LA Times: L.A. City Hall is considering a plan to borrow money to cover lawsuit settlements. Some think that's borrowing trouble

Posted on April 03, 2017

By Dakota Smith

(photo: Los Angeles City Councilman Paul Krekorian at City Hall in September 2016)

 

On the advice of budget officials, the Los Angeles City Council agreed earlier this year to consider borrowing tens of millions of dollars to pay for high-profile legal settlements and court judgments.

The money would help offset several multimillion-dollar settlements approved by the city in recent years, including a $200-million agreement to end a lawsuit brought by disability-rights groups over the lack of accessible housing.

But the proposal to borrow up to $60 million using a judgment obligation bond is now coming under fire.

Backers contend that borrowing the money will help offset the need to rely on the city’s reserves. Skeptics say they’re not convinced that the city needs to incur the $20 million in interest payments that come with the bond.

A City Council vote on the borrowing was postponed Friday to provide for more discussion of the plan.

City Councilman Paul Krekorian, who chairs the council’s Budget and Finance Committee, described himself as “hesitant” about the proposal. He said increased revenues and cost-cutting by city departments have helped reduce this year’s deficit, which now stands at $9.75 million.

“I’m not convinced that the judgment obligation bond is a necessary step for us to take,” Krekorian said.

In a letter sent to city leaders earlier this month, Controller Ron Galperin opposed the bond proposal. He cited improving city finances and the high cost of borrowing.

About $38 million in unspent city money will be returned by departments at the end of this fiscal year, Galperin’s office said.

“I believe that debt financing of liability claims should only be used in extraordinary circumstances and in times of great need,” Galperin wrote in a letter to the council and Mayor Eric Garcetti. “This year does not meet those criteria, and the city should live within its means instead of borrowing unnecessarily.”

The bond vote comes months after the city’s top budget official issued a report in January warning of “a new trend of increased liability payouts” due to lawsuits and court settlements.

The city normally budgets about $60 million for its liability fund, but paid out about $110 million for legal cases last fiscal year.

Assistant City Administrative Officer Ben Ceja said Friday his office still stands by the bond proposal. He’s concerned the city will have unexpected borrowing needs and need to dip into the reserve fund.

The city seeks to keep its reserve at 5% of the General Fund, but the reserve recently dipped below that level.

Speaking to reporters last week, Garcetti defended the borrowing plan, saying the city would experience “a shock to the system” if it attempted to pay those legal costs from this year’s budget.

On Friday, however, Garcetti spokesman George Kivork said the mayor remains open to other strategies.

“The mayor's priority is maintaining the city's ability to deliver critical services while maintaining healthy reserves,” Kivork said. “He is evaluating all options to protect services and the reserve fund, which include a judgment obligation bond.”

 

Click here to read this article on the LA Times website. 


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