Orange County Pay-Back Plan Increases Investor Frustration : Bankruptcy: Cities and school districts in collapsed pool say they want more than they’re being offered with proposed IOUs.

IRVINE — With their coffers shrinking and the clock on debt service payments ticking, cities, school districts and other agencies with money in the collapsed Orange County investment pool showed signs of increasing frustration Wednesday over terms of a county plan to pay them back.

Pool participants spent hours behind closed doors for the first time since top business leaders unveiled a settlement proposal last week, but they emerged deadlocked with the county over key elements of the plan.

“We’re all disappointed, and we’re going to continue to push for a greater share of the return,” said Anaheim City Manager Jim Ruth. “We don’t want a bunch of IOUs--we want something to back them up.”

The plan, endorsed last week by the Board of Supervisors, offers an immediate 77 cents on the dollar to all pool participants and gives each a chance to receive the rest of their funds through a combination of marketable notes and IOUs.

School districts would get better treatment than other agencies--13 cents on the dollar in marketable notes, compared with 3 cents on the dollar for other pool investors. But pool participants, particularly school districts, have balked at a requirement that they get in line behind the county’s creditors--who are owed more than $1 billion--to collect the rest of their IOUs.

Those who had hoped for concessions from the county said Wednesday that they fear the proposal is the best offer they will see.

Stanley Sprague, general manager of the Municipal Water District of Orange County, said many agencies are facing imminent debt service payments and key budget decisions that put pressure on them to accept a plan they believe is far from ideal.

Pool participants interviewed after Wednesday’s meeting said they were unanimous in their dissatisfaction with the settlement proposal. Some restless investors are considering coming up with a plan of their own, Sprague said.

“It appears that everybody’s digging in,” said Ruth, whose city is facing a $100-million debt payment due April 1. “I think it’s a waiting game. The longer they wait, the more pressure the agencies have and the more likely we are to accept it.”

County bankruptcy attorney Bruce Bennett, who met for several hours Wednesday morning with a committee representing pool participants, conceded that any immediate consensus on the county’s plan was unrealistic.

But Bennett said the dialogue was constructive. “I think there is a greater understanding of the issues on both sides,” he said.

But that was not apparent after the meeting Wednesday.

“It’s almost like this is not a participatory process,” Sprague said. “There’s no consensus building.”

Cypress Mayor Cecilia Age added: “Nothing’s new today. There’s disgruntlement and disappointment.”

The deadlock represented one more blow to what business leaders had hoped would be a quick settlement to the investment pool crisis. The Orange County Business Council brokered the plan in weeks of secret meetings, and the Board of Supervisors approved it last week before it was publicly unveiled.

But business leaders also emphasized that a tax increase must be considered to help pay off the notes called for in the plan, only to learn that supervisors are holding fast to their commitment not to raise taxes.