Retiring O.C. Supervisors Tell Remorse

SANTA ANA â€”  As Orange County officials predicted layoffs as soon as next month, retiring Supervisors Thomas F. Riley and Harriett M. Wieder expressed remorse Tuesday over the financial crisis that has pushed the county into bankruptcy.

“I don’t know about you, but I wish I had listened just a bit more, questioned just a bit more, and trusted just a bit less,� said Riley, 82, a former Marine general and 20-year board veteran.

“It’s tragic, unfortunate and awful to have my county going through this ordeal as I leave office,� said the 74-year-old Wieder, who had been on the board for 16 years.

With Riley and Wieder attending their final regular board meeting, an angry group of residents demanded that supervisors cut their pay in the wake of the county’s $2.02-billion investment loss. They also called for the elimination of perks--such as the board’s county-provided cars--and a reduction in county spending.

“I don’t think you are bad people or crooked, but just basically decent folks seduced by the power of spending other people’s money,� said Bill Ward, an electronics consultant from Costa Mesa. “You have become severely out of touch with working taxpayers.�

In other developments Tuesday:

* The crisis will “definitely� result in layoffs, one high-ranking county official said--a prediction echoed by other managers. Among those departments expected to be hardest hit by an estimated $10-million-a-month budget shortfall are the offices of the county administrator, auditor-controller and county counsel. Officials could not estimate how many county workers might lose their jobs.

* The Securities and Exchange Commission subpoenaed Ernie Schneider, the county’s top administrative officer, seeking a broad range of documents that relate to his dealings with Merrill Lynch, the leading underwriter of Orange County bond issues.

The federal agency has previously sought personal documents from all five supervisors, former Treasurer-Tax Collector Robert L. Citron, acting treasurer Matthew R. Raabe and several Merrill Lynch brokers who did business with the county.

* SEC and Orange County district attorney’s office investigators worked side by side in the treasurer-tax collector’s office, copying documents on microfilm as they seek to determine whether anyone broke the law.

* State Auditor Kurt Sjoberg said he would expand his review of Citron’s books to include all contracts with outside investment brokers and the fees each earned. The auditor’s team also will investigate whether the county skirted competitive bidding procedures.

Sjoberg said he was asked by state Sen. Quentin L. Kopp (I-San Francisco) to focus on the county’s dealings with Merrill Lynch, which has denied any impropriety. The results may be turned over to the state attorney general’s office if Citron is found to have violated government codes in his dealings with brokers, Sjoberg said.

* In good news for Orange County, the Federal Reserve did not raise interest rates after the year’s final meeting of its Federal Open Market Committee. Another increase in interest rates would have further devalued the county’s beleaguered investment portfolio.

* A coalition of local government finance groups convened by the U.S. Treasury Department pledged “to work together to promote sound investment policies and practices by state and local governments.� The group said it will promote the use of model investment guidelines and identify possible regulatory or oversight issues that require government attention.

* Ripples from the Orange County debacle continued to be felt as far away as Texas, where state officials said they spent $55 million averting a crash of their own municipal investment fund, known as TexPool. State Treasurer Martha Whitehead said a $2-billion run on the pool by panicky municipalities--which cut its size to $1.47 billion--seemed to have ended.

* Assemblyman Mickey Conroy (R-Orange) called for a Fair Political Practices Commission investigation of Citron. In a letter to FPPC Chairman Ben Davidian, Conroy suggested that the former treasurer may have violated the state Political Reform Act by accepting gifts from firms that do business with the county.

* Orange County began auctioning off the riskier portion of its remaining portfolio. Salomon Bros. sold about $1.24 billion of notes and foreign-issued certificates of deposit, but the firm declined to say how much the sales netted the county. Investment sources said as much as $624 million of the proceeds will be used to pay off loans held by Merrill Lynch.

One of the last securities purchased by the county’s investment pool, a $600-million fixed-rate note issued by the Student Loan Marketing Assn., was among the instruments sold Tuesday.

Citron bought the entire Sallie Mae issue Nov. 1. Financial analysts say the county almost certainly took a sizable loss on the sale, as it purchased the notes for $3.8 million more than their face value and they were most recently quoted for sale at 95 cents on the dollar. At that price, the county would realize close to a $34-million loss on those notes alone.

