L.A. City Hall finally gets some good financial news

The first good financial news to reach Los Angeles City Hall in years arrived from Wall Street this week, when investors issued the city $1.3 billion in short-term loans at record low interest rates.

The city’s top budget officials bargained for the good rates at meetings with investment firms and banks across the country. Armed with graphs and pie charts, they pitched the financial health of city government as a “turnaround story.”

Less than two years ago, Los Angeles projected a $446-million deficit for fiscal 2012-13, Chief Administrative Officer Miguel Santana told investors. But because of a series of cost-cutting measures, including a 13% reduction of its workforce, voter-approved pension reform and contract concessions from unionized city workers, the projected deficit has fallen to $196 million.

The city’s shortfall may decline even more, he said, because of a three-year-deal with the police union approved by the City Council on Friday. The contract gives police modest salary increases and relaxes the rules regarding overtime, but it also gives officers the option of contributing more to their retiree healthcare or having their healthcare subsidy frozen at its current rate.

City Council President Eric Garcetti said the healthcare component of that deal and the city’s agreement with the Coalition of L.A. City Unions this spring were signals to investors that Los Angeles is serious about shoring up its deficit.

“Our focus on pension reform, healthcare costs and cutting the size of our city government is paying off,” he said. “It’s about the bottom line for them, so I take it as the highest compliment when the financial markets give us the lowest rate we’ve ever received.”

Los Angeles, like many cities and states, sells so-called revenue anticipation notes each year to tide it over until tax revenue arrives later in the fiscal year.

This year, the city was able to borrow at an average annualized interest rate of 0.26% — a much better deal than last, when it borrowed at a rate of 0.79%. It got loans at a more favorable rate than Los Angeles County, which this year has borrowed $1.3 million with rates of 0.32% to 0.40%, according to county officials.

The city’s favorable rate is a small ray of sunshine in what has been a mostly gloomy period at City Hall because of a feeble economy and soaring pension and healthcare costs.

Last year, several Wall Street rating agencies downgraded the city’s long-term borrowing credit rating, citing a structural budget deficit. That meant taxpayers would foot the bill for higher borrowing costs.

Not long after, the Department of Water and Power threatened to withhold a $73.5-million transfer to the city’s general fund during a bitter public battle with the council over electricity rate increases. That prompted the Bond Buyer, the leading trade magazine for the municipal bond market, to publish an article headlined, “Los Angeles Nears Edge of Fiscal Cliff.”

Santana said a new rating for the city’s long-term borrowing credit will be released in the coming weeks. He noted that last month, three of Wall Street’s top rating agencies gave the highest rating to the city’s short-term borrowing credit.

City Councilman Bernard C. Parks, the head of the council’s Budget and Finance Committee, said Wall Street’s returning trust hinted at the city’s slightly improving financial picture, but he warned that Los Angeles is not yet out of the woods.

“I don’t think we’re close to solving the budget problem,” Parks said. “It’s a work in progress — you can’t declare victory on it.”

Parks said he believes the city needs to implement further structural savings, including, perhaps, the replacement of some of its workforce with contracted employees, who would not receive regular city benefits.

He also complained that the deal with the police union won’t generate real savings for the city because the tax money not being spent on retirement healthcare will be offset by the pay raise.

“If you save money on healthcare, you don’t immediately create another dilemma by adding to the payroll,” he said.

Another critic of the city’s fiscal outlook, former Mayor Richard Riordan, weighed in on the news of the city’s favorable loan rates.

In an interview with the Bond Buyer last month, Riordan said that he thinks that Los Angeles, like many cities and states, may go bankrupt soon because of dramatic increases in employee pension and healthcare benefit costs.

On Friday, he said he still thinks that the city needs to make changes — one of his ideas is to raise the retirement age to 65, or even higher — but he said the rate on the revenue anticipation notes was good news.

“It is a sign that the purchasers of bonds have more faith in L.A.,” Riordan said. “My hat is off to them.”

kate.linthicum@latimes.com

Los Angeles Times staff writer Joel Rubin contributed to this report.