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Repayment Deal: Some Relieved, Others Unsure


Leaders of Orange County school districts, faced with critical cash shortages in the wake of the county financial crisis, expressed relief Sunday over a deal to distribute the $5.7 billion remaining in Orange County's collapsed investment pool. But the settlement brought mixed reactions from city officials, with some renewing their complaint that the pact fails to immediately return all their money.

Educators said the settlement reached Saturday night--which offers them up to 90% of their money in cash and "recovery notes" that the county has promised to redeem by June 5--allows them to make long-term financial plans without fear of running short of funds.

"This should ensure that no school districts go bankrupt this year," said John Nelson, assistant superintendent of the Orange County Department of Education. "This is the first step to make sure everyone remains solvent."

But Huntington Beach Mayor Victor Leipzig criticized the settlement process for not leading to the return of the city's entire investment.

"The city has not struck a deal" on the plan, which offers municipalities as much as 80% in cash and recovery notes, Leipzig said. The Huntington Beach City Council will take up the issue today.

"It seems like a flaky deal," added Claremont Mayor Algird Leiga. "The county never stepped up to the plate to give (investors) their money. Instead, they give you these phony notes that purport to give you money, but really don't."

Anaheim Mayor Tom Daly, however, said the plan appears in concept to be a "reasonable settlement" for his city, which had $169 million invested in the county pool.

"It may not be ideal for all parties or it may be less than perfect, but we have to find an agreeable solution and move forward," he said. "There's just too much at stake for this to continue, for the uncertainty to continue."

Wayne D. Wedin, a member of the Orange County Business Council, which originally proposed a similar settlement plan, called the deal "pretty near acceptable."

"I do appreciate the fact that not everybody is happy," he said Sunday. "You have to deal with what you were dealt, and we were dealt a very big loss."

Some county supervisors last week made reaching a settlement agreement a condition for placing a proposed half-cent sales tax increase on a special June 27 ballot.

Supervisor Marian Bergeson said Sunday she will "very likely" vote this week to place the tax measure before voters now that the settlement has been reached. The board took the first step last week toward placing the measure on the ballot.

"It would appear to me the sales tax proposal is the best way to go at this point," Bergeson said, adding that time is critical in assuring state legislators the county is doing everything it can to deal with the crisis.

Bergeson said she would also vote to approve the settlement deal, reached between the county and a seven-member committee representing nearly 200 investors.

Supervisor Jim Silva said Sunday he had talked to representatives of about five cities in his supervisorial district and the consensus seemed to be that they would not support a sales tax increase.

"I think that this would be a vehicle to pay the cities back, but if they think it's not a viable vehicle then obviously we can't go that direction," Silva said.

Silva will continue to meet today and Tuesday with representatives of cities and school districts to see how they feel about the tax increase.

As of Sunday, though, "the feeling I am getting is that the cities are not in favor of the sales tax," he said. "If that's the case, I won't be in favor of supporting it."

The settlement becomes official if it is approved by the elected officials of 80% of the agencies holding 90% of the money in the pool. The Board of Supervisors and U.S. Bankruptcy Judge John E. Ryan also must sign off on the deal.

The agreement calls for a return of 76 cents on the dollar to those investors in a high-risk commingled pool of funds. Those in a lower-risk bond pool will receive nearly 84 cents. Because no entity had all its money in the bond pool, however, the highest average amount any one agency would receive is about 81 cents.

Most of the investors--including the school districts, cities, water districts and even the county itself--had their money tied up in the commingled pool, where it had been highly leveraged to make large gains over the years.

Under the agreement, schools will be given an additional amount in recovery notes that will allow them to recoup 90% of their investments. All other agencies will receive recovery notes that will bring their total return to 80% of their original investments.

The county has promised to make the $237 million in recovery notes "good as gold," guaranteeing that they can be cashed by June 5. If that prospect does not materialize, the agencies will have the right to sue to recover their money.

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