NEWS ANALYSIS : The Credits and Debits of Kathleen Brown, Treasurer : Politics: She is seen as informed, vigilant. But much of her record rests on economic factors beyond her control.

When Kathleen Brown was running for state treasurer four years ago, she unleashed a withering attack against her predecessor, Tom Hayes.

Speaking with her own blend of charm and tough-minded confidence, she turned their televised 1990 debate into a death blow to Hayes’ election chances.

She blamed him for a “backlog” of billions of dollars in un-issued state bonds; for earning a lower interest rate on a multibillion-dollar pool of state money than earlier treasurers; for the political activities of his chief of staff, and for his failure to rid the state’s largest pension fund of hundreds of millions of dollars in junk bonds.

Now, four years later, Brown is running for governor with the theme “America’s best treasurer to revive America’s worst economy.”

But just how good a treasurer has Kathleen Brown been? And how does she compare to her predecessor?

Brown claims to have breathed new life into a lethargic branch of government.

“What I am most proud of is reviving the treasurer’s office from what had become a sleepy bureaucratic backwater and making it a leader in financial management and prudent but proactive investment strategies,” she said in a recent interview.

Yet measured by the same standards that she held Tom Hayes to, her record is decidedly mixed:

* There continues to be a backlog of approved but un-issued state bonds--$6.2 billion as of March 31--whittled down from the $7 billion figure that she used to bludgeon Hayes in 1990. However, the Brown-era gap could double if voters approve the $5.9 billion in bonds on the June ballot and perhaps more in November. In fact, there is always a delay, sometimes of several years, between voter approval and bond sales, no matter who is treasurer.

* Earnings on investments have plummeted, because interest rates generally have dropped. Today, the $26-billion pool of idle state and local government funds is earning only about 4.5%. In the Hayes era, a smaller pool was earning returns of more than 8.5%. Brown now boasts that the $4 billion earned in her first three years is “a state record.” But in a three-year span, her immediate predecessors earned close to $5 billion. In her attack on Hayes, Brown charged that Orange County’s $7.5-billion investment pool had outperformed the state fund. That continues to be true now that Brown is managing the state’s portfolio.

* Brown charged that Hayes’ top deputy, the late B.T. Collins, was actively involved in running his campaign. However, soon after she was elected, she named her own campaign manager and onetime fund raiser, Beverly Thomas, as assistant treasurer. Although it is common for politicians to name campaign aides to high posts, sources say that Thomas was instrumental in starting up Brown’s race for governor. Thomas denies any campaign role and says she is only one of many to whom Brown turns for political advice.

* Within months of taking office, Brown kept her campaign promise and pushed the Public Employees’ Retirement System board to sell off $434 million in high-yield or “junk” bonds. The $80-billion fund liquidated the bonds, taking a $50-million loss. Some board members concede that the loss could have been reduced if the pension system had held the bonds longer. “You never know how the market will turn out,” said board member Charles Valdes.

Brown’s claim to being “America’s best treasurer”--a flourish of campaign rhetoric--is based on an award she received last year as one of the country’s “most valuable public officials” from the now-defunct bimonthly newspaper City & State. Among earlier winners was Los Angeles County Chief Administrative Officer Richard B. Dixon, who was forced to resign from office under a cloud a few years later.

Former City & State editor Ellen Shubart credits Brown with bringing vigor and innovation to her elected office. But in an interview, she expressed surprise at Brown’s claim. “I would hesitate to say that any one who won any award was the best,” Shubart said.

As treasurer, Brown serves as the state’s banker--cashing the state’s checks, investing idle funds, and borrowing money by issuing bonds to operate state government and build offices and highways. She also sits on the boards of the mammoth public employees and teachers retirement systems, as well as dozens of other boards and commissions.

It is an important job and it carries with it the power to award millions of dollars in state business.

And yet, in many respects, the performance of the treasurer’s office is outside the control of the officeholder. Return on investments and bond interest rates rise and fall with the economy, and are affected by decisions about the state’s budget hammered out in the Capitol between the governor and the Legislature.

Key operations of the treasurer’s office--investments and bond sales--remain in the hands of civil servants installed in their jobs by the late Jesse Unruh, who piloted the office into the modern era.

Brown has nonetheless claimed credit for “historically low interest rates” on state bond issues, even though those rates reflect a nationwide drop during her brief tenure in office.

“It’s like Willard Scott taking credit for the weather,” said Gov. Pete Wilson’s campaign press secretary, Dan Schnur.

In her campaign ads and in press releases, Brown also has been crowing about the jobs created by the $12 billion in bonds she has sold in her 40 months in office.

However, as treasurer, Brown merely sells the bonds. Each bond issue must first be approved by the Legislature and governor--and often requires a vote of the people as well.

She also has taken credit for defending the state’s credit rating--avoiding a drop from AAA in her initial year in office during the first of a series of state budget crises. She has met regularly with the New York-based rating agencies ever since, describing the financial problems facing the state, but with less success. All three major rating agencies have taken California bonds down a few notches. Standard & Poor’s now ranks California as A+--near the bottom of the states.

