Orange County Perspective : The Year of Living Dangerously in Debt : Road to Recovery Likely to Be Bumpy, but County Appears Headed in Right Direction

The anniversary of the bankruptcy arrived this month with its own reminders of last year’s gloomy holiday season, and with some fresh news.

Long-faced supervisorial aides standing near holiday decorations looked on as district attorney’s investigators made their rounds in notifying officials of accusations of “willful misconduct.” The county pointed a figure at its former auditing firm, KPMG Peat Marwick, in a $3-billion damage suit. And the county hoped that getting out of bankruptcy as early as June would be achievable. In unveiling the plan, chief county bankruptcy attorney Bruce Bennett wrapped up the year by telling the Board of Supervisors on Dec. 21, “This marks the beginning of the end of the bankruptcy case.”

While the urge to find something to cheer about after a year of pain and suffering was strong, it would be a mistake to suggest that the route out of bankruptcy will be relatively painless. Some observers have noted recently that Orange County to date has not seen widespread dislocation. But even as the county was announcing its blueprint for recovery, judges were saying that courthouses could be closed for three months and thousands of criminal defendants set free next year unless the county comes up with a way to close a $31.7-million budget gap.


The complexities of both the bankruptcy and the recovery plan itself make optimistic assessments subject to a note of caution. Pool investors still await the successful conclusion of litigation by the county to recover all their money. A majority of 187 individual agencies must approve the plan. A bankruptcy judge has final say over it, and a skeptical Wall Street community must review it positively for the county to realize favorable interest payments on future debt.

Still, with a revenue stream identified through the diversion of money intended for mass transit and other projects, and with no attractive alternative for pool investors but to reluctantly accept the county’s strategy, the plan does offer a defined route out of bankruptcy, tentative as some of the pieces may be.

While extensive suffering has been absent, the county is operating on a thin budgetary margin with little to cushion it. It stands at a precarious juncture hoping that all the pieces of its recovery plan fall in place in the coming months.

At year’s end, the outlook for the way out is hopeful, but any optimism must be tempered by the knowledge that formidable challenges lie ahead.