ORANGE COUNTY IN BANKRUPTCY : Bill Could Strip Fiscal Power From Supervisors : Legislation: Proposal would give county voters option of turning all budgetary matters over to local trustees.

SACRAMENTO — A state lawmaker plans to introduce legislation Monday that would allow voters in financially strapped Orange County to strip the Board of Supervisors of all fiscal authority and turn budgetary matters over to a group of trustees.

Sen. Lucy Killea (I-San Diego) said Friday that she was motivated to draft the measure because supervisors have failed to act aggressively in tackling the ballooning crisis since the county investment portfolio collapsed and bankruptcy was declared in early December.

“They did not exercise their authority, they did not provide oversight of their investments, and now they’ve been at it three months without taking any decisive action,” Killea said. “They certainly lack the support of the public and the investment community. I don’t think we should be saying, ‘Here, go solve the problems,’ when they’re the cause of the problem.”

Orange County officials reacted with anger over Killea’s bill, which is to be introduced into an ongoing special session on the bankruptcy and therefore will be on a fast track for consideration.

Supervisor William G. Steiner said the San Diego legislator should focus on the financial problems in her own hometown and not on Orange County’s.

“To me it’s grandstanding,” Steiner said. “It might be better if the she confined her concerns to her own county, whose investment pool has lost nearly half a billion dollars.”

Meanwhile, Sen. William A. Craven (R-Oceanside), who, along with Killea, serves as co-chair of a special Senate committee examining Orange County’s bankruptcy, and Sen. John R. Lewis (R-Orange) introduced twin bills Friday that would allow county supervisors to request help from a special state commission that would provide advice and assistance. But unlike Killea’s proposal, the measures authored by Craven and Lewis would allow the supervisors to retain their current powers.

Killea’s bill would set up an election on June 6 to allow Orange County voters to take away the supervisors’ financial responsibilities and establish a County Assistance Authority to tackle the crisis.

The authority, which Killea said could have a life span of several years, would be composed of state Treasurer Matt Fong, two members appointed by the governor and three Orange County representatives drawn from the cities, the schools and the Board of Supervisors. Among their responsibilities would be authority over the office of the county auditor, administrator and treasurer-tax collector.

In attacking the county’s vast budgetary problems and the dilemma of a $1.7-billion investment loss, the authority would be able to call for a tax increase, an action that has been roundly rejected by the Board of Supervisors and lambasted by many residents.

The bill also makes provisions for state loans to help bail out the county, which has more than $1 billion in bond debt due this summer.

In addition, the bill has provisions to intercept revenue collected by the county in case it failed to meet payments on bailout loans. The idea mirrors several other bills that have already been introduced and a proposal that has proved popular with jittery Wall Street investors.

*

Finally, the assistance authority would be vested with the power to petition federal court to pull Orange County out of bankruptcy and draft a plan to pay off the more than 190 entities that have money invested in the county portfolio.

“This is a situation that calls for some pretty drastic measures,” Killea said. “Business-as-usual hasn’t worked. . . . The very fact that I’m putting this in means I’m not terribly optimistic they’re going to turn around and start moving.”

The supervisors, meanwhile, would be left with very few responsibilities, Killea conceded.

“It’s not a recall,” she said. “Rather, the board would be put on probation, if you will. It would essentially be saying they’re not equipped to handle this problem given their performance to date.”

But Supervisor Marian Bergeson, a former state senator, called Killea’s proposal nothing more than a recipe for further troubles.

“I think it’s entirely inappropriate and not needed,” Bergeson said. “The county is going forward and has excellent advisers and resources” to manage the recovery.

Bergeson said the recent addition of County Chief Executive Officer William J. Popejoy has further strengthened the county’s ability to pull out of the bankruptcy. Popejoy, she said, has provided good information and research to the board so it can “make the tough decisions.”

*

Although she opposes a trusteeship, Bergeson said the Legislature could help in other ways, such as easing the burden on Orange County of costly state-mandated social programs.

Popejoy said he was unaware of the bill and was too preoccupied by the tasks at hand to be concerned about the implications of a trusteeship.

“I don’t have a position one way or the other,” he said. “I’m busy doing the job that the board has given me.”

Killea’s legislation is similar to a proposal made a week ago by Assembly Speaker Willie Brown (D-San Francisco), who said Orange County needed to consider raising taxes to bail itself out and that the state should consider establishing a trusteeship to run the beleaguered county.

Brown could not be reached for comment Friday, but Capitol insiders predicted that the Killea bill might prove palatable to Democrats. At the very least, several predicted, it could serve to prod Orange County leaders into more quickly producing concrete proposals to yank the county from the financial brink.

Assemblyman Curt Pringle (R-Garden Grove) said he had not seen details of the proposal, but warned that Republicans would strongly oppose Killea’s efforts if a tax hike is involved.

“If its just a way to raise taxes without a vote of the people, I would be opposed to it,” he said. “But if it holds the supervisors’ feet to the fire and ensures that cuts are made and the county is restructured, then it may have some potential.”

*

With debate on Killea’s bill already beginning to rage, the idea raised by Lewis and Craven could prove a less-controversial compromise that might win votes from both sides of the aisle.

Patterned after a concept used to bail New York City out of financial difficulties in the 1970s, the two lawmakers propose creating a Local Agency Assistance Commission composed of the state treasurer and three other members appointed by the governor, the Senate Rules Committee and the Assembly Speaker.

The commission could hire financial consultants and advisers to assist the county in its recovery efforts by providing legal, budget and other advice and services. If agreeable to the supervisors, the commission could take over performing any power currently held by county leaders.

Scott Johnson, Craven’s chief counsel, said the proposal provides “a fallback” in case the county continues to founder. Noting that “there’s some real criticism of the way things are going,” Johnson said the measures “set up the potential for someone to step in to run the place.”

* DEEPER IN DEBT

County billed for $120,000 in legal fees for officials. A27

* ALARMS UNHEEDED

Panel plans hearing on ignored warnings of peril to fund. A28

* RELATED STORIES: A27-28