NEWS ANALYSIS : Lungren’s Probe May Pay Political Dividend : Politics: GOP prosecutor stands to boost image of integrity for investigating former head of Republican Party.

State Atty. Gen. Dan Lungren’s office faced political perils when agents launched a sting operation against a former chairman of his own party, but the investigation into an alleged bribery attempt may well enhance Lungren’s marketability for higher office and energize one of his own legislative crusades.

As it became known last week that Lungren’s office had been investigating former California Republican Party Chairman Michael B. Montgomery for attempted bribery, political insiders immediately began assessing the impact on Lungren’s career and mostly concluded that it was a plus.

Even though he may lose support from a few of the party faithful, the investigation “shows an attorney general with integrity . . . incorruptible . . . not holding back because it’s a Republican,” said veteran California pollster Mervin Field.

The Montgomery investigation also could add impetus to Lungren’s so-far unsuccessful three-year drive to set up a Nevada-style commission to regulate the state’s mushrooming card room industry.

“If this doesn’t signal that the Legislature is being exposed to a flood of money and potential corruption on the gambling issue, I don’t know what will,” said Assemblyman Phillip Isenberg (D-Sacramento), who authored Lungren’s bill and helped it pass the Assembly this year.

Montgomery has not been charged with any crime and denies wrongdoing.

For Bill Hoge (R-Pasadena), the two-term state assemblyman who initiated the investigation of Montgomery and agreed to act as an undercover agent, political observers predicted that the fallout may be mixed.

Although Hoge could win points with voters for tackling alleged corruption, several campaign consultants said his role as a mole who secretly recorded conversations with Montgomery may seed distrust with fellow Republican officials and discourage potential contributors from donating to his campaign.

“I think just in general anyone who gets caught up in these kind of sting operations in any way, shape or form is used goods around the Capitol from then on,” said one Democratic insider who spoke on condition of anonymity. “It just almost neutralizes that person. Lobbyists don’t want to deal with them. Other legislators are very nervous about dealing with them.”

In January, Hoge handed Lungren a potential political hot potato when, according to documents and interviews, he alleged that Montgomery had offered him an interest in a proposed card casino in exchange for the legislator’s help in blocking a rival’s project.

At the time, Montgomery, an El Monte attorney, was representing two businessmen battling for a franchise to operate a card room in Colma, a tiny suburb of San Francisco. The town council had awarded first rights to operate the casino to another group, but the council had said that if their application fell by the wayside for any reason, Montgomery’s clients would move to the top of the list.

The council in December had given the winning bidder, Lucky Chances, an indefinite extension of time to secure clearance from the section of Lungren’s office that registers prospective card room operators.

Around that time, sources close to the investigation said, Hoge contacted Lungren’s office about Montgomery, a former member of the state Fair Political Practices Commission and a onetime South Pasadena City Council member.

Political observers say that Lungren had no choice but to pursue Hoge’s allegations, which Montgomery has denied.

“If Lungren did nothing and it was later revealed, that would be a heavy negative,” pollster Field said, adding that it was a plus for the state’s top prosecutor “to be showing no favorites.”

Two previous high-profile political corruption investigations conducted by Lungren’s office have targeted Democrats. In one, former state schools chief Bill Honig was convicted of conflict of interest charges. In the other, State Board of Equalization member William Bennett pleaded no contest to a charge that he filed false expense reports.

Democrats in the Capitol have privately questioned whether Lungren would be as aggressive in pursuing allegations against Republican officials. He answered his critics with the five-month investigation of Montgomery, which now has been referred to the Sacramento County district attorney’s office for possible prosecution.

Wednesday’s disclosure of the investigation in The Times came at an opportune moment for Lungren, who has been weighing his political options since November, when he handily won reelection. Prohibited by term limits from seeking reelection as attorney general, he is considered a strong bet to be a candidate in 1998 for either governor or the U.S. Senate.

But in recent months, Republican presidential front-runner and Senate Majority Leader Bob Dole’s campaign has mentioned Lungren as a potential vice presidential nominee.

“When Hoge came to Lungren,” Field speculated, “Lungren saw the possibilities and [could have] decided that this might add even more luster to his resume.”

Like Lungren, Hoge has been in the forefront of gaming legislation. He is carrying a bill that would allow publicly traded companies, including Nevada casino operators, to own card rooms in California. He also has been a major recipient of gambling industry campaign contributions.

Hoge’s role in the investigation is likely to inoculate him against criticism that he is too cozy with the gaming interests.

“I would think it kind of sanitizes Mr. Hoge and makes the attorney general look good,” said Sen. Tom Hayden (D-Santa Monica), who has pushed for gaming reform legislation.

Others doubt that the investigation will have much of an impact on the careers of Lungren or Hoge, who is considered a potential congressional or state Senate candidate in 1996.

“I think both of them appear to be doing the right thing and it will have no effect on them politically because the voters expect both of them to do their duty,” said GOP consultant Ron Smith. “You don’t get points for doing your duty.”