Officials of Cities, County Meet on Recovery Plan : Bankruptcy: Sticking point remains who should pay to transfer road operations to transportation authority.

County and city officials met Wednesday to resolve several crucial issues standing in the way of the cities’ full support of the county’s bankruptcy recovery plan, which was presented to Sacramento lawmakers earlier this week.

Although none of the issues were resolved, participants in the meeting said significant progress was made during the discussions.

“The cities seemed receptive to the [recovery] proposal, but they acknowledged that there are some periphery issues that still need to be settled,” said Chris Varelas, the county’s financial adviser. “I don’t see any of the issues as deal breakers.”

The key sticking point in the county’s so-called “consensus” plan centers on an $18-million tab that cities, school districts and other agencies are being asked to pay to reimburse the county for the costs of transferring the county’s road program to the Orange County Transportation Authority.

Cities have complained bitterly that they are suffering enough under the county’s recovery plan and shouldn’t be required to absorb the transition costs of the road operations.

During the more than three-hour meeting, which was attended by County Chief Executive Officer Jan Mittermeier, county bankruptcy attorney Bruce Bennett, Varelas and representatives from the League of California Cities, there was tentative agreement among the parties that the tab for the transition costs may have to be picked up by OCTA and other special districts.

Under the county’s complicated recovery plan, OCTA would sacrifice $38 million of annual tax revenue for the next 15 years, but would receive $23 million from the county in road funds to partially offset the loss. With the road funds, however, OCTA would inherit the responsibility for the county’s capital road improvement projects.

The county’s plan, which received mixed reviews from Sacramento legislators Tuesday, seeks to fully pay off the county’s bond debt and vendors, and also to reimburse the losses of the 200 public agencies that had invested in the county’s ill-fated investment pool.

Cities, schools and special districts, however, have agreed to let the county repay the $800 million owed them only if the county is successful in litigation against Merrill Lynch & Co. and other Wall Street firms the county blames for its Dec. 6 bankruptcy. Merrill Lynch has denied any wrongdoing.

Some county sources said Monday there was renewed talk among Sacramento legislators of forcing OCTA to contribute more money to the county’s recovery plan, which has been described as financially tight with little room for error. Lawmakers also want to fully repay schools their remaining $100-million debt immediately, instead waiting for litigation proceeds, sources said.

Although the discussions between the county and cities were only preliminary, county officials said they signaled a willingness on both sides to settle their differences and move forward on the recovery plan.

“It’s my understanding it was a productive meeting for both sides,” said Board Chairman Gaddi H. Vasquez. “We’re hopeful this will be worked out, and we’re working on the details now.”

Other issues of concern to city officials include: securing two positions on an oversight committee responsible for implementing the recovery plan, and seeking a more favorable formula for disbursing potential litigation proceeds.

Bennett, however, said the county would not make many concessions.

“This is a plan woven with compromise, if you pull a thread here, other areas could unravel,” he said.

In another development Wednesday, the five-member Treasury Oversight Committee voted to add two new panelists for a total of seven members. The Board of Supervisors still must approve the action. Committee members said they wanted to increase the size of the committee to include investors with money in the county’s investment pool.