ORANGE COUNTY IN BANKRUPTCY : Senate Leader Favors Short-Term Loan Deal : Legislature: Bill Lockyer, after meeting with county officials, says such assistance is ‘somewhat inevitable’ and preferable to a tax increase to ease fiscal crisis.

The Senate’s top leader said Tuesday that a short-term loan or some other form of financial help from the state is “somewhat inevitable” if Orange County is to recover from its deepening investment crisis.

Senate President Pro Tem Bill Lockyer (D-Hayward) also appeared to dash cold water on the notion that Orange County should increase its own taxes as part of any agreement to obtain help from the state.

Based on a preliminary examination by legislative consultants, Lockyer said he had reached the “tentative conclusion” that taxpayers of Orange County are “carrying a fairly significant tax burden. They are doing a pretty good job” of paying a larger share compared with residents of other major counties.

Lockyer met for about an hour with half a dozen Orange County officials--including Supervisor Marian Bergeson, Board of Supervisors Chairman Gaddi H. Vasquez and county Chief Executive Officer William J. Popejoy--and came away seemingly convinced that a loan or loan guarantee would be needed.

He did not estimate the size of any possible loan or from which cash-strapped state fund the borrowing might be made. But he said he believes a state loan is “somewhat inevitable.”

“It seems to me that the hole is too deep for them to realistically fill in the short term,” Lockyer said. “In the long term, Orange County is a very, very vital part of the state’s economy. It is productive, prosperous and capable of repaying debt. But they have a short-term crisis that they cannot manage on their own.”

Orange County officials, in town Tuesday in advance of a scheduled 9 a.m. appearance today to make their case before the full Assembly, also met with Gov. Pete Wilson and laid out a proposal for the state to help by guaranteeing a $255-million “recovery note,” with the county putting up its assets as collateral.

But the governor, who has consistently pushed for the county to tackle its financial problems with as little state assistance as possible, said he would need more details before he could pass judgment on the proposal, a Wilson spokesman said.

“The governor listened to their proposals and asked for additional information,” said Sean Walsh, a Wilson spokesman.

Walsh said that Wilson continues to believe the state is not in a position to bail out Orange County, but added that the governor “absolutely is not standing on the sidelines” and has been working with lawmakers to craft solutions.

Popejoy said the governor seemed to have “listened intently” and expressed “more than once that hundreds of thousands of people are going to be paying for the errors of just a few.”

“There’s not been amongst the state government’s leadership a real appreciation of the problems we’re facing,” Popejoy said, adding that he believes “financing backed by the state looms very large in our financing plans going forward.”

Lockyer said the local officials, accompanied by Orange County’s chief lobbyist Dennis Carpenter, also indicated that county supervisors could adopt a balanced budget for the fiscal year starting July 1 without some of the controversial waivers from state law that were talked about a month or so ago, including proposals to eliminate general assistance welfare support.

But Lockyer noted that a newly announced proposal to achieve savings by substantial cuts in the ranks of local government employees would be highly controversial. “In order to achieve a balanced budget, there is going to be considerable anger among employees who are going to be laid off,” he said.

Meanwhile, Assembly GOP leader Jim Brulte said Tuesday that the Legislature might approve state loan guarantees for Orange County if the county puts up sufficient collateral.

If Orange County is “prepared to put up collateral as a guarantee in case of default, then I think the Legislature would be much more willing to entertain that,” Brulte said during a Capitol news conference earlier in the day.

Brulte, who met with the Orange County group Tuesday evening, said Assembly Republicans are waiting to hear the contingent’s pitch today before deciding what else they could support.

He also said Assembly Speaker Willie Brown (D-San Francisco)--who has in recent weeks battered Orange County leaders with ridicule over the debacle--seems more amenable to helping Orange County since attending a briefing by Orange County officials last weekend at the Newport Beach home of Irvine Co. executive Gary Hunt.

“Frankly, I think Willie is no longer posturing,” Brulte said. “It’s time we have some good public-policy decision-making.”

If the state guarantees repayment of loans, it could make it easier for Orange County to borrow money.

County officials have been pushing a plan to issue $255 million in “recovery notes” that would be guaranteed by the state but use the county’s assets as collateral. The money generated by those notes would help pay participants in the county’s troubled investment pool.

Many investors in the pool have rejected a recent settlement proposal brokered by the Orange County Business Council that would not guarantee the return of their entire investment. The plan would repay all participants 77 cents on each dollar invested and holds out a promise that they would eventually recoup all their funds.

The county hopes to sell the recovery notes in an effort to increase the amount repaid immediately to 90 cents on the dollar for school districts and 80 cents per dollar for local agencies and other investors.

Times staff writer Jerry Gillam also contributed to this story.