Most of Merrill’s $30 Million Will Go to Schools

SANTA ANA —  School districts will receive nearly all of the $30 million that Merrill Lynch & Co. paid to avoid possible criminal prosecution for its role in the Orange County bankruptcy, as well as an additional $11.3 million in leftover bond repayment funds.

The distribution plan approved Tuesday by the county Board of Supervisors ends a two-month dispute over who was entitled to the money, and it marks a rare windfall for the county’s 32 school and community college districts that lost money in the financial collapse.

“This comes at a good time because there is a tremendous need for resources,” said John Nelson, assistant superintendent of the Orange County Department of Education. “School districts are facing the challenges of class-size reduction, technology improvements as well as basic maintenance that has been put off for years.”

At the Newport-Mesa Unified School District, officials said the $2 million they will receive under the Merrill Lynch settlement could be used to buy new textbooks or computers, help reopen closed campuses and repair leaky classroom roofs.

The Irvine Unified School District might use its $2.7 million to purchase computers, reconfigure some classrooms to deal with class-size reduction, hire more health workers and perhaps beef up maintenance services.

“We have had to cut back so much in the past few years that this is important,” said Margie Wakeham, an Irvine school trustee. “We’ve cut custodial support so much. Cleaning a classroom every other night is not cutting it.”

The board approved the deal over the strong objections of Supervisor Charles V. Smith, who said it was cut behind closed doors without any input from the public.

Supervisor Todd Spitzer voted for the pact but refused to attend a meeting on the settlement that excluded any members of the public, saying the matter should be discussed in open session.

“I don’t feel comfortable about this deal. I feel we are being pressured into it,” Smith added during a turbulent board meeting. “There’s been no notification, no public input.”

Backers, however, insisted that the deal represented a giant step forward in repaying the balance of the money the schools lost in 1994 when the county-run investment pool suffered $1.64 billion in losses on risky securities, prompting the county to declare bankruptcy.

The schools will receive all $27 million of the Merrill Lynch settlement that had been paid into the county’s general fund. The remaining $3 million of the $30 million settlement was originally earmarked to reimburse the district attorney’s office the costs of its investigation. Officials said the $3 million will be placed in the county’s general fund.

In addition, officials said that the schools will also share $11.3 million left over after the county made payments on its bonded indebtedness for the year. Under the bankruptcy recovery plan, the leftover money was supposed to go to the schools.

The deal also gives cities, special districts and other government agencies $7.2 million in previously undistributed interest from various investment pool accounts.

For its part, the county will be allowed to transfer for its own use $10.3 million from the same accounts--money that can be used to boost the county’s reserve fund or be divided up by the supervisors when they adopt a final budget next month.

Supervisors Chairman William G. Steiner hailed the complicated settlement as the first major step toward making whole the more than 200 agencies that lost money in the county-run pool.

“This is the strongest move I’ve seen in the last three years to start building back trust and . . . putting aside the contentious feelings,” Steiner said. “I know it’s a long journey, but this is a good beginning.”

Indeed, the Merrill Lynch settlement covers less than 30% of the more than $100 million that school districts were still owed, after they were repaid 90% of their pre-bankruptcy deposits under the bankruptcy recovery plan.

The schools--and all other investors--will only get the remainder of their money if the county is successful in its multibillion-dollar civil lawsuit against Merrill Lynch and other financial firms it holds responsible for causing the bankruptcy.

Nelson and other schools officials said they always expected to receive the $11.3 million and do not consider the money partial repayment of their investment losses.

The board approved the deal on a 4-1 vote, with Smith abstaining. Last week, Smith proposed an alternative plan that would have given $10 million to schools and set aside $20 million for various county projects.

The settlement came after a frantic week of negotiations between county officials and representatives for pool investors.

The settlement was finalized Monday, and the board scheduled a Tuesday morning closed session to discuss the matter. But Spitzer refused to attend the meeting, despite the urging of his colleagues. He won assurances that no deliberations or decisions about the plan would occur until the board went back into open session.

“This should all be done in public,” Spitzer said. “The public has a right to deliberate and judge each of the supervisors and each position they take. . . . Doing [this] in private deprives the people a chance to make these judgments.”

School officials expressed strong support for the board’s action and said they hoped it was the first step toward improved relations.

Ed Decker, a Newport-Mesa trustee, said some of his district’s windfall could go to repair school roofs that have been leaking for years.

* FRAUD CHARGES: Brokerage tries to settle SEC case related to bankruptcy. D7

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Schools’ Share

Orange County school districts and education agencies will share the $27-million Merrill Lynch settlement. How the losses and estimated settlement shares break down by district:

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District Still owed Being paid Orange County $6.9 million $1.7 million Department of Education Anaheim City $780,000 $239,648 Anaheim Union High $1.9 million $474,938 Brea Olinda Unified $740,000 $186,764 Buena Park $430,000 $107,640 Capistrano Unified $6.0 million $1.6 million Centralia $860,000 $215,650 Cypress $630,000 $158,844 Fountain Valley $550,000 $139,216 Fullerton $500,000 $126,818 Fullerton Joint Union High $2.6 million $649,821 Garden Grove Unified $5.4 million $1.4 million Huntington Beach City $910,000 $229,045 Huntington Beach Union High $2.0 million $506,586 Irvine Unified $9.7 million $2.7 million Laguna Beach Unified $700,000 $176,888 La Habra City $1.3 million $329,018 Los Alamitos Unified $990,000 $310,318 Magnolia $580,000 $146,814 Newport-Mesa Unified $8.1 million $2.0 million Ocean View $890,000 $224,535 Orange Unified $2.0 million $494,144 Placentia-Yorba Linda Unified $8.4 million $2.1 million Saddleback Valley Unified $4.6 million $1.7 million Santa Ana Unified $4.9 million $1.2 million Savanna $350,000 $87,889 Tustin Unified $890,000 $294,581 Westminster $1.3 million $338,962 O.C. community college districts $15 million $4.3 million Other school-related agencies $17 million $3.0 million

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Source: Orange County Department of Education