Wilson Pledges to Sign O.C. Bankruptcy Bills : Recovery: Measures finally cleared Legislature in wee hours of Saturday morning, but more obstacles lie ahead.

Gov. Pete Wilson pledged Saturday to sign a slate of measures to push beleaguered Orange County out of bankruptcy, but some state and local officials continued to express concerns that the county’s fragile recovery plan could still unravel.

The package of Orange County recovery bills cleared the final hurdle in the Legislature just a few hours before dawn Saturday and was sent to the governor’s desk.

“This is a crucial and important first step for the county on the long road to recovery,” said Paul Kranhold, Wilson’s spokesman. He said the Republican governor likely will sign the bill when he returns to California this week.

In addition to the four recovery bills for Orange County, which declared bankruptcy last December after suffering $1.7 billion in losses on risky investments, the governor will sign several bailout measures for cash-strapped Los Angeles County.

The outcome of the recovery effort for both counties remained in doubt as the Legislature worked through the night Friday, but lawmakers ultimately approved the last of the bills about 4 a.m. The measures for Los Angeles and Orange counties were linked legislatively, meaning that if any of the bunch fell short, the others would have toppled like a row of dominoes.

“It’s been a difficult delivery but a wonderful birth,” said Senate President Pro Tem Bill Lockyer (D-Hayward). “Orange and L.A. counties are essential pieces of the California economic engine and I hope this helps restore their fiscal stability.”

The recovery package would give Orange County the power to siphon $38 million annually in sales tax money that now goes to transit and use it for bankruptcy recovery. In exchange, the legislation lets the county shift to the transit agency $23 million a year in gas tax money restricted to road construction. Another $12 million each year is grabbed from restricted funds that normally would go to the county’s redevelopment agency, harbors, beaches, parks and flood control district.

By tapping into new sources of revenue, Orange County is now expected to borrow heavily to pay off its creditors. Yet the county faces a future of even more severe limits. New borrowing will involve essentially mortgaging nearly all of the county government’s buildings, depriving it of flexibility in the event of future fiscal crises. County services, including bus service for the poor and elderly, face the prospect of further cuts.

Mindful that the county has tried and failed at previous recovery efforts, lawmakers included an incentive in the legislative package. A measure carried by state Sen. Lucy Killea (I-San Diego) requires the governor to appoint a trustee to oversee fiscal affairs if the county doesn’t have a final solution filed in bankruptcy court by next May. Aside from tackling all the duties normally reserved for the Board of Supervisors, the trustee would be able to step in to finalize the plan in bankruptcy court.

While relieved that the plan had won the Legislature’s acceptance, some state and local officials remained concerned the recovery could prove dicey. County officials hope to be out of bankruptcy by the middle of next year.

“I worry that the plan may not hold together,” said state Sen. John R. Lewis (R-Orange). “It’s delicately balanced.”

Lewis noted that there are nagging questions about the constitutionality of siphoning the redevelopment money. Others have suggested that interest rate blips could tighten the county’s fiscal picture enough to cause harm.

“I don’t think anyone will relax until the county is actually out of bankruptcy,” said Killea, who authored one of the recovery bills. “We’ve just got to hold this thing together.”

Even relieved county officials, who spent countless hours in Sacramento lobbying for the legislative package, were bracing for what promises to be long days ahead as they try to again tap financial markets and emerge from bankruptcy.

“It finally got through,” county interim Chief Executive Officer Jan Mittermeier said. “But the county still has a lot of work to do.”

That includes getting all the individual cities, schools and special districts to sign off on the agreement before the package can be presented to U.S. Bankruptcy Judge John E. Ryan. Then the county must find the best financing method available to borrow against the new revenue streams to pay off its debt.

“Now we go from the legislators and others losing sleep to the county’s financial team losing sleep,” said Chris Varelas, the county’s financial adviser. “We’ll have a lot of work selling the county’s story to the [Wall Street] rating agencies and in the financial markets.”

Meanwhile, an oversight committee called for in the county’s legislation must be selected and put in place. That committee will be led by Thomas W. Hayes, the former state treasurer who is widely respected for bringing calm to Orange County shortly after the bankruptcy.

One problem could come with the Orange County Transportation Authority, which bears the brunt of the responsibility for funding the recovery plan.

The proposal the county presented Sacramento called on OCTA to shift $38 million annually to the county, but let transportation officials decide from what source to draw the money. The legislation approved in Sacramento narrowed the agency’s options, specifying that the funding come from state transportation sales taxes normally dedicated to bus service.

That change poses significant problems and could technically allow the agency to back away from the deal, OCTA Executive Director Stan Oftelie said.

“It strips us of the [financial] flexibility we thought we had, the flexibility that we agreed to,” Oftelie said.

OCTA may have problems making up the loss to the bus service system because much of its other money is tied to specific projects. Even the gas tax money the county is giving to OCTA cannot be used for bus service by law, but is restricted to road projects.

“It’s going to be a challenge,” said Oftelie. “I’m convinced there will be a reduction in bus service. Our task will be to minimize that and make this plan work.”

