New Law Protects O.C. Bailout Plan

Prodded by a watchdog group’s lawsuit challenging Orange County’s bankruptcy recovery effort, Gov. Pete Wilson signed a measure Tuesday that would reinstitute the bailout package even if it is scuttled in court.

The lawsuit, which was rejected by an Orange County Superior Court judge last year but is on appeal, has raised fears in the investment community that nearly $900 million in recovery bonds might not be repaid.

Assemblyman Curt Pringle (R-Garden Grove) sought to ease those concerns with his measure, which would kick in only if Orange County’s current bankruptcy recovery plan is invalidated. The bankruptcy recovery effort is being challenged by the Committees of Correspondence, an Orange County group of anti-tax activists.

The group’s lawsuit contends that the county has unconstitutionally allowed money to be siphoned from special funds intended for transportation, redevelopment and recreation to pay for the bankruptcy recovery.

To recover from the nation’s largest municipal bankruptcy, Orange County won legislative permission in 1995 to finance its recovery with $38 million a year intended for transportation improvements and another $12 million from funds earmarked for redevelopment, flood control and recreation.

That $50 million goes to repay $880 million the county borrowed from Wall Street firms to pay its bankruptcy debts.

The lawsuit argues that the bailout plan is unconstitutional “special legislation” focused on only one county, which is not allowed under California law. It also contends that the revenue transfers represent an illegal “special tax” that was not approved by voters.

Pringle’s legislation attempts to cure those ills by declaring that the bankruptcy bailout applies to all “cities of the second class,” an obscure classification in state law that includes Orange County.

“This is an attempt to protect the recovery from an adverse legal opinion,” said Debra Gonzales, a Pringle spokeswoman. “But we don’t expect the lawsuit to prevail.”

An attorney representing the Committees of Correspondence disagreed, saying that the new law could also face a challenge.

“I would anticipate that this law is also unconstitutional,” said Richard Fine, the Century City attorney handling the lawsuit. “If we find it to be so, we will challenge it.”

Fine also said that passage of the law represented “a clear recognition” by lawmakers that the county’s bailout package will ultimately be thrown out by the courts.