Bankruptcy Recovery Plan Gets Mixed Reviews : Legislature: At Senate hearing, state officials express concern that county proposal could be easily derailed, while cities object to OCTA’s relatively light burden and their lack of any oversight role.

State lawmakers gave Orange County’s long-awaited bankruptcy recovery plan mixed reviews Tuesday, after hearing cities complain that they might be forced to bear a disproportionate share of the recovery costs while the powerful county transportation agency gets off lightly.

Following a three-hour hearing before the special Senate committee that has been following the county’s bankruptcy, state officials also expressed concerns that the recovery proposal leaves little room for error.

“This is such a delicately put together plan, one thing could throw it out of whack,” remarked state Sen. Lucy Killea (I-San Diego), co-chairwoman of the Senate Special Committee on Local Government Investments. “There’s going to be skepticism on the part of the Legislature.”

County officials touted their 11-page recovery blueprint as a “consensus recovery plan.”

But Tuesday’s hearing was marked by sharply critical statements from some of the cities that lost money in the county-run investment pool and are now being asked to postpone, and possibly forgive, more than $800 million in debts owed by the county.

The cities also voiced unhappiness about their not being assured representation on a committee that will oversee implementation of the plan. And some expressed irritation that the plan allows the richest county agency, the Orange County Transportation Authority, to give up much less revenue than previously proposed.

The plan endorsed by Orange County supervisors on Monday seeks to divert $38 million in annual revenue from the county’s transportation agency to the county for 15 years--for a total revenue transfer of $570 million.

But in exchange for OCTA’s “fully supporting a diversion of their sales tax revenues,” the county agreed to give OCTA $23 million a year for 17 years from county funds that in the past have been used for road improvements in the county’s unincorporated areas.

To many of the cities, the county appears to be taking $570 million with one hand, and giving back $391 million with the other, while the cities are being forced to gamble all that they are owed by the county on the outcome of lawsuits against Merrill Lynch & Co., which the county blames for its bankruptcy.

State Sen. John Lewis (R-Orange) and other lawmakers were cool to this part of the plan, because even modest growth in county sales tax receipts could allow OCTA to eventually see a net gain in revenue, while other agencies go begging.

“I think the most likely candidate for greater participation in the settlement is OCTA,” Lewis said. “I’m not at all convinced that OCTA is engaged in a maximum effort.”

But officials with the transportation agency said the funding shift would deal a tough blow to the county’s transit network.

“It’s going to [cause] a significant hit on the bus system,” Stan Oftelie, OCTA’s executive director, insisted after the hearing.

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Newport Beach City Manager Kevin J. Murphy said after the hearing that his city is particularly irked at the prospect of being asked to pay a share of $18 million the county required under the plan as “transition costs” for handing over to OCTA the money for road improvements in unincorporated Orange County.

“We’re not happy with that part of it. We’re not even sure what it’s for, or who has to pay it,” Murphy said.

The cities also expressed unhappiness over the plan for the bankruptcy oversight committee, which the county envisions as having three members--one county official, one representative of the pool investors and either a gubernatorial appointee or former state Treasurer Thomas W. Hayes, who served the county as a financial adviser early on in the bankruptcy.

“The cities would like to have a seat at that table,” Murphy told the panel.

Killea told Murphy the Legislature would take his concerns into consideration.

Irvine City Manager Paul O. Brady Jr., who represents cities on the Orange County Investors Committee, said the consensus plan still needs approval by most of the investors in the county’s investment pool.

Although attorneys are working on the specifics, Brady said, he expects the approval formula will require the consent of about 80% of the investors having 90% of the pool’s money at the time of the bankruptcy. The plan would then be brought to a bankruptcy judge for final approval.

Brady himself voted against the plan because of the costs of moving road projects and maintenance to OCTA and the lack of city representation on the oversight committee.

“We’re not opposed to the consensus plan. We have [those] two caveats,” Brady said. “We’re about 95% there. We want to be able to support it.”

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As the Senate panel tried to get a grip on the county’s proposal, Assembly Speaker Doris Allen made her own bid to become a player in the bankruptcy proceedings.

Allen convened a private meeting with various Orange County officials and Senate staff members, emerging to declare that she wants to see compromise legislation crafted reconciling differences between the county’s proposal and suggestions made by the cities.

Allen’s efforts, however, might have competition.

Lawmakers in the Senate and Assembly, particularly those from Orange County who have been at odds with the Republican Speaker since she was elected with the help of Assembly Democrats, are expected to draft measures later this week that may or may not coincide with what the county is proposing.

The county’s legislative delegation is expected to meet Thursday to begin fine-tuning the plan and could opt to seek more money from OCTA.

Sen. Rob Hurtt (R-Garden Grove) said he was heartened by the county’s proposal. “I think it has a lot of merit. I’m impressed that everyone finally seems to be getting to the point where they’ll make it work,” he said.

Representatives of vendors and bondholders were among those expressing cautious support for the plan, while also voicing concerns about the possibility of the county still defaulting on its debts.

“We’re on the same page, though,” said attorney Richard Marshack, representing vendors.

If the plan were to move smoothly, county bankruptcy attorney Bruce Bennett told the committee, the county could be out of Chapter 9 by mid-1996, which would constitute a “light speed” recovery for a case of this magnitude, he said.

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