Assembly GOP Leader Curt Pringle, meanwhile, suggested that the county government and special districts need to look at reinventing themselves, and that OCTA may need restructuring to save cash.

“I don’t think the discussion about OCTA is ended,” Pringle said. “One thing this bankruptcy has exposed is the labyrinth of government in Orange County.”

Other fiscal snake pits abound. The county starts its budget hearings Monday with only $275 million in discretionary spending. With that in mind, Supervisor Marian Bergeson said the bankruptcy recovery plan allows little room for error.

“There’s some luck to it, as far as the expectation of these figures,” she admitted. “But it’s doable.”

One potential problem could be funding for Orange County’s superior and municipal courts. The courts are threatening to order the county to come up with an additional $41 million in funding. The county says it cannot afford to, leading to the potential for a legal standoff.

With the legislative gantlet behind them, the collective focus of county officials will shift to litigation against those it blames for the bankruptcy. Successful litigation is key for the county to make good on its promise to pay back more than $800 million owed cities, schools and special districts that lost money in the pool.

“There will be litigation,” Bergeson said. “That’s the key to making it happen.”

The county has under active consideration litigation against a variety of accountants, attorneys and rating agencies as well as other brokerage firms, said James Mercer, the county’s lead litigator.

It remains unclear just what impact will be felt by residents in Orange County, one of the wealthiest enclaves in the nation. Most likely, county officials say, it will be slow in the making and will have little impact on the very rich.

“I think the signs of the bankruptcy are going to be an accumulated effect,” Mittermeier said. “You may not see it immediately, but over time you will.”

“It will be felt. You can’t take that much money out of the system and not feel it,” Bergeson said. “There will be delays in projects, there will have to be increases in parking at parks and things like that. It’s unfortunate.”

The fate of the Orange County bills remained in doubt well into the early morning hours Saturday because of partisan high jinks in the Assembly. Republicans played a game of chicken with Democrats by threatening to hold up the final piece of the Los Angeles County package, a move that could have brought down the entire recovery effort for the two counties.

Although the GOP leaders insisted they would not have sacrificed the recovery packages, they attempted to use the bills as leverage to get Los Angeles County’s large cadre of Democrat lawmakers to go along with a Republican bill to provide more than $200 million in statewide mandate relief to counties--nearly $9 million for Orange County alone.

Ultimately, however, the GOP mandate-relief bill was scuttled, and the Orange County recovery bill sailed forward on a lopsided vote, ensuring that the whole package would reach the governor’s desk. Once signed by Wilson, they would become law Jan. 1.

“It couldn’t have been any more dramatic if it had been scripted by a Hollywood screenwriter,” said Supervisor Roger R. Stanton, who was getting updates through the night, as were the other supervisors. “We don’t need that kind of drama, but it had a happy ending.”

Bergeson termed the capital chaos “pandemonium as usual.”

She recalled that two weeks ago she was predicting it would all come together about 3:30 a.m., and was jokingly labeled a pessimist by her colleagues.

“But I was an optimist,” she said with a laugh, referring to the Legislature’s dawn finale.

“It’s a feeling of great relief. But now, of course, we go to work and hope and pray that everything falls into place.”

More Coverage: Road to Recovery

* WHO’LL TAKE RAP: The question of whether anyone will ever be punished for the bankruptcy could take years to answer. A18

* CIRCUITOUS ROUTE: Many recovery plans came and went before the final product, one very similar to the first one proposed. A19

* HAYES HEEDS CALL: Former state Treasurer Thomas W. Hayes is the one name all could agree on for county “litigation czar.” A19

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Who’s Financing the Recovery?

The recovery plan empowers Orange County to collect funds mainly from four sources--an amount exceeding $800 million in the next 20 years.

Transportation Authority: $570 million over 15 years

Flood Control District: $80 million over 20 years

Redevelopment Agency: $80 million over 20 years

Harbors, Beaches and Parks: $80 million over 20 years

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Pool Participants

Some entities in the county investment pool have agreed to forgo collecting some money owed them unless the county is successful in bankruptcy-related litigation. Amounts they have not received:

Special districts: $482 million*

School districts: $110 million

Cities: $205 million**

* Includes water and sanitation districts and OCTA

** Includes out-of-county cities

Source: Times reports

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WINNERS

Vendors and bondholders: Promised pay-back of 100 cents on the dollar, but have lost interest income. In addition, they could reap the benefits if pending litigation against bond analysts is successful.

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LOSERS

Flood control: Lower level of maintenance for flood control channels and county roads, a concern for officials fretting a repeat of last year when rains and flooding caused $20 million damage to homes, businesses and channels.

Harbors, beaches, parks: Minimum maintenance equals fewer repairs and improvements. Possible higher use fees. Restrooms and other amenities scheduled to be built have been put on hold.

Bus riders: Face diminishing service as routes are possibly eliminated. The Orange County Transporation Agency is looking for ways to avoid such measures but they could take effect in several months.

Homeowners: Face higher fees for trash pickup as haulers pass on increased landfill charges. About half of the county’s 31 cities have raised fees an average $24 a year.