O.C. Leaders Ask Assembly for Help to Rescue Schools : Bankruptcy: Democratic lawmakers are unsympathetic. They ask pointedly why county won’t consider tax hike and criticize budget cuts they say target the poor.

SACRAMENTO —  With hat in hand, a contingent of Orange County leaders asked the Assembly on Wednesday to help provide crucial loan guarantees needed to keep schools afloat and prevent the county’s financial debacle from rippling further through the state.

But the county’s plea drew a largely unsympathetic response from Democrats, who repeatedly asked why Orange County hasn’t addressed its daunting fiscal dilemma by raising taxes, and criticized the county for budget cuts they say target the poor.

“When you speculate (on risky investments) the way Orange County did and then expect the rest of the state to bail (you) out, it’s really asking a lot,” Assemblyman Tom Bates (D-Berkeley) said after the 90-minute session. “We want the pain of the recovery to be shared by all of the residents of Orange County, not just the poorest and weakest. We want something balanced, not just a flimflam.”

The unusual presentation before the full Assembly came at the invitation of Democratic Speaker Willie Brown, who pulled the session together after meeting last weekend in Orange County with business leaders and county officials to discuss the county’s bankruptcy.

In making the pitch Wednesday, Orange County Chief Executive Officer William J. Popejoy outlined the financial crisis that engulfed one of the country’s wealthiest counties after its investment pool suffered a $1.69-billion loss last year, prompting the county to declare bankruptcy Dec. 6.

Asked repeatedly by Democrats why the county hadn’t considered raising taxes, Popejoy said he viewed a sales-tax hike as a last resort. But he wouldn’t rule it out.

“If we get to a point where I can’t see a way around this other than a sales tax, then I’ll recommend a sales tax,” Popejoy said, adding that he wants to consider all other possible solutions before he takes that step. “I’m not foolish enough to feel that we just say ‘no’ to taxes under any circumstances.”

Republicans seemed far more amenable to Orange County’s recovery efforts. Assembly Republican leader Jim Brulte expressed support this week for providing a state loan guarantee, and other GOP lawmakers appeared agreeable at Wednesday’s session.

“I think guaranteeing a loan is not a bad way to go,” said Assemblyman Mickey Conroy (R-Orange).

A sales tax increase from the current 7.75% to 8.75% would raise about $270 million in additional revenue for the county, an infusion of cash that Democrats and Wall Street investment bankers have said would help Orange County secure loans it will need for its recovery.

Popejoy and other 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 that would repay all participants 77 cents per dollar invested, but hold out a promise that they would eventually recoup all their funds. The county hopes to sell the recovery notes to increase the amount repaid immediately to 90 cents on the dollar for school districts and 80 cents on the dollar for local agencies and other investors.

On Wednesday, several Democrats voiced qualms about the proposal.

Marguerite Archie-Hudson (D-Los Angeles), chairwoman of a special committee that will meet March 22 to discuss the county’s recovery efforts, said a state loan guarantee remains troublesome because Orange County leaders have identified only $155 million in assets they can can put up as collateral.

“The state would be asked to take a $100-million exposure,” she said. “That seems to us to be at least imprudent.”

Popejoy told lawmakers that the county is preparing to identify assets that it could put up as collateral but didn’t play down the potential risk.

“What we need from you people in Sacramento is help in this area,” he said of the loan guarantees. “Just like any of you who sign notes for your children or friends, you’re at risk.”

But he also told state lawmakers that if they “walk away” from helping Orange County, they will have to “accept the other possibilities that come out of the insolvency of the schools,” such as having to bail out troubled districts with state revenue.

Popejoy also warned that if the county’s recovery efforts fail, the entire California municipal bond market will feel the impact. “We won’t be the only ones hurt,” he said. “Every municipality in California will be hurt.”

Brown continued to insist after the session that no state relief package would win Assembly approval unless Orange County demonstrates that it has taken every step possible--including a tax hike--to bail itself out of trouble.

The Speaker said that both Democrats and Republicans in the Legislature “are going to insist that Orange County exhaust every option that Orange County has, including any new revenue sources, before they start seeking assistance” from the state.

