EDITORIAL ETHICS ALERT CITY PANEL CATCHES ON TO THE CRISIS IN CITY HALL.

AFTER years of inaction, the city of Los Angeles' ethical watchdog has started showing signs of life.

On Wednesday, the City Ethics Commission expressed support for a series of reforms designed to contain the corrupting influence of special interests in City Hall.

This is a promising first step.

The city's existing campaign-finance rules are a joke.

Currently, citywide candidates can collect public funding if they accept caps on campaign donations and contributions. What invariably happens, though, is that at least one candidate benefits from ``independent expenditures,'' that is, advertising or promotions sponsored and paid for by a third party. At that point, all bets are off. All candidates can spend as much as they want, while keeping the taxpayer subsidy.

Independent expenditures also provide an easy way for special interests to get around campaign contribution limits. Billboard companies, for example, post signs worth hundreds of thousands of dollars in support of their chosen candidates. Or as in the past mayoral election, political parties spend big bucks sending out mailers for their candidate.

And because there's no limit on how much an individual, business or union can give to a political party, the parties can easily be used for money-laundering purposes. Last year, local billionaires Eli Broad and Ron Burkle kicked in $100,000 apiece to the state Democratic Party, which, in turn, spent $250,000 on mailers backing Antonio Villaraigosa's failed mayoral bid.

For every law on the books, there's a proven and effective loophole that L.A.'s special interests have mercilessly exploited.

That's why the Ethics Commission's attention - and serious reform - are crucial.

Some of the panel's proposed changes in city campaign laws are helpful, such as lifting the matching-funds spending cap only on politicians whose opponents benefit from independent expenditures, and not for the beneficiaries themselves. Another good idea is a ban on incumbents' using ``office-holder'' accounts to send out thinly veiled campaign mailers before an election.

The commission's proposed ban on independent expenditures, however, may sound tempting, but would likely run afoul of the First Amendment.

Far more likely to succeed is a proposal to bar city leaders from acting on legislation affecting their financial supporters. Spending caps and contribution limits would be unnecessary if special interests were unable to buy access or favorable votes. If politicians had nothing to offer them, the money would dry up fast.

But it will take more than piecemeal reform to clean up L.A. City Hall. The Ethics Commission must adopt an airtight, systemic plan for fixing L.A.'s campaign-finance system, or else the politicians and special interests will merely find themselves new loopholes to worm through.

The city's ethical watchdog must be vigilant and aggressive, or else the politicians will sneak right past it yet again. It's good the commission has started to talk about reform, let's see its members move swiftly and decisively to chase the influence peddlers from City Hall and restore honest government to Los Angeles.