Orange County to Invite Investors Into Reopened Pool

Three years after dozens of cities and special districts lost millions of dollars when Orange County went bankrupt, the Board of Supervisors on Tuesday paved the way for these same agencies to once again invest with the county.

The decision marks a milestone in the county’s efforts to recover from the December 1994 bankruptcy.

“I never thought I’d see the day when any outside entity would put a dime in that pool,” said William G. Steiner, the only current supervisor in office when the bankruptcy hit. “I never thought we’d get over the distrust and bad feelings.”

The vote highlighted a generational shift on the board. Steiner and Supervisor Jim Silva, who took office a month after the county declared bankruptcy, opposed opening up the pool, saying the county should learn from its mistakes and never invest the money of other governmental agencies.

But the three supervisors who took office this year--Charles V. Smith, Todd Spitzer and Thomas W. Wilson--said they were satisfied with the strict regulations and oversights imposed over the last three years.

“This is evidence that things are now different and that we have investment safeguards,” Spitzer said. “At this point, the investment pool is the safest place to put money.”

Several cities and special districts, including Tustin, Garden Grove, Costa Mesa and the Mesa Consolidated Water District, have expressed interest. The board gave Treasurer-Tax Collector John M.W. Moorlach the approval to prepare plans for interested government bodies, but required that supervisors approve each new investor before it places money in the pool.

Orange County plunged into bankruptcy after the county-run investment pool, brimming with deposits from 187 cities, schools and special districts, lost $1.64 billion on some of the most volatile securities sold on Wall Street. Cities and school districts lost about $500 million.

These investors, along with the county, have yet to recoup all their losses.

The new investment pool stresses liquidity and safety over high yields, and prohibits the kind of high-risk trading practiced by Moorlach’s predecessor, Robert L. Citron.

Most local agencies, including the county, adopted strict investment guidelines over the last two years that outlaw the exotic investment strategies--such as reverse-repurchase agreements and inverse floaters--that contributed to the pool’s collapse.

Moorlach manages money from the county and school districts, which are required under state law to place their investment funds with the county treasury. The pool invests in low-risk securities such as bankers’ acceptances, certificates of deposit, Treasury bonds and commercial bonds.

“This is plain vanilla stuff,” Moorlach said. “I don’t expect every city to immediately place all their investments with us. But we can be another investment option for them. I see a lot of synergy here.”

Despite the conservative investment rules, the county’s pool has earned respectable yields this year when compared to other money market funds. In October, for example, the county’s yield of 5.60% was slightly ahead of those of some big Wall Street funds.

George W. Jeffries, Tustin’s treasurer, said his City Council is interested in placing a portion of its investments with the county. “Opening [the pool] is a help to us and the other cities . . . in terms of investments,” he said. “It gives us more options and helps us provide better services at the local level.”

Other city officials, however, are less enthusiastic.

“It’s an option, but not one we are considering,” said Josephine Julian, Mission Viejo’s deputy treasurer.

While county officials say the pool is safe, Julian added, “That’s what Mr. Citron used to say.”

Citron was the treasurer at the time of the bankruptcy. He pleaded guilty to six felony counts of falsifying public records and breaking securities laws. He was sentenced to a year in a jail work-release program.

Cities and special districts have yet to receive 16% to 20% of the more than $300 million they invested in the pool. Schools are still owed about 7% of their investments.