No one suggests that the fall from the highest rank is Brown’s fault.

“A lot of the story for the state of California has been the recession,” said David MacEwen, who manages government bond portfolios for the Benham Group, a mutual fund that buys a sizable volume of state bonds. “There’s no way to correlate that with her job as treasurer.”

Those who do business with her office--underwriters, investors and credit rating agency representatives--praise the 48-year-old Brown for her knowledge, accessibility and strong appointments to key posts.

In an interview, Brown spoke with authority about the functions of her office and the continual need for vigilance in protecting the interests of taxpayers, particularly when dealing with the investment bankers who sell the state’s bonds.

“Bankers run on a fear and greed continuum,” she said. “If you neglect the fear (of losing the state’s business), the greed takes over.”

Among her accomplishments and innovations:

* Dedicating a portion of the $26 billion in idle state and local funds she controls to investments in California home mortgages and small businesses. Calling it the Cal-Vest program, Brown has directed $695 million to purchase California mortgages--enough for 5,000 homes and apartments--and $80 million to cover loans for about 200 small businesses, most of them in the Los Angeles area.

* Changing the way the state borrows money each year to tide it through periods of cash shortages. Instead of borrowing all the money at a single flat rate, she has borrowed a portion at a lower, variable rate. Last year, when the state borrowed $2 billion in this way, taxpayers saved several hundred thousand dollars on the deal. In other years the savings has been as much as $4 million.

* Spreading out the treasurer’s office bond sale and investment business to include firms headed by minorities, women and disabled veterans. State law sets a goal of 23% of bond sale fees going to such firms. Last year, Brown saw to it that 21% reached the targeted businesses.

Brown, like Hayes before her, boasts of making the selection of underwriters on major bond issues “competitive,” although only certain bonds are sold to the highest bidder among competing syndicates of investment bankers.

In other cases, Brown chooses among competing firms after reviewing qualifications, but without any formal bidding.

In one such competition by qualifications, Brown replaced Bank of America with New York-based Lehman Brothers as the managing underwriter on the annual short-term note sales. Over three years, the winning firm managed the sale of $20 billion in notes and collected $6 million in fees for its efforts.

In 1991 and again in 1992, many of the largest investment banking firms in the country submitted statements of their qualifications along with estimates of their fees.

Treasurer’s office records show that the Lehman Brothers’ estimates were higher than Bank of America and several other competitors both years.

And campaign records show that Lehman Brothers’ West Coast managing director, Catherine Pfeiffenberger, personally contributed $4,000 to Brown’s campaign from 1989 through 1992. Neither Pfeiffenberger nor a Lehman Brothers spokesman would comment on the firm’s efforts to win state business.

Brown vigorously defended Pfeiffenberger and Lehman Brothers and denied that contributions played a role. “She’s one of the best bankers in the business,” Brown said.

When Brown announced her decision to return the business to Bank of America after a similar competition this year, she declared, “I am continuing my commitment to keep California dollars working for us here at home.”

If it was important to place the business with a California firm, why had she taken the business away from Bank of America three years ago?

Brown said that she shifted the business because the bank “had not done a good job.”

“I’m a strict grader,” she said. “I’m very tough on investment bankers.”

Brown was the first California treasurer to hire an outside firm as financial adviser on bond deals, making the selection after reviewing qualifications from a number of competitors. The business went to Public Resources Advisory Group--a firm that has done similar work across the country.

Generally, investment bankers contacted by The Times said that the firm has performed well.

The firm and its principals contributed $11,900 to Brown’s campaign--much of it before the firm got the state’s business.

Despite her generally mild demeanor, Brown has exhibited a scrappiness at times--some would call it peevishness--in dealing with critics.

In one case, the issue was College Saver bonds--which Brown has touted in press releases and public statements as a “carefree” way to save for a child’s education. She has sold $70 million of the bonds, which were first marketed by her predecessor.

A number of financial planners contacted by The Times are critical of such bonds when used by families to save for a young child’s college education. These experts say there are other long-term investments that stand a better chance of keeping up with college costs that have been rising twice as fast as the general rate of inflation.

“Generally speaking, particularly with very young children, investors need to assume considerably more risk,” said Jonathan Pond, a Boston-based financial planner and author. “I hate to be cynical,” Pond said, “but it’s a way for states in weakened financial situations to raise money from the unsophisticated investor.”

But in 1991, when Peter A. Roberts of the College Savings Bank of Princeton, N.J., took out ads attacking Brown and the College Saver bonds with similar arguments, the treasurer lashed out at him. (Roberts was making a pitch for federally insured certificates of deposit sold by his bank that are pegged to a college cost inflation index.)

Brown personally sent letters to publishing executives urging them to stop running the ads she found offensive. Newsweek pulled one of the ads.

But the Wall Street Journal told her in a letter that “our readers are astute enough to make their own decision.”

An angry Brown scrawled the words “wimp out” across the letter, according to her testimony in a related court case. In the same case, she was asked what her reaction was to Roberts’ ads. Responded Brown, “It made me really grumpy.”

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Times research librarian Maloy Moore also contributed to this story.