Court Asked to Void Orange County Bankruptcy Bailout

A government watchdog group asked the Superior Court on Wednesday to throw out Orange County’s carefully crafted bankruptcy bailout, saying it is unconstitutional.

Filed by a top official of the Committees of Correspondence--persistent and vocal critics of county leaders responsible for the bankruptcy--the 40-page complaint charges that the legislation enacted to get the county out of bankruptcy siphons money from special funds and uses them in ways taxpayers never intended.

If successful, the lawsuit could force the county to make the sort of deep cuts in budgets and personnel that the recovery plan avoided. It would also create uncertainty over the repayment of $880 million in bonds the county borrowed to emerge from bankruptcy.

And it could force the county to seek voter approval to divert nearly $600 million in funds that were intended to support transportation, redevelopment, flood control and the county’s harbors, beaches and parks.

Two weeks ago, a Los Angeles Superior Court judge declared unconstitutional a statute--almost identical to Orange County’s special purpose laws--that would have shifted $50 million in transportation funds to the ailing Los Angeles County health system.

The plaintiff in the lawsuit filed Wednesday is Steve White, an Anaheim real estate broker and chairman of the steering committee of the Committees of Correspondence. The complaint lists as defendants the state of California, state Controller Kathleen Connell, the Orange County Board of Supervisors, the Orange County Transportation Authority and several unnamed other parties.

“If, in fact, the diversion of funds is unconstitutional, let’s correct it,” White said. “Part of the reason the bankruptcy happened in the first place was the shuffling of funds from one account to another.”

Orange County officials say White’s legal challenge is far different from the Los Angeles County case.

“If this involves the same legal claims asserted against L.A., we believe that the Orange County statute and facts are different, and that a court will find the statutes providing for the revenue diversions are constitutional,” said Bruce Bennett, the county’s bankruptcy lawyer.

He said any legal action should not affect the repayment of the county’s large borrowings.

The Orange County lawsuit was filed by Richard I. Fine, a Century City lawyer who specializes in cases in which taxpayers challenge public agencies. Fine won the judgment two weeks ago in the Los Angeles case.

California law is so well-established on the use of tax money for situations like the Orange County fiscal crisis, Fine said, that the authors of the county’s legislation apparently knew it was vulnerable to a legal challenge.

In the complaint, Fine cited a legislative report that had noted when the legislation was under discussion that “potential litigation exists on the use of . . . funds as it could be challenged on its constitutionality.”

Fine said: “I can conclude when they passed this legislation, as when they passed the L.A. legislation, they were gambling that no one would challenge them because they had to know that if challenged they would lose.”