Its Overdue Debt Paid, O.C. Exits Bankruptcy

SANTA ANA — Only 18 months after going bust, Orange County officials Wednesday stood outside one of the few public landmarks not mortgaged to announce that the county has made good on its debts and is no longer bankrupt.

“It’s as if you were informed by your physician, after a protracted illness [and] taking all your medicine like a good patient, you were cured,” Board of Supervisors Chairman Roger R. Stanton told well-wishers and reporters as he stood on the steps of the county’s century-old red sandstone courthouse.

“The physician would say you still have to take a number of steps to get back on your feet entirely,” he added. “I think that’s where we are today. The disease is cured, we’re out of bankruptcy.”

The county officially emerged from Bankruptcy Court protection at 9:50 a.m. Wednesday, when the holders of the county’s overdue 1994 “casino bonds” were paid off with proceeds from last week’s $880-million bond offering.

Although now solvent, the county will need 30 years to repay the most recently issued bonds and fully recover from its $1.64-billion investment losses.

During their brief afternoon ceremony, county’s leaders congratulated themselves, posed for pictures and spoke of their more efficient and streamlined government. Then they adjourned inside the historic building, where they munched on ham and turkey sandwiches as the theme song of the new “Mission: Impossible” movie played on a loudspeaker.

It was an historic day to be celebrated, Stanton said.

But to many residents, Wall Street financiers, laid-off county employees and academicians, the milestone was just a footnote to Dec. 6, 1994--the day Orange County was publicly shamed by the nation’s largest-ever municipal bankruptcy.

“Orange County crossed a line that day that no one thought a county in California would ever cross,” said Stephen Ward, chief investment officer with the brokerage firm of Charles Schwab & Co., which owned $41.5 million worth of the Orange County bonds that should have been redeemed a year ago, but were “rolled over” for another 12 months when the county couldn’t pay.

“Everyone in the municipal bond market continues to pay for the actions of Orange County. And the county itself will keep paying for its mistakes every time it borrows money,” he added, referring to the higher-than-average interest rate the county had to offer investors in last week’s bond sale.

One of the county’s own high-priced advisors squirmed uncomfortably at all the fanfare and picture posing.

“I felt like I was graduating from bankruptcy school,” the advisor said.

Undeterred by any such qualms, county officials sought to put the best spin on things. They praised the remarkable speed in which they developed a court-approved bankruptcy plan. They also said the bankruptcy helped reveal flaws in government that will make Orange County stronger in the future.

“Today is a milestone. . . . All of the crazy things we’ve had to put up with over the last 18 months will now start calming down,” said Robert A. Griffith, the county’s General Services Agency director. “I’m certainly happy to have this behind us.”

Stanton lashed out at the “nit-pickers,” “second-guessers” and “armchair analysts” who criticized the county’s recovery efforts. He then recalled a Hindu proverb that says when an elephant is down, even a frog will kick him.

“Well, we’ve been kicked by just about every frog in Orange County, and from coast to coast,” he said.

Stanton has reason to feel that way. He and fellow Supervisor William G. Steiner face misconduct charges handed down by the Orange County Grand Jury for their roles in the county’s bankruptcy. They are the only two supervisors, among the five on the board at the time of the bankruptcy, who remain in office. Both have denied any wrongdoing.

While he hailed the county’s recovery Wednesday, Stanton also made a point of deflecting responsibility for the crisis away from the board. He blamed legal advisors and securities brokers, which the county is now suing for billions of dollars.

“We were let down” by the professionals, he said.

Some residents, however, don’t buy it.

“The supervisors are certainly not blameless,” said Seal Beach resident Renee Biltstein, who stumbled upon the county’s ceremony while visiting the courthouse for a marriage license. “There is enough blame to go around.”

Biltstein was happy the bankruptcy was finally over, but lamented the millions of taxpayer dollars that have been spent so far on outside attorneys and finance professionals.

“I feel that was another big waste,” she said.

The upbeat atmosphere of Wednesday’s ceremony contrasted sharply with other bankruptcy-related events over the last year and a half.

Since the bankruptcy declaration, the mood both of government officials and residents has gradually shifted from initial shock and anger to a sober recognition of the steps required to resolve the financial crisis. Supervisors saw the full range of emotions at their weekly board meetings, from livid residents, who demanded the supervisors’ resignations, to tearful employees fearful of layoffs.

The bankruptcy stemmed from massive losses suffered by the county-run investment pool, which held money from more than 200 cities, school districts and other government agencies. The losses were blamed on the risky investment practices of longtime Treasurer-Tax Collector Robert L. Citron, who made wrong-way bets on the direction interest rates would take in 1994.

In the months following the bankruptcy filing, the county slashed its total budget from $3.7 billion to $3.4 billion. Nearly 3,000 county jobs were eliminated, and about 580 workers were fired.

Discretionary spending was slashed by 41%, forcing cuts in social service programs, delays in road projects and increases in service fees for everything from beach parking to landfill dumping.

At the same time, surplus properties ranging from a Seal Beach library to vacant commercial lots in Santa Ana were sold at auctions. Others, including such landmarks as the Hall of Administration and Central Courts Tower in Santa Ana, were mortgaged to guarantee repayment of the latest bonds.

The Old County Courthouse, site of Wednesday’s ceremony, was one of the few county properties that was not pledged to back the bonds because of issues related to its historic status.

A centerpiece of the county’s bankruptcy recovery effort was the agreement by agencies who invested in the pool to initially recover only 80% to 90% of their pool deposits. The various cities and schools will get the remaining 10% to 20% they are due only if the county is successful in its litigation against Wall Street financial firms it holds partly responsible for the bankruptcy.

The recovery effort entered its most crucial stage with last week’s $880-million bond offering. The proceeds were needed to pay noteholders, vendors and other creditors.

The county plans to repay the bonds over the next 30 years using state revenue diverted from its parks, flood control, redevelopment and transportation departments. The diversion will cause delays in the development of new parks, construction of roads and neighborhood revitalization projects.

The massive debt will also severely limit the county’s financial flexibility for years to come.

In the meantime, the county will pursue multibillion-dollar damage suits against brokerage giant Merrill Lynch & Co. and other financial firms it blames for its investment losses. Merrill Lynch and the others all deny any culpability.

While the county seeks retribution from Wall Street, the district attorney continues to go after county officials involved in the bankruptcy.

So far, Citron pleaded guilty to six felony counts of securities fraud and misappropriation of public funds. He faces up to 14 years in prison and $7 million in fines but has cooperated with prosecutors. Citron’s assistant, Matthew Raabe, and the former county budget director, Ronald S. Rubino, still face criminal charges. Steiner, Stanton and Auditor-Controller Steve E. Lewis also await trial on misconduct charges.

Such legal issues, however, took a back seat Wednesday as officials hailed the end of the bankruptcy.

“A large, physically challenged person sang today on Wall Street at 9:50 our time,” Stanton said. “It’s over.”