County Bankruptcy

Robert L. Citron forgot the cardinal rule for securities investments: "Never predict interest rates--if you're right no one will remember, and if you're wrong, no one will forget!" SAMUEL C. Mc CARVER Dana Point

For months, they labored to cut a deal with their creditors. But $4 billion is a deep hole to negotiate out of. And so, with a settlement seemingly out of reach, Jefferson County, Ala., relented this week, and now is tagged with a long-dreaded superlative: On Tuesday, it filed the largest municipal bankruptcy in U.S. history. "It just became one of those situations were we had to decide what we were going do," County Commissioner Joe Knight said. "Was this deal going to get done?

Trustees of the Fullerton and Brea Olinda Unified school districts have reported that they may not be able to meet their financial obligations due to the uncertainty created by the county bankruptcy. Fullerton's district stands to lose $800,000 under a proposed county plan to repay county investment pool participants, including the two school districts. In addition, the district, which has a $45-million budget, faces a $500,000 shortfall in funds that are supposed to be on reserve.

After nearly 14 long and sometimes embarrassing years as the national torchbearer for municipal bankruptcy, Orange County may soon lose that distinction thanks to a financial disaster elsewhere that could dwarf its debacle. Jefferson County, Ala., was weighing its options this week in the wake of a looming bond crisis that recently forced it to skip a $53-million sewer bond payment -- sending the county's credit rating tumbling to the lowest junk status.

City Council members have voted to accept a county bankruptcy settlement offer that Mayor Joanne Coontz called the "lesser of three evils" confronting the city. Under Option A, which the council selected Monday, the city would receive just over 76 cents on the dollar of the $28.2 million it had in the county's collapsed investment fund. Another 4 cents on the dollar would be returned in the form of "recovery notes" that the county has promised will be as good as cash by June 5.

As the county bankruptcy approaches the one-year mark, its sweeping effects can be measured in layoffs, budget cuts and shattered political careers. But the financial crisis also has produced something more subtle: a colorful lexicon of buzzwords, euphemisms and catch phrases that players in the financial crisis use to promote their plans and perspectives.

The key dates and crucial developments in the ongoing financial crisis that led to the largest municipal bankruptcy in history and changed the face of Orange County. * Dec. 2, 1994: After stock market closes, officials verify rumors that county investment portfolio has lost nearly $1.5 billion in value. * Dec. 4: County Treasurer-Tax Collector Robert L. Citron, the fund's manager, resigns from post he held for 24 years. * Dec. 6: Orange County files largest municipal bankruptcy in U.S.

One day before the county declared bankruptcy, Auditor-Controller Steve E. Lewis' office was preparing a draft financial report to the Board of Supervisors that gave no hint of the impending crisis. Although Lewis had been warned a month earlier by then-Assistant Treasurer Matthew Raabe that the county's investment pool was in serious trouble, just two cautionary sentences are devoted to the pool in a nine-page transmittal letter summarizing the 1993-1994 financial report.

Local arts leaders are jittery about Orange County's fiscal crisis, but the fiasco hasn't yet forced any organization to take special measures or to alter plans for the year ahead. Indeed, some arts groups are talking about expanding. Irvine Fine Arts Center officials are wringing their hands because the center relies on support from the city of Irvine, which had $198.1 million in the county's now-bankrupt investment pool.

Given the rush to solve Orange County's fiscal dilemma, more than a few people were surprised when the state Legislature took virtually no action Friday when it convened a special session on the county bankruptcy. The reason--politics and Assembly Speaker Willie Brown. As part of the special session, officers are elected to preside, including a new Speaker.

Merrill Lynch & Co., the brokerage giant blamed for triggering Orange County's $1.6-billion bankruptcy in 1994, was the single largest dealer of complex debt securities to the county within the last two years that are now at risk of a credit rating downgrade, a Times review of county investment holdings has found.

During two days of hearings in June, Orange County supervisors discussed all manner of spending for the coming year. They decided to shell out $10 million more for indigent healthcare and declined to kill a $187,000-per-year tourism promotion program. But one of the biggest spending increases was barely mentioned. Buried in the appendix of the budget under the heading "Miscellaneous" was $65 million more for the county's pension fund.

A brokerage house that was blamed in part for Orange County's 1994 bankruptcy can't be hired to refinance the county's $800-million debt because it is not on an approved underwriters list, officials say. Merrill Lynch & Co. will not be among the 13 firms invited to bid on restructuring the remaining bankruptcy debt, losing out on an estimated $2 million in fees, according to a memo from the county's top executive that was given to supervisors.

Ten years after Orange County's bankruptcy led to painful cuts in government spending and a billion-dollar debt that won't be repaid for decades, the vast majority of county residents are virtually unaware of the largest municipal default in U.S. history.

Re "Why Seek a County CEO When We Have No Crisis?," Commentary, Oct. 19: William J. Popejoy's premise regarding a county chief administrative officer seems to be that fraud and deceit caused the county bankruptcy, not the management structure, and, that, anyway, county government is "largely redundant." Therefore, the Orange County Board of Supervisors should settle for a county administrator with responsibility but no authority. Popejoy was the county's chief executive officer for six months.

Orange County's treasurer wants to renew business ties with Merrill Lynch & Co., the Wall Street giant many blamed for the staggering investment losses that drove the county into bankruptcy in 1994. Treasurer-Tax Collector John M.W. Moorlach's suggestion comes nine months after the county Board of Supervisors, still stinging from the bankruptcy, voted to prohibit any financial relationship with Merrill Lynch without full board approval. Former Orange County Treasurer Robert L.

Without a sales tax to help rescue Orange County from bankruptcy and little hope for a Sacramento bailout, county officials Wednesday began to seriously consider walking away from debts to investors, raiding the revenue of special government districts and tapping into Measure M transit funds. County Chief Executive Officer William J.

A bipartisan group of legislators is quietly trying to build support for a plan to resolve California's budget shortfall by having the state borrow billions of dollars and pay the money back over several years. A similar approach helped Orange County emerge from bankruptcy in the 1990s, and supporters of applying that idea to California's budget problems say it could offer the state a way to spread out the state's shortfall rather than try to patch it in a single year.

A former Rauscher Pierce Refsnes Inc. investment banker has settled allegations over his role in the firm's alleged failure to disclose the risks of investments related to Orange County's 1994 bankruptcy, U.S. regulators said Wednesday. Kenneth Ough of Post Falls, Idaho, settled the charges by agreeing not to violate applicable provisions of securities law. He paid no monetary fine or penalty, the Securities and Exchange Commission said. He did not admit or deny guilt.