Rival Recovery Plans Offered by O.C., Allen : Bankruptcy: County’s ‘consensus’ package comes after concessions to cities. But Speaker has the power and inclination to gut it.

After making some last-minute concessions to cities that had been holding up the agreement, Orange County officials on Thursday unveiled and quickly approved a delicately balanced bankruptcy recovery plan that now awaits an uncertain future in Sacramento.

Although she has shown little interest in crafting a solution to the Orange County bankruptcy in the past, embattled Assembly Speaker Doris Allen (R-Cypress) introduced a rival recovery plan just hours after the Board of Supervisors approved the details of its so-called “consensus plan.”

And Allen’s plan, if it moves forward, could throw Orange County’s proposal into total disarray.

The plan hammered out in Orange County relies on the diversion of more than $800 million in tax revenue from county agencies and the Orange County Transportation Authority to the bankrupt county government. Allen’s proposal insists that the recovery plan should not rely on such diversions, even though critics say her plan would leave the county millions short of what it needs to pay its debt.

Any changes to the county’s proposed plan would void the recovery plan formalized Thursday between the county and the cities, schools and special districts it owes almost $1 billion, according to terms of the agreement unanimously approved by the supervisors and signed by Board Chairman Gaddi H. Vasquez.

“Speaker Allen’s plan is going to create a situation where the whole recovery is going to fracture,” interim County Chief Executive Jan Mittermeier said Thursday evening. “The county cannot get out of bankruptcy if Speaker Allen’s plan is approved.”

“It would be just devastating . . . a real tragedy to have something that goes forward to destroy the plan that we have spent weeks and weeks working on, a plan that has consensus.”

Orange County declared bankruptcy Dec. 6 after discovering that the county-run investment pool had lost $1.7 billion on risky investments. In the nine months since, the county has been struggling to come up with a way to repay its bondholders and creditors, as well as indemnify the cities, schools and special districts for the nearly $1 billion that was lost from their investment pool accounts.

Allen’s rival plan was contained in legislation she introduced just hours after the county put the final touches on its recovery agreement, which was finalized two weeks after the deadline that Gov. Pete Wilson had placed on the county if it expected legislative action.

After wrangling over details, the county conceded to two major demands of the cities--that the county abandon its insistence that the pool participants share in an $18-million fund to help the county pay the costs of transferring some of its road-building responsibilities to the Orange County Transportation Authority, and guarantee the cities a seat on a five-member Recovery Oversight Committee.

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Now that Orange County has its act together, it is the political jockeying in Sacramento that could jeopardize the fragile agreement. Time is also running out.

The Legislature is due to recess Sept. 15, and a failure to have a recovery plan in place by then could spell disaster for Orange County.

Critics say Allen has jumped into the recovery effort in an attempt to change the dynamics of a recall attempt against her in her Orange County district. Republican activists, angry that she got herself elected Speaker by Democrats, are trying to get her removed from office.

Her last-minute legislation has forced Orange County’s legislation, which was introduced in the Senate, into a conference committee, which will try to hammer out an acceptable compromise between Allen’s plan and the one preferred by Orange County.

Allen named herself chairman of the committee, and said two Los Angeles-area Assembly Democrats--Richard Katz and Richard G. Polanco--would also serve on the committee, along with state Sens. Lucy Killea (I-San Diego) and William A. Craven (R-Oceanside). Assemblyman Brian Setencich (R-Fresno) is the sixth committee member.

Assembly Republican Leader Curt Pringle (R-Garden Grove) criticized Allen for toying with Orange County’s future and said her proposal lacks the “necessary requirements to be a feasible plan.”

“It doesn’t solve the problem. It’s a diversion,” Pringle said. “Playing these types of games with one week left before the Legislature recesses places the recovery at risk.”

Orange County Supervisor Marian Bergeson said she was worried about the fate of the county’s plan, but noted that it is the only proposal to have the consensus of all the parties involved, including a majority of Orange County’s legislative delegation. That distinction might help keep the plan remain intact, she said.

“There is a unanimous agreement--any effort to derail that will blow up the recovery agreement, and I think everyone is aware of that,” Bergeson said. “But I think a clear message has to be sent to the governor and the delegation that our recovery effort is at risk with any attempts to deviate from the proposal that has been submitted by the county.”

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Others, still, downplayed Allen’s proposal as typical Sacramento politics.

“I’m not going to get very excited about it until we see whether her bill has any support. . . . She’s just one vote,” said one official working closely with the county’s bankruptcy recovery plan.

But all is being played out under the close watch of the financial markets. Robert D. Swerdling, a senior vice president with Sutro & Co., advisers to the county’s bondholders committee, warned that the bond market could react unfavorably to Allen’s proposal, which may not provide enough for the county to meet its noteholder debts next summer.

“I don’t foresee a strong willingness to extend the county’s debt for another year . . . and there could be a default on $800 million worth of municipal debt. This would totally unnerve the municipal bond market.”

And that could have an impact on borrowing well beyond Orange County, up and down the state.

The county puts its debt at $1.9 billion, including everything from bankruptcy attorneys and advisers to $324 million it needs to avoid defaulting on bond debt next summer.

