O.C. Schools to Fight for Settlement’s $30 Million

SANTA ANA — School districts and other government agencies that are still owed money from Orange County’s 1994 bankruptcy vowed Friday to fight for the $30 million that Merrill Lynch & Co. will pay the county as part of a settlement to avoid prosecution.

“Everybody is posturing with their hands out,” said county Supervisor Charles V. Smith. “But I think it would be inappropriate, and maybe even illegal, for us to just give taxpayer money to different groups and organizations” instead of using it for county government needs.

The dispute over who will get the $30 million comes one day after Orange County Dist. Atty. Michael Capizzi announced the settlement with Merrill Lynch, which ends a 2 1/2-year criminal investigation.

Merrill Lynch sold the county many of the securities that contributed to the financial collapse. The brokerage has consistently denied any wrongdoing and did not admit to any misdeeds in agreeing to the settlement.

The county’s schools still have not been paid nearly $110 million of the roughly $1 billion they had deposited in a county-run investment pool, along with cities and special districts.

When the investment pool lost $1.64 billion on high-risk securities in the fall of 1994, Orange County declared bankruptcy and liquidated the pool’s money--losing assets and spreading the losses among investors.

Although all investors received at least 80% of their deposits, the recovery plan approved by the U.S. Bankruptcy Court has an elaborate formula for repaying the remaining balances from any litigation proceeds. County officials hope to win significant sums in civil lawsuits filed against Merrill Lynch and a dozen other firms they blame for the financial debacle.

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The county’s bankruptcy recovery plan calls for the schools to receive the first $55 million in any litigation proceeds. But both sides agree that the plan does not specifically address how money from the settlement of a criminal investigation should be divided.

School officials said Friday that the $30-million settlement from the brokerage should go toward buying computers, making long-delayed repairs to classrooms and playgrounds, and reducing class sizes.

“It needs to go to schools,” said Donna Artukovic, president of the Orange County PTA. “Our children are where we need to put our money. They’re totally innocent victims in all this. If we don’t put the money into the schools, we’re just frittering away our future.”

The $30 million is scheduled to be deposited in the county’s general fund sometime next week. County Counsel Laurence M. Watson said Friday that his office is trying to determine whether the money should go to pool investors or stay with the county.

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Board of Supervisors Chairman William G. Steiner suggested Thursday that at least some of the money be transferred to the schools as a show of “good faith” by the county. But others in county government seem unenthusiastic about Steiner’s idea.

Smith said he would like to focus on using the money to begin satisfying a host of county needs, including construction of jails, juvenile detention facilities and emergency children’s shelters.

Supervisor Thomas W. Wilson has suggested that a portion of the settlement be used as “seed money” for a long-delayed capital project, such as a new south county courthouse. Wilson said Thursday that he might also consider allocating the schools some of the money.

If the Board of Supervisors decides to keep the money, county chief financial officer Gary Burton said he would recommend using it for a one-time expenditure, such as a capital project, rather than for hiring more workers, which would add to the county’s operating budget for years to come.

But Patrick Shea, an attorney representing pool investors, said the entire settlement should be distributed to his clients through the recovery plan.

“I believe this falls within the agreement,” Shea said. “It’s a settlement of claims related to the bankruptcy. The county needs to play fair with the people who trusted them.”

Most of Orange County’s school districts and the Department of Education are still missing anywhere from several hundred thousand to several million dollars because of the bankruptcy.

In general, schools are now pressed for cash because of two factors: Enrollment in the county is growing at nearly 5% a year, more than double the rate in recent years; and an army of new teachers is being hired in a massive push to reduce class sizes in some primary grades.