SANTA ANA — A major securities dealer has offered a $2-billion bailout package designed to lift Orange County from the depths of bankruptcy, but county executives rejected it weeks ago without telling the Board of Supervisors, according to interviews and records obtained by The Times.
J.P. Morgan Securities made the offer in mid-February and renewed it this month, saying it would be a short-term plan to allow the county to avoid defaulting on its bond payments.
County Chief Executive Officer William J. Popejoy confirmed the offer last week, but said it was evaluated and rejected by staff because it "was terribly open-ended."
"If you try to chase all these rainbows, you never get anything done," Popejoy said.
Three county supervisors reached for comment Saturday expressed concern that they were not told of the offer long ago.
"I think the Board of Supervisors should have been presented with every alternative," said Supervisor Roger R. Stanton, who added that he learned of the Morgan proposal essentially by accident Thursday. "I don't think the board would have voted to put the sales tax on the ballot in June if a viable alternative to paying off our debt had been presented."
Orange County declared bankruptcy in December after suffering what eventually amounted to a $1.7-billion loss from the collapse of investment pools managed by former Treasurer Robert L. Citron. Trying to cope with the financial disaster, the county has slashed its operating budget by about 41%, proposed laying off more than 1,000 county employees and begun a major government restructuring, and it is considering selling assets such as John Wayne Airport.
Still hundreds of millions of dollars short of cash, the county is scrambling to stave off a bond default that experts say could cripple the county for years to come if nearly $1 billion in repayments are not made or renegotiated by July.
County officials are hoping that one new source of revenue will spring from passage of the half-cent sales tax increase voters are set to consider in a special election June 27. Supervisors reluctantly placed Measure R on the ballot despite heated opposition from anti-tax groups vowing to use it against them at election time.
Supervisor Jim Silva, the only board member to publicly oppose the sales tax increase, said the board "definitely" should have been told of the Morgan proposal. "Every side has to be looked at."
According to the Morgan proposal, dated Feb. 16:
* A letter of credit would be issued to the county by Morgan Guaranty Trust Co. "and additional highly rated banks."
* An independent seven-member Orange County Recovery Authority would be established, made up of the five county supervisors, the director of the state Department of Finance and the state treasurer.
* That authority would then issue a series of tax-exempt variable-rate demand bonds--backed by Morgan Guaranty and the other banks--to generate up to $2 billion for the county.
The plan would require the Legislature to modify the law to make it all permissible.
"Presumably, the proceeds from the sale would be sufficient to allow the county to meet its current cash obligations during the next 16 months," the plan states. "During this 'breathing room' period, the county would have the opportunity to work out its own plan for permanent recovery."
The Morgan proposal cautions that "the interim loan is a 'reprieve, not a pardon.' " The firm suggests that the county could use the extra time to put a sales tax or other revenue-raising ballot measure before voters in a general, rather than a special, election.
"Orange County could terminate its bankruptcy proceedings, thus beginning the process of recovery immediately and taking the bankruptcy out of the headlines," the Morgan plan states. Wall Street would also be reassured by the support being offered by Morgan Guaranty.
But the plan would extract a heavy price from Orange County: Officials would have to sign over the county's right to receive motor vehicle license fees and sales taxes from the state for the next 32 years.
Though the county receives little from sales taxes, motor vehicle fees make up about a third of the county budget, said Bruce Bennett, the county's bankruptcy counsel.
"We decided pretty quickly that it did not make any sense," he said. "The county would be flat on its back and out of money."
Popejoy was more critical, saying the Morgan proposal "didn't have anything of merit" and was "frankly an effort by Morgan to get more involved with the county." He said the investment firm was hoping to use the proposal as a foot in the door, leading to more realistic deals with the county.
"It was terribly open-ended," Popejoy said. "They wanted free rein over any income stream the county had going forward."
He said it was just one of several unusual offers floated before the county. Popejoy said he did not believe that such offers were important enough to disclose to the Board of Supervisors and the public.