But the embattled Orange County Board of Supervisors has steadfastly resisted the idea of a tax increase and is scrambling to find other options.

“Taxes cannot help us at this point,” said Supervisor Marian Bergeson, a former state lawmaker who introduced Popejoy to the Assembly on Wednesday. She said the county is suffering such a “crisis of confidence” in their elected leaders that “it will be very difficult for us to get any assistance from the electorate” to raise taxes.

During his presentation, Popejoy repeatedly emphasized the danger to Orange County education programs, an issue close to the hearts of most Democrats. He said the county can make cuts, privatize services and sell off assets, but will still be short enough revenue to save school districts that suffered deep losses from financial ruin.

“If you want to turn your back on the rest of the county, that’s up to you,” Popejoy pleaded. “We need your help with the schools.”

Many of the lawmakers on both sides of the aisle listened intently as Popejoy spoke. The session drew a large contingent of legislative staffers and a smattering of officials from Gov. Pete Wilson’s office. The only statewide officeholder to attend was Controller Kathleen Connell.

The Speaker said the stress on education by the Orange County leader was a tactic of “political programming.” He asserted that county officials were “looking for a security blanket” that would “soften the hostility to mismanagement.”

Brown also said that in previous state bailouts of distressed school districts--such as in Compton, Richmond and Alameda County--imposition of a trustee to manage the district triggered the aid. He predicted the Legislature would not make an exception for Orange County schools.

Other Democratic lawmakers suggested that the Board of Supervisors ought to consider accepting a state-appointed trustee to guide the recovery efforts. Assemblyman Kevin Murray (D-Los Angeles) said the crisis was the result of an “obvious lack of oversight” by the supervisors and expressed concern about the state providing help under the present regime.

Assemblyman Richard Katz (D-Sylmar) said Orange County’s plea for state help seemed an affront to counties that invested more prudently. He noted that Los Angeles County would have made an additional $800 million during the past five years had it gambled on exotic investments like the ones in the Orange County pool managed by longtime Treasurer-Tax Collector Robert L. Citron, who resigned shortly before the bankruptcy.

“You’re coming to the Legislature and asking for guarantees that put our counties at risk for being fiscally conservative, when Orange County wasn’t,” Katz said pointedly.

Noting Popejoy’s proposal Tuesday that 1,600 positions in the county work force--1,040 of them through employee layoffs--be eliminated, Assemblyman Antonio Villaraigosa (D-Los Angeles) said the budget “isn’t out of ‘Profiles in Courage’ when the only thing it does is really shift the blame onto the employees and the children.”

Popejoy, who has asked the Board of Supervisors to approve his plan within two weeks, attempted to blunt the Democrat charges by saying the county had few other options. He said the county does not intend to allow budgetary cuts to fall “just on the shoulders of the people on the lowest end of the socioeconomic ladder.” Popejoy also said there was “no sanctity in downsizing” the county work force.

“It’s not pleasant,” he said. “But we’re trying to do what’s necessary. . . I don’t have a mission to tear down county government.”

He also acknowledged that many Democrats in the Capitol “don’t want to help” Orange County, the largest enclave of Republicans in the state. “You feel, ‘They’re fat cats, let them help themselves.’ ”

While lawmakers heard Popejoy’s pitch, about 400 county workers were holding a rally in the courtyard of the Orange County Hall of Administration to protest the chief executive’s proposal to lay off the employees, many of them social services workers.

Labor leaders said any more layoffs would only “decimate” the quality of services.

“We hope that (county officials) will search every nook and cranny . . . to see if they could cut other things instead of the employees,” said Linda Pierpoint, staff manager for Orange County Employees Assn., which represents about 70% of county workers.

“Throughout the bankruptcy process, you have been treated like a number, a line item on the county budget,” Nick Berardino, the union’s employee relations director, told the workers. He said the rally “sends the message that county employees, the innocent victims of the bankruptcy, can no longer be ignored and treated as second-class citizens.”

Times staff writer Lily Dizon contributed to this report.

* SCARY NONFICTION: Library patrons, workers fear branches will be on hit list. A18

* TROUBLED CHILDREN: Swamped social workers say children will suffer most. A20

* ADDITIONAL COVERAGE: A20-21