County Says Its Recovery Plan in Peril : Bankruptcy: Delay by pool investor agencies in ratifying a settlement agreement increases the possibility of a state takeover, officials fear.

SANTA ANA —  The refusal of cities, schools and special districts to ratify a revamped settlement agreement is jeopardizing Orange County’s timetable for emerging from bankruptcy and increasing the likelihood of a state takeover, county officials said Monday.

According to a bankruptcy recovery schedule unveiled by Chief Executive Officer Jan Mittermeier earlier this month, the governing bodies of all 244 participants in the county’s ill-fated investment pool were to have formally approved the agreement by Monday.

So far, however, none of the investors outside the county’s control have approved the document, which effectively absolves the county of its earlier pledge to reimburse the losses of the other pool investors, making such repayment contingent on the county winning its litigation against the Wall Street firms the county blames for the financial disaster.

“It’s not the end of the world yet,” said Supervisor William G. Steiner, “but I’m concerned because there has been so much work to get to this point. I think we’re in the home stretch.”

Mittermeier, who had planned to get the county out of bankruptcy by June, could not be reached for comment. Her spokeswoman, however, said the timetable “was only a target, not a deadline.”

“She’s very disappointed,” said spokeswoman Lynne Fishel. “She was hoping that the pool participants would have looked at what’s in the best interest of the Orange County taxpayer.” According to Mittermeier’s schedule, the revamped agreement between Orange County and the pool participants was to have been approved by U.S. Bankruptcy Judge John E. Ryan by Nov. 10. That approval will now have to wait at least until Dec. 1, when Ryan conducts a hearing on the county’s attempts to reinstate its dismissed lawsuit against Merrill Lynch & Co.

The pool investors and the county are still trying to work out differences between the consensus recovery plan crafted by the pool participants and recovery legislation adopted by the state Legislature.

Also, pool participants are unwilling to sign the agreement until the county has a solid lawsuit filed against Merrill Lynch to recover losses. The county’s suit was refiled in Bankruptcy Court last week after a judge dismissed the case for a second time on technical issues.

Jon Schotz, a financial adviser to the pool investors, said he is more concerned about getting a fair deal for his clients than with meeting Mittermeier’s schedule. “It’s not my timetable,” Schotz said. “That’s her problem, not mine.”

Schotz said the pool participants are reluctant to pin all their hopes for repayment on litigation proceeds when the lawsuit keeps getting thrown out of court. “If we sign the agreement as it is, we jeopardize our clients’ ability to get an equitable agreement out of this process,” Schotz said. “The agreement needs to be fixed and the lawsuit needs be stronger.”

Even though the pool participants have not signed the latest settlement agreement, Fishel said the county could still emerge from bankruptcy by the middle of next year. With or without the pool participants’ approval, the county will file a “plan of adjustment” with the bankruptcy court by Jan. 1, detailing how the county intends to pay off the $1.7-billion debt it incurred when risky investments made by the county’s former treasurer soured and forced the county into bankruptcy, Fishel said.

The timely filing of a plan of adjustment is required under terms of legislation signed by Gov. Pete Wilson giving the county access for bankruptcy recovery purposes to $50 million a year in funds previously earmarked for other purposes. If the county’s efforts falter and a final plan of adjustment is not filed by next May, the legislation requires the governor to appoint a state trustee to run the county.

Both county officials and pool participants said Monday that they hope the remaining problems can be resolved by December, so appointment of a trustee would not even become a possibility.

“There is still enough flexibility in the timetable to work things out,” Steiner said.

But if the pool participants continue to balk at signing the settlement agreement, the county’s entire recovery plan could be jeopardized and the county forced to default on millions of dollars of bond payments.

In that event, Fishel said, the “state trustee scenario is likely.”