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O.C. Tab for Experts Soars Over Estimate

August 22, 1996|SHELBY GRAD | SPECIAL TO THE TIMES

SANTA ANA — Orange County will have to pay its outside attorneys, accountants, bond experts and other bankruptcy consultants more--$5.6 million, or 50% more--than the county set aside for this purpose last year, according a report released Wednesday.

The unexpectedly higher charges would boost the total amount the county expects to pay its outside professionals during the just-ended 1995-96 fiscal year from $11.2 million to $16.8 million.

Overall, the county has run up bills totaling more than $40 million on consultants since it plunged into bankruptcy on Dec. 6, 1994, paying as much as $400 an hour for some attorneys, and $325 an hour for some accountants.

And another $50 million has already been set aside to pay litigation costs the county expects to incur in pursuing its lawsuits against Wall Street firms it blames for causing the bond crisis.

"The figures are shocking. The whole bankruptcy is shocking," Supervisor Marian Bergeson said. "It gets to the point where it seems like funny money.'

"We are trying hard to scrape together a few thousand dollars for programs," Bergeson added, "[but] when it comes to the attorneys, we are talking in the millions of dollars."

Still, Bergeson said, the county has been well served by the professionals, who she said were needed to quickly develop and execute a plan to recover from bankruptcy.

The county emerged from bankruptcy in June by selling $800 million in bonds, using the proceeds to pay off its creditors. But it will take the county 30 years to retire the bonds.

"We needed to have the best professional advice," Bergeson said. "I don't think we'd be out of bankruptcy now without capable and experienced attorneys."

But some government activists expressed dismay at the added costs and surprise that the county had again underestimated the costs of using outside professionals.

In January 1995, the county estimated it would spend $12 million for professional bankruptcy services through that June. But that March, state Auditor Kurt Sjoberg revealed that the bill would top $24 million.

At the time, county officials said the $12-million figure was just a "good guess" and was made before they realized how much work the consultants would have to perform.

"I'm disappointed that we are spending so much after losing so much in the bankruptcy," said Carole Walters, president of the Orange Taxpayers Assn. "It shows once again that the attorneys are getting rich off this."

The higher-than-budgeted costs for 1995-96 were noted in a county report dealing with the closing of the books on the fiscal year.

Officials said they will cover the unbudgeted $5.6-million expense by using money in a $25-million fund established as part of the June bond sale to cover consultant "administrative costs."

Pam Leaning, the county's budget manager, said the complexity of the bankruptcy made it difficult for officials to know exactly how much money the various consultants would need to complete their tasks.

"We had no way to anticipate the final amount with any degree of accuracy," Leaning said.

With the bankruptcy now over, officials said payments to bond experts, accountants, outside auditors and others will decrease substantially. The 1996-97 county budget set aside just $500,000 for professional fees.

But the June bond issuing created the $50-million litigation fund to cover the costs of suing the Wall Street firms the county holds responsible for the bankruptcy. The most significant lawsuit targets Merrill Lynch, which the county accuses of selling high-risk securities to longtime county Treasurer Robert L. Citron. The brokerage firm denies any wrongdoing.

Bergeson said the county must continue to closely examine all bills to make sure taxpayers don't get stuck with unreasonable charges.

"You have to keep controlling and monitoring expenses," she said. "Everything has to be verified."

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