O.C. on Fast Track to Ease Debt

Orange County, shaken and humiliated by the nation’s largest municipal bankruptcy in 1994, is preparing to pay off its debts -- 11 years early.

After filing for bankruptcy, the county took on $1 billion in debt, expecting to pay it off over 30 years. Now, under a plan that a majority of county supervisors say they support, the county would refinance, taking advantage of lower interest rates and a stockpile of $116 million in savings to pay off the debt by 2015.

Like homeowners who refinance their homes and pay off their mortgages early, the county would enjoy large savings -- $450 million, officials estimate.

The decision would be a final chapter to a decade of firings, criminal charges, credit problems and huge debt payments for the county. The early repayment also underscores that many of the gloomiest predictions made after the financial collapse have not come to pass.

“This is probably the best bit of news I’ve heard since I’ve been a county supervisor,” said Supervisor Jim Silva, who is in his 11th year on the board. “I can’t tell you what the needs of the county will be in 2015, but this will sure make life better for the citizens of Orange County.”

The 1994 bankruptcy was the byproduct of risky investments by then-Treasurer Robert L. Citron, who borrowed hundreds of millions of dollars to place big bets on highly speculative securities that depended on low interest rates. When rates rose, the county lost $1.64 billion.

The bankruptcy shook the county’s hierarchy. Citron lost his job and pleaded guilty to felony fraud charges. Assistant Treasurer Matthew R. Raabe was convicted of fraud and misappropriation of public funds, and he served 41 days in jail before the conviction was overturned on appeal. And the Board of Supervisors fired the county’s top executive.

In 1996, the county borrowed $1 billion to pay off its losses, part of a plan to emerge from bankruptcy protection. Supervisors also voted to start stashing aside money to be used to help pay off the debt early. That account now has more than $116 million and is a big reason the county could pay off its debt by 2015.

The county still needs to make sure the refinancing plan meets Internal Revenue Service guidelines because it involves the sale of tax-exempt bonds. And the plan won’t make it onto a Board of Supervisors agenda for at least a month.

But supervisors and other county officials couldn’t help but imagine what life would be like without having to make $90-million-per-year debt payments.

“The way I look at that $90 million we’re paying now, it’s almost like the house payment. It’s the first thing you do at the first of the month, then you consider what you can do with the rest of the money,” said Supervisor Bill Campbell, the board chairman. “By paying it off early, we will have some of the money we need to open up parklands that have been fenced in. We’ll be able to finish some flood-control projects and repair some roads we pushed off.”

Supervisor Tom Wilson said paying off the debt early would end one of the county’s darkest financial periods. “It’s truly a light at the end of the tunnel. We are going to be able to look forward instead of in hindsight all the time.”

Supervisor Lou Correa said the early repayment plan was prudent.

“Like the rest of America, we’re refinancing our mortgage,” he said. “And we’re doing it by going from a 20-year mortgage to a 10-year mortgage without increasing our payments.”

The bankruptcy also hurt nonprofits that rely on county funding. Gloria O. Reyes, chief executive officer of community service group Abrazar, said finding funding from the county had been extremely difficult in the last decade.

“Centers throughout Orange County suffered because of the bankruptcy,” said Reyes, whose group, founded in 1976, offers dental services, meals, tutoring and transportation for low-income residents. “The general fund money to provide services to Orange County residents, it’s just not there.”

Reyes said she was thrilled to learn that the county might pay off its debt a decade earlier than expected. “It’s going to be wonderful that there’s going to be some money to provide those services,” she said. “I wish it was today.”

Reed Royalty, president of the Orange County Taxpayers Assn., praised county officials, including Silva, for stashing aside money each year to help pay the debt off early.

“This is very, very good news,” Royalty said. “I only hope the savings doesn’t result in higher spending.... This may create the perception there’s excess money. What I’m hoping they do is not search for new things to spend it on.”