O.C. Board Will Talk of Whether to Fire Schneider

SANTA ANA — In a closed session today, Orange County supervisors will discuss whether to fire the county’s top administrator, whose performance has come under increasing criticism in the wake of the nation’s largest municipal bankruptcy.

A leading county official said the evaluation of County Administrative Officer Ernie Schneider was hastened by Saturday’s disclosure that $85 million in interest earnings may have been illegally diverted from the county’s beleaguered investment pool into an “economic uncertainty fund” supervised by Schneider.

“It was the straw that broke the camel’s back,” said the official, who spoke Sunday on the condition that his name not be used.

The appraisal of Schneider comes as the supervisors themselves face a rising tide of criticism for their handling of the county’s finances. In addition, the closed session could be the first in a series of personnel hearings involving the county administrator and his staff.

“We are reaching some important milestones,” said Supervisor Gaddi H. Vasquez, chairman of the five-member board. “It’s appropriate to do an evaluation (of Schneider) now, and we want the board to have the opportunity to discuss issues ahead and how they relate to him.”

Schneider declined to comment on the hearing, but his attorney, Jennifer L. Keller, said Sunday that he is being unfairly blamed for the collapse of the county’s investment pool.

“I think (the hearing) is camouflage,” Keller said. “It is to make it appear as though responsibility has been assigned” to Schneider for the bankruptcy.

Notice of the personnel hearing was posted Sunday morning at the Hall of Administration. It took note of a closed Board of Supervisors meeting at 11 a.m. today “to evaluate the performance of the CAO.”

Already, Orange County Assistant Treasurer Matthew R. Raabe has been suspended from his post following disclosures that interest earned by scores of governmental entities in the county’s investment pool was diverted to the economic uncertainty fund. Raabe was placed on paid administrative leave Friday because he refused to answer questions about accounting and record-keeping related to the diverted interest.

The money, which normally would have been allocated to all pool participants, instead was shifted by the treasurer’s office to the separate account where it could be spent by the county administrator, officials said.

Schneider faces scrutiny from a restive board. In the weeks since the Dec. 6 bankruptcy filing, Supervisor Roger R. Stanton has repeatedly expressed a lack of confidence in Schneider’s ability to lead the county out of its fiscal morass. Both he and Supervisor Jim Silva have called for the executive’s removal.

Last week criticism of Schneider came from a new quarter when Vasquez challenged parts of Schneider’s recovery plan, including a proposal to generate revenue by impounding cars of drivers with suspended licenses.

Nevertheless, it is unclear whether a majority would vote to fire the county’s chief executive.

“Ernie is not under the cloud of investigation,” Supervisor Marian Bergeson said Sunday. “There’s no cloud as far as his involvement in the $85 million. We’re looking at where we’re going with management from now on.”

The evaluation of the county administrative officer comes while the supervisors are facing recall threats, including one by the Committees of Correspondence, a coalition of local organizations that has, among other things, demanded Schneider’s ouster. The group calls him “culpable and incapable.”

Some critics of the board say the only way for the supervisors to salvage their political careers is to shift the blame for the loss of $1.69 billion from the county investment portfolio, which was managed by then-Treasurer-Tax Collector Robert L. Citron.

Attacks on the supervisors have also come from Orange County school districts and cities, which have lost hundreds of millions in the bankrupt pool. Pressure too is building in the county business community, which has called for the appointment of a strong chief executive who would be granted far more power than Schneider.

“We feel it is glaringly obvious that authority and responsibility for the county’s operations, both day-to-day and in the management of the crisis, must be consolidated,” the Orange County Business Council said in a prepared statement.

Reacting to what he perceived to be Schneider’s lack of action in the face of the bankruptcy, Supervisor Stanton moved last month to establish the Operations Management Committee, a special panel to recommend budget cuts to the Board of Supervisors. Sheriff Brad Gates, Dist. Atty. Michael R. Capizzi and Heath Care Agency Director Tom Uram sit on the committee.

Stanton originally opposed Schneider as the county administrative officer when Schneider was appointed by the board in 1989. Since then, the supervisor has feuded with Schneider, his criticism taking a harder edge after the county filed for bankruptcy.