The county’s bankruptcy recovery plan involves seizing $570 million in transit tax revenue from OCTA over 15 years. To offset that loss, OCTA would get $23 million in tax money that currently goes to the county to finance road projects for 16 years.

The county also seizes $240 million in property tax revenue over 20 years from county agencies, including Harbors, Beaches and Parks, the Flood Control District and the county Redevelopment Agency. The county also aims to import trash, sell assets, refinance debt and property leases and borrow to raise an additional $515 million.

The key to the plan, however, was persuading the cities, schools and special districts to link repayment of more than $800 million--representing their losses in the investment pool--to any successful litigation against those the county blames for causing the crisis.

Allen’s plan rejects any outright raid on the funds of OCTA and other county agencies, but says OCTA could give the county a $350-million loan that would have to be repaid. She also rejects the county’s plan to repay its own losses as it goes about repaying the losses of other pool investors, and says the county should get nothing until all other claims are settled.

“One of the things we don’t want to see is the shifting of dollars when [the county] has reserves,” Allen said Thursday at one of the rare news conferences she has called since taking over the speakership.

Allen pointed to the county’s discovery this week that it may have uncovered as much as $106 million more than it has previously reported.

When asked specifically how her plan would raise the approximately $800 million in new revenue the county needs to pay off its private sector debts, Allen offered few details, and chastised her staff for failing to give her ample information and copies of her legislative bill for distribution at her news conference.

“I’m just reading to you what was prepared for me,” she said. “I’m sorry and I apologize for the sloppy staff work. There should have been a press release here. There should have been a bill here and you should have known exactly what’s in the bill.”

Thursday’s long-awaited agreement between the county and the pool participants involved some major concessions by the county and some surprising developments.

Thomas W. Hayes, the former state treasurer who assisted the county in the wake of the bankruptcy, will direct the county’s litigation efforts and wield great power.

Hayes’ position “has a lot of the attributes of a trustee,” conceded county bankruptcy attorney Bruce Bennett. Hayes’ salary will also be kept a secret, said Bennett, who defended that move as keeping potential bankruptcy defendants from gleaning information about the county’s financial situation.

Pool committee members, who had earlier demanded a role in overseeing the litigation, are “warm and cozy” about the prospect of Hayes at the helm, said Jon Schotz, financial adviser to the pool participants.

The county has also agreed to expand a recovery plan oversight committee to five people, including Hayes, two county representatives, a city representative and another member of the pool participants. Cities had earlier complained about lack of representation on the panel.

The committee will be disbanded as the county moves out of bankruptcy, Bennett said.

Mittermeier said that the county’s demand that pool participants share in the county’s $18-million “transition costs” was dropped because the county found out it was entering the 1995-1996 fiscal year with roughly $80 million more than it had earlier anticipated.

While more than $20 million of that represents a government subsidy for welfare, the excess cash means the county can absorb that cost, she said.

County officials plan to go to Sacramento, perhaps as early as today, to begin lobbying.

“I have lots of faith in our delegation, but I won’t be relieved until the plan we proposed is sitting on the governor’s desk,” Bergeson said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Rival Plans

Orange County officials gave final approval to their bankruptcy recovery plan Thursday, but it faces an uncertain future in Sacramento, where Assembly Speaker Doris Allen, who can doom the county’s plan, introduced one of her own.

COUNTY’S PLAN

* At rate of $38 million yearly, takes $570 million from revenue previously going to Orange County Transportation Authority to subsidize county bus system.

* In return, gives OCTA $23 million per year that county had available to build roads in unincorporated areas--$368 million over 16 years.

* Takes $4 million per year each from three county agencies--Harbors, Beaches and Parks, the Flood Control District and the Redevelopment Agency--over next 20 years, for a total of $240 million.

* Sets aside all this revenue to repay outstanding and anticipated county debts.

* Commits county to repaying all vendor claims in full.

* Establishes elaborate plan for repaying cities, schools and special districts owed money by county, dictating order and amounts to be divided among each group.

* Installs former state treasurer Thomas W. Hayes as trustee in everything but name, giving him authority “to enforce, prosecute and collect all pool-related claims . . . determining whether, and on what terms, to settle any or all such claims.”

* Creates $50-million “litigation fund” to pay expense of suing Wall Street firms county blames for bankruptcy.

* Voids agreement unless state Legislature passes, and governor signs, legislation mirroring terms of agreement.

SPEAKER ALLEN’S PLAN

* Overturns elaborate repayment plan reached in Orange County, and requires that schools be reimbursed for losses before any other group. County gets nothing until all other claims settled.

* Renounces county’s raid on OCTA revenue, and says funds from OCTA must be loans that county must repay.

* Rejects county’s plan to take money from Flood Control District.

* Opposes any mechanism for a state-appointed trustee.

Sources: Official Orange County documents and legislation

Researched by RENE LYNCH and DAVAN MAHARAJ / Los Angeles Times

* ALLEN RECALL GAINS

Supporters say it will qualify Monday for Nov. 7 ballot. A27