LOS ANGELES -- A Kern County, Calif., grand jury reviewing the city of Arvin's defaults on three long-term obligations heard testimony Friday from the farming community's city manager.

The official, Thomas A. Payne, yesterday confirmed that he spoke to the grand jury, but said he would have no additional comment because he had not yet met with legal counsel and city staff.

Payne reiterated his previous assertion that the cash,strapped city cannot afford to pay holders of the three defaulted issues, and that if a court order were to force such restitution, Arvin would file for Chapter 9 bankruptcy and disincorporation.

Arvin defaulted in January 1992 on $1.28 million of assessment bonds related to a residential development called Jewett Square, it defaulted in October 1993 on $2.945 million of certificates of participation used to finance temporary housing for farm workers, and it defaulted last March on $7.89 million of COPs used to finance a golf course.

Arvin, a community of nearly 11,000, is located in Kern County about 25 miles southeast of Bakersfield at the southern tip of the San Joaquin Valley.

The golf course transaction is the subject of a Kern County Superior Court status conference Dec. 14. Both sides are trying to negotiate a settlement.

Concerning the assessment bond default, the city has begun foreclosure proceedings against the developer of Jewett Square "to gain control so we can find a buyer," Payne said yesterday.

So far there has been no litigation stemming from the other COP default, but the trustee representing holders of the certificates recently asked investors for direction on what steps to take to remedy the default.

Meridian Trust Co. of California wrote nearly 100 holders of the $2.945 million in COPs issued in 1992 by the Arvin Housing Authority and asked them if they wanted "to form some sort of a committee," Meridian Trust vice president Judy Smith said last week.

The committee would provide a forum for holders "to all get together and talk about things, and then give us, as the trustee, instructions on what to do," Smith said.

The letter was mailed in early November and "we're still waiting" to hear from a majority of holders, Smith said. Until then, "our hands are sort of tied."

Proceeds from the certificates' issuance were used to construct a low-cost housing center for farm laborers consisting of 50 prefabricated units on a 10-acre site. The project serves as affordable temporary housing for single migratory workers who work in Arvin during the harvest season.

But the project suffered a number of construction and operating delays, and in October 1993 it defaulted on a $252,225 interest-only payment Subsequently, the Housing Authority failed to make semiannual debt service payments in April and October of this year.

Since last fall, the housing center has been operating without insurance, but the letter to certificate holders said the on-site project manager is "in the process of taking bids from insurance companies to reinstate at least the general liability insurance.

"It is expected that bids from insurance companies will be received in the near future and that a determination will be made as to the extent of the coverage," the letter said.

But the project is not expected to be "in a position to reinstate all insurance" and there is no guarantee "that the insurance that can be obtained will be in the amounts required by the trust agreement," according to the letter.

The letter also said that the project "has been effectively empty since the end of the preceding agricultural season in August."

Smith said that earlier this year the certificate holders agreed to amend the trust agreement to allow new income to first meet operations and maintenance expenses, and then pay debt service.

The amendment was designed to "keep the doors open and have some hope of getting people to come stay there and start raising money," she said. "We figured if we didn't keep the doors open, there would never be a chance for anything to happen."

As a result, the project has reduced its outstanding past due bills to $10,000 from $40,000. But to date there has never been "any money over and above operations and maintenance to put aside" for certificate holders, Smith said.

While vendors are now being paid, it is a mixed blessing, Smith said.

"Now they are finally digging out of that hole, but they still haven't made enough of a surplus to send any money" to Meridian Trust on behalf of the certificate holders.

The Meridian Trust letter warns holders that "no assurance can be given that occupancy at any sustained level will be achieved or that the project can sustain operations for any given period of time."

"It is uncertain if 100% occupancy will allow the project to pay debt service after payment of operations and maintenance or past due bills," the letter said.

"The project manager continues to explore ways to maximize occupancy during the periods between agricultural seasons."

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