Transit Board’s Closed Meeting Raises Concern

SANTA ANA — The directors of Orange County’s newest toll road held a closed meeting to discuss plans to refinance $1.2 billion worth of bonds.

In addition, following a practice rare among Orange County public entities, the 12 members of the San Joaquin Hills Transportation Corridor Agency’s board of directors were asked to sign statements promising not to talk about the May 8 discussions. Half of them signed.

California has an open-meetings law designed to prevent public bodies from holding secret sessions, except in certain situations that are spelled out in the code.

The Transportation Corridor Agency’s lawyer, Robert Thornton, recommended the attempts at secrecy. He said the closed meeting did not violate the open-meeting law, known as the Brown Act, and that it was held under the exemption for discussion of litigation. He and Walter Kreutzen, the agency’s executive vice president of finance and administration, defended the secrecy measures as necessary to comply with federal Securities and Exchange Commission laws against insider trading.

“The point,” Thornton said, “is that when you get into what the [refinancing] structure might be, to disclose that information prematurely could run afoul of federal security law. We are, frankly, being conservative in advising our board that the prudent thing to do in the circumstance is not incrementally release information that is not complete. We concluded that it was appropriate for the agency to go into closed session.”

William McLucas, director of the SEC’s division of enforcement, said most insider-trading cases involve someone disclosing information to friends and family. “When the public at large becomes aware of material information, generally everyone is on the same footing, so you’re not as concerned,” he said.

Experts in securities law found the agency’s reasoning unusual.

“I’ve never heard of a public agency raising the possibility of SEC insider-trading issues as a defense to an open meeting statute,” said Stephen Bainbridge, who teaches securities law at UCLA. “This is a new one, and it’s highly imaginative.”

Three of the largest public entities in the county--Santa Ana, Anaheim and Orange County itself--routinely discuss bond refinancing at public meetings and have never asked board members to sign nondisclosure statements, officials said.

“Our counsel hasn’t allowed us to make any mistakes in that area,” said Gary Burton, chief financial officer for the county, which has refinanced two bond issues in recent months.

Anaheim officials said they are more concerned with making sure material gets out. “Most of the SEC laws are aimed at getting more disclosure rather than less,” City Atty. Jack L. White said. “We are mostly concerned that we have adequately disclosed all of the relevant information.”

Experts on the Brown Act disagreed with Thornton’s interpretation of the law.

Terry Francke, an attorney with the California First Amendment Coalition in Sacramento, said the exemption Thornton cited applies only when there is the specific threat of a lawsuit. He said the agency must make the threat public to justify the closed meeting.

“There just isn’t any free-floating exemption for a discussion that, if public, would get you sued,” Francke said. “If there were, that covers a lot of territory, and almost anything controversial could be discussed secretly.”

Tom Newton, general counsel for the California Newspaper Publishers Assn., agreed. “The purpose of this section is for them to be able to meet with their attorney to candidly discuss their options in litigation.”

Toll road board members Todd Spitzer and Christina L. Shea said that the discussion of the bond refinancing was curtailed when they objected that it was not an appropriate subject for a closed session.

Spitzer, a county supervisor, said no “substantive material” was discussed.

Said Shea, the mayor of Irvine: “I am very adamant. The window of discussion for closed sessions is very limited, and I do not believe that the subject of refinancing comes under that window.”

Joel T. Lautenschleger, a board member and a Laguna Hills councilman, said he had no problem with the closed session nor the nondisclosure statements. “It [the bond refinancing] was discussed, and I can’t say anything more about it,” he said. “If you start discussing things like that [in public], you could be held liable.”

Several board members would not confirm what the subject of the closed sessions was, and others could not be reached for comment.

Asked for a copy of the confidentiality pledge, the agency’s Kreutzen replied, “We feel it’s confidential.”

Spitzer said he refused to sign the statement. “I don’t need the staff to make me sign a document to know what my legal and ethical obligations are.”

Should a violation of the Brown Act take place, Newton said, any action taken could be overturned, a legislative body could be forced to repeat the illegal meeting in open session or a court could grant an injunction preventing it from repeating the offense.

Although violating the open-meeting law can be a criminal offense, no one in California has ever been convicted of that charge.

Orange County transit officials say they have planned on refinancing their bond debt since 1993, when $1.2 billion worth of municipal bonds was sold to pay for the toll road, which opened late last year. Because of improved credit, said Colleen Clark, the agency’s chief financial officer, transit officials believe they can lower the interest rate.

The agency recently reported that toll road revenue is about 51% less than projected, meaning it is bringing in about $80,000 a day less than expected. Officials blame the shortfall on inflated projections rather than poor performance. They said the shortfall is not likely to affect the agency’s ability to pay bondholders and will probably disappear within a year. They said the refinancing effort has nothing to do with the shortfall.

“It’s just good business,” Clark said.