Key Step in Bankruptcy Recovery

Orange County government’s struggle to emerge from bankruptcy received a welcome dose of good news this week. A tentative settlement was announced in a lawsuit by a group of investment pool participants, a legal claim that dramatized the damage inflicted by the fiscal collapse.

The Buena Park City Council became the first to sign off on the settlement when it voted unanimously to drop its legal fight against the county in return for cash, IOUs and proceeds from any money the county may win from its lawsuit against Merrill Lynch & Co., the brokerage firm that sold most of the risky securities involved in the case.

Thirteen more cities and government agencies still must approve the agreement. If they do, it will smooth the county’s path to emerging from bankruptcy by its target date, June 30. The lawsuit has threatened not only the county’s recovery plan but the ability of the state to borrow money. That threat brought an appropriate warning from Gov. Pete Wilson that if the county and the 14 entities did not work out an agreement, he would appoint a trustee.

Earlier, nearly 200 other cities and agencies that had invested in the county-run investment pool that lost more than $1 billion gave up their right to sue the county. In return, they received more money from the remains of the county investment pool than Buena Park and the 13 others.

The holdouts’ stance demonstrated the bitterness caused by the bankruptcy. As Buena Park Mayor Patsy Marshall said, cities that felt betrayed by county deceit believed they should not trust the county again.

A settlement of the dissidents’ lawsuit can help the county and all its cities restore a smooth working relationship. From mutual assistance pacts to joint communications facilities, county and the cities need to work together, not battle in court.