ORANGE COUNTY IN BANKRUPTCY : Investment Firm’s Offer to Aid in Financing Debated : Recovery: J.P. Morgan plan would allow the county to sell up to $2 billion in bonds. Some see proposal as salvation, but Popejoy says deal would cost too much.

Investors and community leaders expressed mixed reactions Monday about a major investment firm’s proposal that would allow Orange County to borrow up to $2 billion and potentially end bankruptcy proceedings.

Some backed County Chief Executive Officer William J. Popejoy’s contention that the county cannot afford to borrow even on a temporary basis. Others said it is missing a major opportunity by passing up the offer by J.P. Morgan Securities Inc.

“This is absolutely the thing to do,” said Joe Mysak, editor of Grant’s Municipal Bond Observer in New York. “This is like the long-conjectured ‘Plan B,’ that someone is going to come to the rescue at the last minute.”

But Dean J. Misczynski, a California bond expert in Sacramento, said the offer is “a little bit like giving a credit card to someone who can’t afford it.”

The divergent views surround an unsolicited offer first made by J.P. Morgan in February, and renewed earlier this month, to arrange for a short-term loan to allow the county “breathing room” and give it time to work out some of its financial problems.

Under the plan, a letter of credit would be arranged with the backing of Morgan Guaranty Trust Co. and other banks to allow the county to sell up to $2 billion worth of bonds.

“Presumably, the proceeds from the sale would be sufficient to allow the county to meet its current cash obligations during the next 16 months,” the plan states. “During this ‘breathing room’ period, the county would have the opportunity to work out its own plan for permanent recovery.”

Repayment would be guaranteed by the county’s right to receive motor vehicle license fees and sales taxes for the next 32 years.

But since motor vehicle fees alone make up about a third of the county budget, the plan was rejected by Popejoy as being too expensive. He said the proposal was evaluated and thought to be a “door opener” by Morgan, an attempt to start talks to get more business from the county.

J.P. Morgan was one of four investment firms vying to be the county’s investment bankers in January. After evaluating the proposals, the county selected the firms of Goldman Sachs & Co. and A.G. Edwards & Sons.

County bankruptcy lawyer Bruce Bennett said the Morgan proposal didn’t deal directly with the county’s problem of how to pay down the $1.7-billion loss in the Orange County investment pool that forced bankruptcy last December.

“Solutions that would move the hole around aren’t solutions at all,” Bennett said Monday. “You don’t solve the problem and hole gets deeper.”

While three county supervisors said they would have liked to know of the Morgan offer, Supervisor William G. Steiner said Monday that the county was being deluged with unsolicited help in solving its financial crisis earlier this year and the board depended on Popejoy, and former state Treasurer Thomas W. Hayes before him, to weed out unfeasible ideas.

“We had a steady parade of individuals and a flood of letters, including bogus offers of credit from a bank in Taiwan. It was very hard to sort out what is viable.”

Wayne Wedin, chairman of the Orange County Business Council, said that all offers should be reviewed, including Morgan’s, in case they have value at a point.

“We have to come out of this with a crafted solution that has a way of generating revenue,” he said. “J.P. Morgan would be part of that.”

Times staff writer Debora Vrana contributed to this report.