SANTA ANA, Calif. -- A team of state auditors descended on Orange County, Calif., yesterday to assess the investment fund crisis as losses in the fund reportedly grew to more than $2 billion.

Led by state auditor general Kurt Sjoberg, the team plans to review all activities of the troubled fund since summer 1994, as well as annual county audits dating back to 1991.

Sjoberg joins former state Treasurer Thomas W. Hayes and the New York firm of Salomon Brothers -- all brought in to help assess the county's woes and come up with a restructuring plan.

State officials are jumping into the fray at a time when analysts and others are speculating that the fund has lost much more than the $1.5 billion first reported on Dec. 1.

Media reports over the weekend told of losses skyrocketing to $2 billion, $2.5 billion, and even $3 billion, depending on the source of the rumor.

Peer Swan, president of the Irvine Ranch Water District, said yesterday that his latest estimate of the portfolio value is equivalent to a loss of about $2.5 billion. He said this means the losses could be between 25% and 33% for each of the roughly 185 local government participants in the fund.

Swan said the updated figure is based on "what the securities are worth in today's market." The Irvine Ranch Water District has invested $300 million in the pool.

The additional losses were blamed on more than $11 billion of sales of Orange County collateral last week by nervous Wall Street investment firms.

Orange County supervisor William G. Steiner yesterday denied a story in the Sunday Los Angeles Times that he had put the fund's losses at $2 billion.

"That was taken totally out of context," Steiner said of a front-page story in the newspaper attributing the amount to him.

"They said they heard the loss was $2 billion, and I said, 'I don't know. It could be.' And that was it,"' Steiner said. "I don't know the bottom line. That was inaccurately reported."

The supervisor said county officials are expecting a written assessment of the losses from Hayes and Salomon Brothers some time this week.

The county's public relations firm, Sitrick, Krantz & Co., could not say whether the loss has reached $2 billion or more.

"I'm getting back to you with basically a no comment," said spokesman Jim Bourne. "People here are looking into reports such as the one you mentioned .... as of now, they're just assessing everything."

The Board of Supervisors had scheduled a meeting for 9:30 a.m. yesterday, but it was postponed to 1 p.m. so county staff could prepare for an expected announcement from Hayes regarding the county treasurer's office.

Officials would not say what that announcement would be, and details were not available at press time yesterday.

Steiner, who is also on the board of the Orange County Transportation Authority, which has $1 billion in the fund, said the agency met yesterday morning and announced a 100-day plan to keep the county's transit systems running.

Buses and commuter trains will continue operating, he said, and the authority will make good on $46 million in debt service due Feb. 15.

"That was good news this morning," Steiner said.

The supervisor said he wanted to urge market participants that Orange County is still a vibrant region and will undoubtedly rebound from last week's dramatic bankruptcy filing.

"Despite this crisis, the essential foundation of Orange County in terms of its economic condition and future remain strong," Steiner said. "This is a county with an $82 billion gross county product, 2.6 million people, an employment rate of only about 5%, and over the long haul, people should stick with us."

Meanwhile, Moody's Investors Service said the outlook for investors in Orange County and other pool participants' debt obligations "is highly uncertain."

The rating agency yesterday identified seven issuers with interest and principal payments due in January and 12 issuers with interest-only payments due next month.

Moody's said the "most immediate concern" for investors is the investment pool's illiquidity.

So far, there has only been one default -- last Thursday's $110 million issue of taxable pension obligation bonds, issued in September by Orange County. The default occurred after the county said it was not able to access unrestricted funds in the pool in an amount sufficient to redeem tendered bonds.

However, Moody's said "the potential of a default" remains for nine Orange County sanitation districts with $46 million of outstanding taxable commercial paper notes. The agency lowered those districts' commercial paper to Not Prime because of their inability to access funds in the pool.

Moody's said Anaheim has $2.5 million in revenue anticipation notes due Thursday, but city officials "have informed us that this payment will be made from funds not invested in the county pool."

Because of the bankruptcy filing, Moody's said there also are "questions about the legal standing and payment priorities" for long-term obligations. "It remains to be clarified how these obligations will be treated."

Beginning in late December and January "there are semi-annual interest and maturing principal requirements" on the county's and other pool participants' long-term obligations, Moody's said.

"Some of the moneys intended to pay upcoming debt service were undoubtedly accumulated and invested in the pool," Moody's said.

The rating agency said the Orange County pool is subdivided into a commingled pool and a bond pool, which together contain "some 1,000 accounts for various purposes. Sorting out priorities for payment is expected to be a complex process."

Moody's said the $600 million of taxable tax and revenue anticipation notes issued by the county and $485 million of other taxable Trans issued by various pool participants solely for investment arbitrage purposes "are extremely vulnerable to the pool's illiquidity and eventual loss allocation."

The agency added that "there are many uncertainties relating to the Chapter 9 bankruptcy. Because of questions as to the legal ability of the parties to avail themselves of the protection of Chapter 9, the limited precedent of Chapter 9 bankruptcy filings, and the resulting uncertainties of interpretation, we cannot speculate as to how and when these issues will be resolved and what impact they will have on debt repayment."

Brad Altman contributed to this article.

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