State Panel Focuses on Prevention : Legislation: A day after long session listening to O.C. officials on fund debacle, Senate committee starts considering what could and should be done.

They endured a daylong session full of finger-pointing, wildly contradictory revelations and occasional memory lapses by the major players in the Orange County financial debacle.

With the big headline hearing now behind them, the state Senate special committee looking into the county’s bankruptcy buckled down Wednesday for the real task at hand--figuring out what they can truly do to help.

Amid mutterings of disgust over Tuesday’s testimony by former Treasurer-Tax Collector Robert L. Citron and others thought responsible for the financial crash, members of the state Senate Special Committee on Local Government Investments expressed hope that the next few weeks will yield legislation designed to prevent similar predicaments--and help yank Orange County out of its fiscal quagmire.

The committee plans a third and final hearing the third week of February, and lawmakers hope by then to have as many as two dozen bills ready for review and introduction. The leading contenders: legislation requiring thorough disclosure of a investment pool’s profits and losses, as well as tight restrictions on treasurers tempted to borrow money and reinvest it, a practice that contributed to Orange County’s woes.

In a move that should play well on Wall Street, the committee is also taking a look at possible legislation that would allow the creation of the sort of state-sanctioned advisory body that helped lift New York City out of its financial troubles in the 1970s.

Sen. Lucy Killea (I-San Diego), the committee’s co-chair, said the 10-member panel has no intention of giving Orange County money “to help them overcome a problem they created themselves,” but would favor legislation allowing the state to assume a temporary oversight role that might quell the concerns of Wall Street.

Investment bankers and securities regulators have criticized state leaders for not having stepped in already, and suggest that some state intervention is needed before investors would have the confidence to purchase any bonds that Orange County might want to sell to finance its recovery.

“We see this as a contingency,” Killea said. “We have a feeling as we go along, as we find out more and more about the mismanagement problems in Orange County, that there may be a need for stronger direction from the state for a temporary period.”

Scott Johnson, chief counsel for Sen. William A. Craven (R-Oceanside), the committee’s other co-chairman, said the idea has been submitted to the Legislative Counsel for study.

“It’s obviously a different situation than in New York,” Johnson said. “We’re looking at this as a possible remedy in case the county’s Chapter 9 bankruptcy filing doesn’t work out. The state may want to look at a backup.”

Sen. Quentin L. Kopp (I-San Francisco), another committee member, said he wants to see wholesale reform of the state’s legal checks and balances on municipal finance, which are among the most lax in the nation. Kopp favors restricting local governments to only four or five types of safe and simple investments, prohibiting derivatives, reverse repurchase agreements and other sophisticated securities.

Other committee members want to work with a finer blade to carve careful regulations that will eliminate the pitfalls that plagued Orange County, but without completely hamstringing city and county treasurers.

State Sen. Patrick Johnston (D-Stockton), for instance, favors more oversight of municipal portfolios. Noting Citron’s apparent lack of investment sophistication, he also talked of possibly requiring that treasurers be appointed and possess the proper qualifications for the job.

One thing all the lawmakers could agree on after Tuesday’s sometimes cantankerous hearing was that almost everyone involved in the Orange County mess seemed to bear some blame.

“It was mostly a day of witnesses pleading limited knowledge and outright stupidity and finger pointing at someone else in the daisy chain,” said Johnston.

Johnston said the hearing “ratifies an earlier thought we had--that this wasn’t the case of one renegade treasurer. This is a problem that is pervasive and may exist in other counties with respect to investment houses and rather unsophisticated municipal employees.”

Killea, meanwhile, suggested the hearing didn’t accomplish much aside from underlining the need for strict regulations.

“None of these people at the hearing presented themselves as worthy of the public trust,” Killea said.