Los Angeles Controller Ron Galperin warned city leaders Friday against going forward with a plan now under consideration to borrow up to $60 million to cover the cost of an unusually large crop of lawsuit payouts.
The city has had to dip into its reserves this year to pay for roughly $55 million in legal payouts, and the council is now considering reimbursing the rainy day fund by borrowing money in the form of issuing so-called “judgment obligation bonds.”
The proposed loan is expected to cover legal payouts that include a $21 million installment on a $200 million settlement for a housing-related lawsuit, $8.5 million for a case related to a 2012 traffic accident in Valley Village, $5.2 million for a wrongful imprisonment case and several payouts for high-profile police shooting cases including $1.5 million for the family of Ezell Ford, and $4 million for Brendon Glenn’s family.
Getting a loan to pay for lawsuits, rather than for an infrastructure project, for example, is an unusual step, but the city’s budget adviser, the city administrative officer, said in January it was necessary to avoid going below the city’s goal of maintaining a 5 percent reserve, which had been projected to happen.
At the time, the city was looking at a $245 million shortfall at the end of the fiscal year ending in June.
But the controller said this week that the recent revenue returns show the city’s finances are a bit healthier, with the shortfall projected for this year shrinking to $38 million.
Based on his latest calculations, which he said he shared with the city administrative officer and other officials, the city will be able to “close out the year above that five percent” reserve fund goal, eliminating the reason for taking such an extraordinary step as borrowing money just to pay for routine legal payouts, Galperin said.
And, in fact, if the city were to issue the bonds, it could be on the hook for $20 million in interest payments over 10 years, Galperin noted.
“There are appropriate times to issue bonds, no doubt about that,” Galperin said. “I just didn’t feel that, and I do not feel that this is such an appropriate time, especially when there is another way to do it and avoid all of that interest that would just be thrown away.”
The controller’s calculations projecting the reserve will rise above 5 percent is based on the assumption that money left in each department budget at the end of the year will be added back. The city administrative officer is not making that assumption.
Galperin issued a letter to the City Council, stating his formal opposition to the bond-issuance plan. The council is expected to take up the proposal in May.
But Mayor Eric Garcetti said Friday that the city is not necessarily out of the woods yet, stating that he continues to side with the city administrative officer’s recommendation that the city gradually pay off some of this year’s legal costs by taking out a loan.
“It’s too much of a shock to the system, if you do it at one time, and pay that (the legal costs) out of cash,” he said. “It’s way too much of a shock. It would result in cutbacks to public safety and public services, which if you amortize it, we won’t have.”