Minority Deposits Policy Is His Own, Treasurer Says

Los Angeles City Treasurer Leonard Rittenberg says his office has been depositing millions of dollars at below-market interest rates in minority-owned banks under an informal, unwritten policy that was never approved by Mayor Tom Bradley or the City Council.

Rittenberg’s policy, which other municipal treasurers consider unusual, is now coming under fire from some council members concerned about the lack of oversight and upset about being left out of the policy-making process.

The issue has emerged in the past several weeks from the ongoing investigations by the city attorney and other local, state and federal agencies into the mayor’s personal finances--including his employment as a paid adviser to Far East National Bank. Far East received $2 million in city deposits within days after Bradley called Rittenberg to inquire if the bank was doing business with the city.

Rittenberg said in an interview this week that the Far East deposits--which he instructed his investment officers to make, reversing their earlier decisions--came under his informal policy.

The treasurer acknowledged that he communicated the policy to his staff only orally over the years. He did not mention the program in his annual report to the City Council--a document required under state law--although he said he has talked informally about it with council members over the years.

Rittenberg, appointed treasurer by Bradley in 1987, put the policy into written form only last Friday, more than a month after disclosures about the mayor’s ties to Far East.

Key council members said they plan to hold hearings before the Finance and Revenue Committee into the procedures of the treasurer’s office. Additionally, the Government Operations Committee, which has overseen the Bradley investigation for the council, has tentatively scheduled a hearing Friday to question Rittenberg about the policy.

“A policy that routinely has funds deposited in banks at lower interest rates, without mayoral or City Council approval, may not meet legal muster,” said City Councilman Zev Yaroslavsky, chairman of the Finance and Revenue Committee that oversees the treasurer’s operations.

Guidelines Called Vital

Councilwoman Joan Milke Flores said, “No department head should be making decisions on anything that important, without some City Council guidelines.”

Under the program, minority-owned banks can request up to $2 million in city deposits--and more with Rittenberg’s authorization.

What makes Rittenberg’s program unusual is that these minority-owned banks do not have to offer the highest interest rate in order to win the deposits: Rittenberg only requires them to have the best rate offered by minority banks. And even that standard can be bent, Rittenberg said.

“If it’s a new (bank) and a small placement, and the bank’s best rate is 9% and other minority banks are willing to give 9.1%, 9.15%, or 9.2%, I will probably accept that 9% and give them the opportunity to participate. As long as it’s reasonable, and reasonable is a very subjective call,” Rittenberg said.

City records obtained by The Times under the California Public Records Act confirm that the minority banks typically are not required to offer open market rates.

Below Market Rate

One handwritten memo from an investment officer said one quote from Far East National Bank “was in the ball park for a minority bank” but clearly below what the city could receive elsewhere.

All banks must complete extensive paper work in order to do business with the city. Many banks do not seek public deposits because of the strict state requirements on collateral, which require banks to hold federal securities equal to 110% of the deposit.

Rittenberg said that many banks inquire about public deposits, and he often gets calls from City Council members and other city officials on behalf of banks interested in learning how they can bid for deposits.

Only three council members have financial interests in local banks: Yaroslavsky owns stock in Bank of Los Angeles; Flores owns stock in Bank of San Pedro and John Ferraro owns shares in Wilshire State Bank, according to annual statements of economic interest filed by the officials. The city has no business with Bank of Los Angeles or Bank of San Pedro, but has had deposits with Wilshire. Rittenberg said he has not been influenced by any officials to deposit money with any bank.

Rittenberg defends his minority policy in part by saying that, at most, it involves only $20 million--about 1% of the city’s $2-billion portfolio. Currently, only seven minority banks have about $7.9 million in city deposits.

Even if the city accepted a full percentage point lower interest on the maximum $20 million estimated by Rittenberg, it would only cost the city $200,000 in lost income--out of an estimated $100 million in annual interest income.

And that, Rittenberg said, is a small price to pay to help minority communities throughout the city.

“The city, and myself as city treasurer, have a responsibility and commitment to assist those banks that contribute to the community,” said Rittenberg. “By placing deposits with those banks, I have an expectation that this money will increase the amount for new loans in the community. . . . If, in fact, I realize my greatest expectation of getting (most of the estimated 30 Los Angeles-area minority owned banks and S&Ls;) involved, it is hard for me to foresee that I would ever be committed to more than $20 million.”

Most minority banks in California are Chinese-American or Korean-American owned. There are only a handful of black- or Latino-owned banks and S&Ls; in the state.

Rittenberg said there is a strong legal basis for his policy, even if there was no direction from the mayor or City Council.

Under state laws, amended in 1986, municipal treasurers are no longer required to make investment decisions based on interest rates alone. The law was changed to require treasurers to invest with the objective of realizing “maximum return consistent with prudent financial management.”

‘Legally Justified’

Rittenberg said: “I have deemed that phrase . . . to mean ‘reasonably competitive.’ . . . Therefore I feel legally justified” in giving special treatment to minority banks.

Other public treasurers contacted by The Times said Rittenberg’s policies are exceptional.

State Treasurer Thomas Hayes said that while he encourages minority firms to compete for state deposits--and even takes out advertisements in the Wall Street Journal to seek them out--he requires them to offer as good a deal for the state as any large bank.

“We won’t accept less” interest or security, Hayes said. As a result, he said, the state places few deposits with minority banks.

Pierre Lorenger, deputy administrator for finance at the Los Angeles Community Redevelopment Agency, also attempts to do business with minority and locally owned banks as much as possible. Lorenger said his strategy is to help business within the communities under redevelopment.

“It can be a significant benefit to the community,” Lorenger said. “We do want minority banks to be as competitive as the others. . . . We try to negotiate with them to make them as competitive as possible.”

Mary Turner, treasurer of the city of Anaheim and past president of the Municipal Treasurers Assn. of the United States and Canada, said these kinds of arrangements are unusual.

“Social factors should be left out of a prudent policy,” Turner said. The only factors that are necessary, she said, are “safety, liquidity and yield. . . . If it’s a sound financial institution, the names (of the owners) do not matter to me.”

Turner said the actual amount in Rittenberg’s program is not important. “You need to make a prudent decision, even if it’s just $100,000.” Turner said the most important guideline for a treasurer is to remember, “I have to answer to the taxpayers.”