However, traders said the county would benefit in one important way from the sale: Because the notes do not mature for 10 years, the sale will cut the average maturity of the county portfolio. A shorter average maturity will reduce the investment pool’s exposure to movements in interest rates.

Also sold Tuesday were $24 million in notes issued by the Government National Mortgage Assn. and $580 million in certificates of deposit issued by a number of foreign banks. The foreign CDs were likely to have been sold at the deepest discount, investment sources said, as they were structured notes whose payouts decline as interest rates rise.

As the county’s new investment consultant, Salomon Bros. is expected to collect more than $1 million in fees, along with commissions and a percentage of the now-bankrupt investment pool; in all, the firm could be paid more than $5 million, according to county records. The county has paid the Wall Street firm $500,000, and Salomon will receive $150,000 a month for at least six months to continue assisting county officials, records show.

As the auction of the portfolio continued, the Board of Supervisors faced its most vocal and bitter crowd since the county filed for bankruptcy Dec. 6.

More than a dozen speakers berated supervisors, accusing them of failing to exercise oversight and leadership in the crisis, which has jeopardized the investments of 187 cities, school districts and other public agencies, along with 435 minors whose court settlements were deposited in the county pool.

“To point out to the public that you feel you lack the expertise to understand complex financial transactions does not excuse past performance nor reassure the public that you are capable of dealing with the current crisis,� said Connie Haddad, president of the League of Women Voters of Orange County.

Members of a countywide taxpayer group known as the Committees of Correspondence warned that the group might try to oust the officials if they do not show good faith in meeting the demands.

“We are giving them the demands. If they want to cooperate, fine,� said Bill Mello, a Huntington Beach activist. “If they don’t want to cooperate, they are in trouble.�

The Committees of Correspondence, which include members of Ross Perot’s United We Stand group, issued a list of seven demands to the board and asked each supervisor to pledge by Jan. 4 to meet them.

The demands include: a 10% reduction in the salaries of supervisors, the chief administrative officer and the county auditor; elimination of car allowances; cutting board staff expenses by half; contracting county services to private entities, and signing a pledge not to accept federal or state assistance or raise taxes.

“They are responsible for this,� Mello said. “They should share in the suffering along with everyone else. . . . If this had happened in the private sector, they’d all be fired immediately.�

None of the supervisors signed the pledge when given copies at Tuesday’s meeting. Supervisor Gaddi H. Vasquez said he was examining “the contents of the proposal.� Supervisor Roger R. Stanton said, “I’m serving my constituents,� not outside interests.

Across the downtown Civic Center concourse about three dozen investigators continued poring over documents at the treasurer’s office, with a now-familiar orange van parked outside the building behind yellow crime-scene tape.

Investigators from the district attorney’s office are seizing documents from the treasurer’s and auditor’s offices that involve any disclosures made to investors in the county investment pool. They also are gathering documents on specific dealings between the treasurer’s office and investment bankers.

David Wiechert, Citron’s attorney, said he remained baffled about why investigators would seek a search warrant for the records of the former treasurer, who cleared out of his office when he resigned two weeks ago.

The SEC, which last week subpoenaed personal and office documents from top county officials, is taking a broader look at whether elected officials steered business to Merrill Lynch in exchange for kickbacks. County officials and Merrill Lynch strongly dispute the allegations.

Citron is scheduled to testify before the SEC on Jan. 20 in Los Angeles. Raabe, who took office after Citron resigned, is to testify Jan. 19, according to sources close to the investigation.

As the search of county offices continued for a second day, employees described an office in a virtual state of paralysis, with authorities carting away computers and boxes of records.

District attorney’s officials have said they wanted to carry out the searches without hampering normal county operations and would leave copies of all documents that employees need for their work.

But Luster said thousands of pages of records were seized, with no copies left.

Several city officials said Tuesday that they had been interviewed last week by investigators from the district attorney’s office who questioned them about whether Citron’s staff had misrepresented the risks of investing in the county pool.

In Huntington Beach, which invested $48.6 million in the pool, investigators “generally wanted to know how the county represented the fund to us,� said deputy city administrator Richard Barnard.

Times staff writers Eric Lichtblau, Lee Romney, Tracy Weber and Rebecca Trounson in Orange County and Michael Hiltzik in Los Angeles contributed to this report.