O.C. Scores Much-Needed Wins on Legislative Front : Recovery: Assembly bill aiding schools is first to pass either house. Senator backs off on threat to drop measures.

Orange County won key legislative victories Thursday as a bill to help its bankruptcy-battered schools passed the Assembly and a disgruntled lawmaker agreed to continue carrying other pieces of legislation crucial to the county’s financial recovery.

After a series of apologetic conference calls from county leaders, state Sen. William A. Craven (R-Oceanside) backed off of a threat Wednesday to withdraw his sponsorship of several critical bills.

In return, county officials promised to give Craven a larger role in shaping the legislation, to communicate more with Craven’s office, and to coordinate better the wide-ranging recovery campaign.

“He is a key supporter, and these legislative efforts are too vital for us not to attempt to do whatever is possible to get this thing back on track,” said Paul S. Nussbaum, the top trouble-shooter for county Chief Executive Officer William J. Popejoy. “What we basically told him is that we look for his guidance and advice for the best way that these bills can be crafted to assure that the efforts are successful.”

Craven, whose district includes a large swath of South County, wrote to Popejoy on Wednesday saying he was frustrated with the county’s legislative efforts and suggesting Popejoy find another sponsor for bills Craven was carrying.

But Thursday, the senator was granted wide latitude to rewrite language in the bills Orange County wants passed, bringing him back on board.

“The legislative package needs to be redrafted. It wasn’t adequate the way it was, and it wasn’t doable politically,” explained Scott Johnson, Craven’s chief counsel. “There was not any point in going any further. We will assist them in putting together a legislative package that is doable, that is not a wish list.”

At issue are two bills, one establishing a tax-intercept program and another waiving state environmental reviews of a trash-hauling program designed to yield $360 million in revenue.

As Craven’s staff began work Thursday rewriting the proposed legislation, a separate bill that would make it easier for schools to raise much-needed operating revenue became the first recovery measure to win approval in either house of the Legislature, sweeping the Assembly 55 to 5.

The bill by Assemblywoman Doris Allen (R-Cypress) would allow Orange County school districts to raise cash by selling notes backed by real estate holdings, a practice currently banned.

“This will give the (school) districts the ability to help themselves,” Allen told her colleagues before the vote. She said the county’s schools are “not at fault for any of this” and her bill would help ensure that “kids can continue in programs” now threatened by the budget ax.

Allen’s bill, which now moves to the Senate, also would allow five Orange County districts that borrowed huge sums to invest in the county’s high-flying investment fund a few extra months to repay their loans.

The Orange County Department of Education, Newport-Mesa Unified, Irvine Unified and the North Orange County Community College District borrowed a total of $200 million to sink into the fund last June. Placentia-Yorba Linda Unified struck a separate but similar deal, borrowing $50 million to invest in the pool last August.

A stunning $1.7-billion loss in the pool sent the county to bankruptcy court Dec. 6. Allen’s bill would allow the districts until January, 1997, to use their property as collateral for the sale of short-term notes. That money could then be used to pay off debts and operating costs.

California’s school districts have been prohibited from selling such short-term notes to raise operating revenue since the early 1990s, when the Richmond school district nearly went bankrupt after abusing the practice.

Michael B. Kilbourn of the Orange County Department of Education acknowledged that it is “like using one credit card to pay off another credit card,” but said Orange County schools need to exhaust every means to stay solvent.

While the Allen bill sailed through the Assembly, other bankruptcy recovery bills appear headed for a tougher time in the lower house.

Assemblywoman Marguerite Archie-Hudson (D-Los Angeles), who chairs a select committee on the bankruptcy, wrote Thursday to Democratic Speaker Willie Brown, saying it would be “inappropriate” for her panel to make any recommendations on the recovery legislation until Orange County further refines its plans, and Gov. Pete Wilson indicates what role the state should play.

Archie-Hudson could not be reached for comment, but one Democratic official said that “no more bills are going to go out of the Assembly until the county puts a complete package together” outlining what role the state should play in the recovery. In addition, Wilson must specify what measures he supports or opposes before the Assembly will act, the official said.

Johnson, Craven’s staffer, also expressed doubts about the prospects for Orange County’s emergency legislation.

He criticized county officials for writing bills themselves and expecting Sacramento lawmakers to simply sign on, and said he was unsure whether the legislation could be amended quickly enough to be of help. Further, he expressed continued frustration over a lack of information from the county.

“Frankly, it’s a heck of a burden, and I think that it’s ridiculous that it’s happening this late in the game,” Johnson said.

Nussbaum, Popejoy and county bankruptcy attorney Bruce Bennett plan to travel to Sacramento on Monday, in part to meet with members of the county delegation who share Craven’s concerns. Nussbaum promised Thursday to do whatever it takes to move the legislation through.

“We want this effort to succeed,” he said simply. “We’re in a crucial period here. . . .”

Also on Thursday, a Senate panel sent four bills dealing with the bankruptcy to the floor, including one that would allow the state to virtually take over county government.

The Senate Appropriations Committee also approved a trio of measures designed to ensure the Orange County debacle doesn’t recur elsewhere in the state.

The bills would restrict contributions from investment houses to county treasurers and supervisors, install an oversight committee to keep a tighter rein on government investment portfolios, and sharply curtail the use of derivatives and other exotic investments that backfired on Orange County.

Meanwhile, the California State Assn. of Counties gave Orange County a symbolic nod of support for its recovery efforts after a presentation by Supervisors Marian Bergeson and William G. Steiner and two hours of heated discussion.

Though there is little other supervisors can do to help, Steiner said he hopes his colleagues will urge their state representatives to support legislation assisting the county.

“It was a real psychological plus to get the vote,” Steiner said.

Times staff writer Rene Lynch in Santa Ana also contributed to this story.

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