County Looks at Retiring Its Debt Early

The lingering sting from Orange County’s 1994 bankruptcy may soon be a little less painful.

The Board of Supervisors on Tuesday hired a consultant to help the county figure out the best way to pay back some of its bankruptcy debt early -- a strategy that could save the county about $143 million, one county official said.

Orange County declared bankruptcy in 1994 after a risky borrow-and-invest strategy backfired, causing more than $1.6 billion in losses. The county worked its way out of bankruptcy by borrowing more than $1 billion and reducing services.

Each year, the county pays about $90 million on the debt by cutting spending on parks and flood control and charging other government agencies to use county landfills.

In the decade since the bankruptcy, the county has set aside an additional $98 million to help pay off the debt early, but must wait until June 2005 to begin doing so in order to avoid early-payment penalties.

The question facing county officials is whether it makes more sense to allocate that money toward the debt in June 2005, to hold some in reserve for emergency, or to delay making debt repayments, said Supervisor Bill Campbell.

To help decide, supervisors Tuesday hired financial advisor Sperry Capital Inc. of Sausalito. The county will pay the firm $29,500.

If supervisors decide to apply all $98 million toward the debt immediately, that would generate $143 million in interest savings by the 2015-2016 fiscal year, said Thomas Beckett, the county’s public finance manager.

The early repayment would reduce the county’s annual debt payment by $5 million to $6 million immediately and could grow to $20 million in savings by 2012, Beckett said.

The Board of Supervisors, forced to make budget cuts each of the last three years, would be able to spend the savings on services or stockpile it.

“Until we see the work of the financial officer I don’t want to speculate on what we will do. That financing was complicated. That’s why we’re hiring an outside firm to tell us the best way to pay it down,” said Campbell.

The county built its $98-million nest egg to repay the bankruptcy debt by setting aside money each year during budget discussions.