In a last-ditch effort to develop a bankruptcy recovery plan before a crucial state deadline, Orange County supervisors on Monday endorsed a package that seeks to raid $570 million from the county’s transportation agency and forces cities and special districts to postpone and possibly forgive more than $800 million in debt.
The plan, which was the product of two weeks of intensive negotiations between the county and other public entities, aims to spread the financial burden among all the investors who lost money in the county’s ill-fated investment pool, which collapsed Dec. 6.
“This is about as good as it gets,” said Board Chairman Gaddi H. Vasquez. “Everyone is going to suffer.”
Some investors reluctantly agreed to accept the county’s plan, while others said it wasn’t good enough. Even though the Board of Supervisors unanimously approved it, the plan still needs ratification of all pool investors.
The plan also needs the consent of Sacramento lawmakers, who would have to pass special legislation that would allow the county to implement it. Legislators are expected to meet today to discuss the recovery package.
The two most significant elements of the plan include an annual diversion of $38 million in transit revenues to the county for the next 15 years and an agreement that allows the county to reimburse the investment pool losses of the cities, schools and special districts solely from litigation proceeds.
If the county receives no money from its $2.4-billion damage suit against Merrill Lynch & Co. and those it plans to file against other Wall Street firms the county blames for its bankruptcy, the cities and special districts don’t get paid.
“These are some major concessions,” said Supervisor William G. Steiner.
The goal of the county’s plan is to pay all the note holders, vendors and other creditors left with debts totaling about $2 billion after the county declared bankruptcy, when the risky investments of former Treasurer-Tax Collector Robert L. Citron gutted the county-run investment pool.
In addition to the transit tax diversion, the county plans to grab $12 million in property tax revenue over the next 20 years from three county agencies: harbors, beaches and parks, and flood control and redevelopment.
Other elements of the plan include taking in enough trash from other cities to raise $300 million over 20 years, issuing bonds against delinquent property tax returns to net $100 million over 20 years, selling $20 million in county assets and refinancing certificates of participation that are repaid with county property leases for $95 million.
Chris Varelas, the county’s financial adviser, told the supervisors Monday that the hodgepodge of potential revenue streams is very tenuous and leaves no room for error.
Officials from the Orange County Transportation Agency contend that the diversion of $38 million of annual sales tax revenue will have an impact on the county’s bus system, but they weren’t precise about the effect. But it is far more palatable than a $70-million annual hit that was approved by the state legislature but vetoed by Gov. Pete Wilson earlier this month.
County officials negotiated with representatives of cities and special districts throughout the weekend trying to develop a plan that would be acceptable to all parties involved. The county had to craft the plan by Monday--which was the deadline set by Wilson--or face severe repercussions, such as the likely appointment of a state trustee to run the county.
In the end, the threat of a trustee with powers to redirect tax revenues away from cities and special districts to the pay off the county’s debt was too much to bear.
The pool investors committee voted 5 to 2 in favor of the county’s compromise recovery plan. Irvine City Manager Paul O. Brady Jr., who represents cities on the pool investor’s committee, and the representative for out-of-county investors voted against the proposal.
Even with the plan approved by the board Monday, legislators in Sacramento may push for a trustee to handle the recovery if county officials stumble.
In addition to the plan agreed on Monday, the Board of Supervisors will submit other recovery options that it approved last week.