Cities Group Gives Tentative OK to County Recovery Plan

The League of California Cities on Tuesday gave conceptual approval to the county’s bankruptcy recovery plan but vowed to fight for changes that would make the proposal more palatable to cities.

At a gathering of elected city officials in Irvine, representatives from 23 of the county’s 31 municipalities expressed tentative support for the recovery plan. Only one city, Buena Park, voted against it. Individual city councils will formally consider the plan over the next few weeks.

“It makes sense. The plan seems fundamentally sound and workable,” La Palma Mayor Wally D. Linn said. “There are several reservations we have. But we think those can be worked out.”

The league’s action represents another boost for the recovery plan, which is designed to help the county dig its way out of bankruptcy filed after losing nearly $1.7 billion, much of it belonging to cities, schools and special districts that had deposited their funds in the county’s investment pool.

The recovery plan aims to repay the pool investors 100%, contingent on the county winning its litigation against the Wall Street giants it blames for the losses.

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The plan also diverts tax money from the Orange County Transportation Authority and county special districts but promises to repay those funds if the county has litigation proceeds left over after settling all its other bankruptcy debts.

Despite their embrace of the plan, city officials raised several key objections Tuesday. One involved $18 million that cities, schools and special districts would be forced to pay for road construction programs. City leaders said municipalities and school districts suffer enough under the plan, and should not have to absorb the $18-million hit.

Cities also want a guaranteed seat on the panel that would oversee the recovery effort. Under the current plan, the committee would consist of a state-appointed trustee, a county representative and one person representing all of the more than 200 pool investors, including cities.

City officials stressed Tuesday that they would fight any effort to give the state trustee power to divert city revenue to help bail out the county.

“We don’t want the bankruptcy resolved on the backs of cities,” Laguna Hills Councilman Randal J. Bressette said.

The loudest objection to the plan came from Buena Park officials, who complained about the way the proposal distributes proceeds from bankruptcy litigation.

Under the plan, schools would receive the first $53 million of litigation proceeds, with all other pool investors, including cities and special districts, taking the next $324 million. Then, the county would receive $176 million. Any proceeds beyond that, up to $1.25 billion, would be split so that pool investors would receive two-thirds of the proceeds and the county one-third.

Buena Park officials said that investors should be paid in full before the county gets litigation proceeds.