ORANGE COUNTY IN BANKRUPTCY : Schools Get Short-Term Reprieve : Education: County to meet districts’ payrolls through Jan. 3. Focus turns to rescuing investments.

Reassured Tuesday by the county’s promise to meet two upcoming payrolls and an all-but-signed agreement to segregate incoming money earmarked for education from the ailing county treasury, school officials began to focus on their longer-term legal strategy to rescue the $1 billion schools have in the now-frozen county investment pool.

At an early morning meeting with top administrators of the county’s 31 school districts, Orange County Supervisor William G. Steiner said the county would definitely meet payroll this Friday for 28,000 school employees, and Jan. 3 for the county’s 20,000 schoolteachers.

Also at that meeting, state Secretary of Child Welfare and Education Maureen DiMarco reassured the superintendents that the state is committed to seeing that there is no disruption to education because of the bankruptcy.

In Sacramento Tuesday, Gov. Pete Wilson backed up her promise, saying the California Constitution requires the state to educate its children. “We are obliged, even when there’s been egregiously bad management--which I frankly resent--to assure that there will be continued education for the children,” he said.

But Wilson expressed little sympathy for the five school districts that borrowed heavily for the sole purpose of reaping profits through investments in the pool.

“That’s like taking the milk money and playing bingo with it,” Wilson said in an interview. “There’s a considerable difference between a school district that has simply put its excess funds with the county and one that has done, to me, the egregious thing of borrowing money . . . to play the market.”

Back in Orange County, DiMarco said “there is no cause for panic” but, like many school officials, limited her confidence to short-term expenses, such as payroll, necessary supplies and routine bills.

“I cannot predict what we will be looking at in June,” she said. “We are taking this incrementally. . . . We are definitely working sequentially.”

As school officials redirected their energy to the outstanding longer-term issues, administrators and their bankruptcy attorneys said there may soon be a split between the five agencies that borrowed large sums for the sole purpose of reaping profit through the pool and the rest of the districts, which mainly used the county treasury like a banker.

Some school officials and their attorneys said they plan to attend this morning’s creditors committee meeting in Los Angeles.

Richard Marshack, who represents Capistrano Unified, Saddleback Valley Unified and the Buena Park School District, said he would argue in court that the county must repay these schools “dollar for dollar” because they had no choice under state law but to keep their operating funds in the now-bankrupt treasury.

“They are just our bank,” Marshack said. “We should be paid in full before the county gets distribution on their funds. Because they imprudently invested the funds, they should take the damage, not the school districts.”

Attorneys representing three of the five local agencies that each have about $50 million of borrowed funds in the pool said they might face a more complicated situation. The five are Irvine Unified, Newport-Mesa Unified, the North Orange County Community College District, the Orange County Department of Education and Placentia-Yorba Linda Unified.

“There appears to be no way that debt can be paid in full when due, you don’t even need to be a lawyer to figure out that,” said attorney Marc Winthrop, who represents Irvine Unified and Placentia-Yorba Linda Unified.

Based on Tuesday’s news that the county fund has declined in value this year by least 27%--some $2.02 billion--and will likely lose even more when it is liquidated in the coming weeks, Winthrop said he would probably hire investment bankers to advise the two districts on how to repay the loans next June and August. Winthrop said more borrowing was a good possibility, and suggested that he might ask the Irvine Co. to help bail out its local school district.

Times staff writer Len Hall in Santa Ana contributed to this report.