Also facing possible hearings are members of Schneider’s staff, such as Management and Budget Director Fred Branca and Eileen T. Walsh, director of public finance, who worked on bond issues involving assessment districts and real estate development.

Depending on what happens at the hearings, the board has a number of options: firing Schneider, letting him remain in his post or placing him on administrative leave to conduct further inquiries.

A high-ranking county official said that likely topics for the board meeting include Schneider’s ability to manage the crisis, his plans for recovery from the bankruptcy and whether he or members of his staff knew that interest earnings were improperly diverted.

Orange County officials revealed the diversion Saturday, within days of learning about it from their outside auditors. They said the treasurer’s office apparently falsified records and channeled about $85 million in interest from the county’s investment pool into two special accounts, denying the income to many of the 187 governmental entities with funds in Citron’s portfolio. The treasurer’s office apparently maintained two sets of books, one that showed the actual amount of interest earned and the other showing the lesser amount credited to investing agencies.

Records related to the unusual transfer have been turned over to the district attorney and the Securities and Exchange Commission, which are investigating the county’s fiscal collapse.

The high-ranking county source said Sunday that the apparent falsification of records and the illegal diversion of interest could result in criminal charges against Citron and perhaps Raabe.

Neither Raabe, Citron nor their attorneys could be reached for comment Sunday.

The Board of Supervisors set up the economic uncertainty fund two years ago at the request of Schneider and former Budget Director Ronald S. Rubino. At the time, the county’s investments earned more interest through Citron’s pool than was required to help meet budget requirements. The idea was to set aside just the county’s excess earnings in case of future budget shortfalls.

Rubino, who also could not be reached for comment Sunday, told The Times earlier that the pair administered the proceeds from the fund but did not determine what money went into the account.

Schneider’s attorney said Schneider learned of the diversion about a month ago when he was informed along with an aide to Stanton. Keller said it was impossible for him to know about irregularities in the treasurer’s office. Several years ago, she said, the Board of Supervisors denied Schneider’s request for more oversight by his office of other county departments.

“If the treasurer has undertaken to hide funds, or divert or skim funds, there is no way the county administrative officer could know more than anyone else,” Keller said.

Bergeson said the investigation into the economic uncertainty fund could result in more county officials coming under fire, though she would not say who they were.

“Information continues to come in rapidly,” she said. “If there has been any wrongdoing, those individuals should be suspended. I think it’s premature, though, to judge who is going to be involved in this.”

Whatever the outcome of the investigation, county government is certain to undergo substantive changes, the supervisors said. The latest fiscal revelation, Bergeson and Silva added, makes the need for changes in county operations all too clear.

“My main question is where were the checks and balances,” Bergeson said. “There are a number of requirements as far as reporting, so you have to ask the question, ‘What went wrong?’ ” Bergeson said news of the diversion gives her more reason to push the supervisors to approve hiring an independent auditor to do frequent evaluations of county finances.

Silva said he would back a plan for a more powerful chief executive. “I feel that there should be a strong (county administrator), and I would like to see the board move in that direction,” he said.

Supervisor William G. Steiner said the board is eagerly awaiting the results of the investigation into the diversion. “There is a desire to see whether the trail leads to any other department,” he said.

Members of the board also insisted that they were as surprised as anyone by the announcement of the diverted funds. Some had difficulty remembering the details of setting up the economic uncertainty fund two years ago at Schneider’s request.

“My vague recollection without any documentation in front of me is that there were going to be funds set aside from some interest earned by the county on county investments--not from other pool investors,” Vasquez said.

News of the diversion caused the supervisors to put off a meeting it had planned for last Saturday with county bankruptcy attorney Bruce Bennett. They were to discuss how to allocate proceeds from the pool to investors, particularly fiscally beleaguered school districts. The meeting has not been rescheduled.

Among the proposals postponed is one to fully refund the $220 million in anticipated losses that local school districts may suffer in the county’s investment fund. The county would borrow $100 million and pay the remaining $120 million from damages the county expects to win from lawsuits against Merrill Lynch & Co. Inc., the giant Wall Street brokerage firm that sold Citron securities, county officials said.

Orange County’s Bankruptcy

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