ORANGE COUNTY IN BANKRUPTCY : Senate Panel Looking for Ways to Aid County : Finances: Several lawmakers doubt there is much they can do. ‘We don’t have the money to bail them out,’ one says.

A special Senate committee began looking Monday for ways to help extract Orange County from its investment quagmire, but several lawmakers expressed doubt that the state can offer much assistance and glumly predicted that the county’s financial disaster may only grow worse.

The chief of a team trying to restructure the county’s investments told the 14-member panel that Orange County still faces significant risk and could be dramatically hurt if interest rates continue to rise.

“We are not out of the woods yet,” said Thomas Hayes, the former state finance director dispatched to Orange County to help revive the investment portfolio. “This is still too risky a portfolio for a local government.”

Hayes outlined how the county fund had lost $2.02 billion--about 27% of its value. But Sen. Daniel E. Boatwright (D-Concord) said he doubted that the losses would stop there because the investments Orange County has left to sell will probably not fetch attractive prices.

“I would be very surprised if you can hold this to $2.02 billion and 27%,” Boatwright said. “I think you’re in a fire sale.”

Hayes disagreed, saying the “market is with us right now.” He conceded, however, that Orange County will suffer even bigger losses if the federal government continues to raise interest rates, which would cut up to $300 million from the county investment fund for every 1% increase.

Although the committee took no action, the members agreed to meet again early next month to explore potential legislation aimed at assuring that no taxpayer funds are again exposed to such risk.

But a warning was sounded by Barbara Coates, president of the County Treasurers and Tax Collectors Assn., who cautioned against enacting a “flood of legislative proposals” that could end up backfiring in delicate investment markets.

“Reforms must be done in a manner that do not cause major (adverse) repercussions throughout the state or nation,” said Coates, treasurer of rural Plumas County. “Reforms need to be well thought out and carefully implemented. . . . There needs to be a phasing in of whatever changes are deemed necessary.”

Boatwright, meanwhile, raised serious doubts that the state will be able to offer much help to Orange County or its cities. “I’ve got a feeling a lot of these local governments are going to come up here with their hands out and ask us to bail them out,” Boatwright said. “We don’t have the money to bail them out. . . . We’re in a hole.”

Boatwright and Sen. John R. Lewis (R-Orange) peppered a representative of the Orange County Department of Education with queries about why the department and several school districts borrowed money to invest with the county portfolio.

“Didn’t any alarms go off at all?” Lewis asked. “It strikes me as rather unbelievable. . . . I know it’s Monday morning quarterbacking, but wasn’t there any discussion in the department about that at all?”

Wendy Margarita, the department’s business services director, said educators had been assured the investments were free of risk. Moreover, educators were assuaged because the investments were under the eye of a county treasurer--Robert L. Citron--who until recently had enjoyed a sterling reputation, Margarita said. She also said that school districts lack the expertise to properly shepherd their investment funds.

Boatwright, meanwhile, acknowledged that the state will almost certainly step in as required by law if the districts run short of operating cash, but painted a bleak picture of what school life would be like.

Drawing parallels with the troubled Richmond Unified School District, which is in Boatwright’s Senate district, the lawmaker said Orange County school children may have to subsist in a Draconian environment where “you may not have athletics, you may not have band, you may not have extracurricular activities. You may have only the basic core subjects.”

Boatwright also chastised the school districts for borrowing money for what ultimately proved to be risky investments.

“I think it was your fault that you went out and borrowed money to invest. That’s not what school districts in California are for,” Boatwright said. “They’re to educate children, and they’re not to borrow money to invest on the come, which is exactly what you did. . . . You’re not going to get a sympathetic ear from me and probably not from some other members of the state Legislature.”

At the conclusion of the hearing, Sen. Quentin L. Kopp (I-San Francisco) distributed a list of 20 witnesses he said should be subpoenaed and compelled to testify under oath next month. The list includes former Orange County Treasurer Citron and three Merrill Lynch bond brokers with whom Citron did business. Others on the list are Jim Bruner, a lobbyist for the law firm of Orrick, Herrington and Sutcliffe, which Kopp called a “major player” in government finance.

Kopp said he believes most of the 20 witnesses would appear voluntarily but claimed that it would be “futile” to expect some to willingly testify. He said all should be subpoenaed.

But Sen. Lucy Killea (I-San Diego), co-chair of the committee, told a reporter later that she opposes compelling testimony by subpoena. She said she did not believe it was necessary to put witnesses under oath to draft remedial legislation.

“I think we need to get all the information, (but) I’m not that interested in the finger-pointing and blame-placing” for the Orange County debacle, Killea said.