Board Backs Early Debt Repayment

A five-year plan to reduce Orange County’s heavy bankruptcy debts and achieve a higher credit rating won strong support Tuesday from county supervisors.

The plan calls for the board to set aside $140 million over the next five years for early repayment of the $800 million in bonds issued by the county last year as part of its emergence from bankruptcy.

By lowering the debt ahead of schedule, the county hopes to rebuild its credibility on Wall Street and upgrade its credit rating from “speculative” grade to “A” grade within four years.

With a higher credit rating, officials said, the county will able to issue more debt to finance long-delayed capital projects, such as expanding jails and building a new courthouse in South County.

Supervisors said they were committed to bringing down the debt as soon as possible, even if that meant maintaining austere budgets for some county departments.

“This board must place as its highest demand defeasing this debt,” Supervisor Jim Silva said. “I honestly believe that once the county becomes [financially] stronger, we will be able to fund additional programs that help people.”

County Chief Financial Officer Gary Burton expressed hope that the county could achieve an investment-grade rating in two years and an A rating in four years, though no one is exactly sure when the rating agencies will make the changes.

Burton noted that the county’s debt per resident--$572--is actually lower than the debts in San Bernardino and San Diego counties, which nonetheless enjoy investment-grade ratings. Under the debt repayment plan, the county’s per capita debt would drop to $481 by 2001.

The largest municipal bankruptcy in U.S. history occurred on Dec. 6, 1994, after a county-run investment pool lost $1.64 billion on risky Wall Street securities. The bankruptcy forced the county to lay off hundreds of workers and slash department budgets by as much as a third.

Before the financial collapse, the county had an AA bond rating and one of the best financial reputations in the state. Now, nearly a year after emerging from bankruptcy, Orange County has the worst credit rating of any major California county.

Supervisor Todd Spitzer stressed that county officials should publicize the strategy to both Wall Street investors and county employees who are still anxious about the future.

The board already has set aside $26 million for early debt repayment.