested in getting this problem behind us.”

Pringle said the county now needs to find a stream of revenue--and he continued to insist that the best option is to raid transit taxes that now go to the Orange County Transportation Authority.

To that end, Pringle and Los Angeles County Democrats have held talks about reviving their odd alliance to push anew for legislation allowing the two fiscally strapped counties to shift transit tax money to their recovery efforts.

A similar bill was approved by the Legislature last month, but Gov. Pete Wilson vetoed the measure, saying it would cut too deeply into Los Angeles County bus services.

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Pringle’s staff has held talks with Assemblywoman Martha M. Escutia (D-Huntington Park), who is readying a bill to raid the transit tax. But officials in both counties remained cagey about just how much money they plan to seek.

“We’re looking at trying to finesse some of the arguments the governor is concerned about,” Escutia said. But she said a linkage with Orange County is pivotal. “I need some Republican votes that I won’t get unless Orange County is in there,” Escutia said. “And we need something to sweeten the deal so the governor signs it.”

Pringle said he also saw other possible revenue sources, chief among them tapping county funds that now go to harbors, beaches and parks, as well as hitting the Orange County Sanitation District, which has $430 million in reserves.

He suggested that raiding the beach and park money is justified because it is a county service, and therefore eligible for cuts. And the sanitation district’s huge reserve “just shows they’re receiving more tax money than they deserve,” Pringle said, suggesting that upward of $7 million a year might be an appropriate amount to siphon for bankruptcy recovery efforts.