The City Council has voted to issue $2.9 million in bonds to provide a long-term loan to the financially strapped Huntington Park Casino, one of the city's largest sources of revenue.
The loan will enable the card club to refinance its mortgage over the 20-year term of the bond issue at a lower interest rate than it now pays, said Donald L. Jeffers, the city's chief administrative officer. The city plans to sell the bonds next month.
The Huntington Park Casino, which sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, had been unable to secure a loan on its own, Jeffers said.
Under a new agreement, which the City Council approved Monday, the casino is obligated to meet the monthly payments--about $25,000--on the bond issue, he said. But the arrangement leaves the city liable if the casino fails to make the payments, and the city has pledged general-fund revenues to back the bond issue.
The financial officers of several area cities said it was not unusual for a city to approve a bond issue to help a local business, but that cities seldom pledge general-fund revenues to back such issues. If Huntington Park were required to use general-fund money to pay the bond debt, it could jeopardize the city's ability to meet its payroll and to provide basic services to its residents. In fact, money problems forced the city to lay off 25 employees two years ago.
But Huntington Park officials say the new bond issue represents only a small risk to keep the casino--a major source of revenue--afloat. The casino contributed $350,000 in revenue last year to a general-fund budget of about $10 million.
In an event of a default, the city would seize ownership of the casino. Jeffers said the casino and the land on which it sits are valued at more than $4 million. The city owns the land and leases it to the casino, which pays the city 8% of the gambling revenue.
"We're keeping a source of revenue available to us," Mayor Thomas E. Jackson said. "If they were ever to default, we'd take the property and sell it. We don't look at it as any potential crisis for us."
Said Councilman Raul Perez: "They're still giving us $30,000 a month. If the casino closes we wouldn't get anything."
Casino general manager Curtis Fresch did not return calls for comment.
The city first intervened in April, 1990, when the casino was facing a balloon payment on its original mortgage. The city took out a $2-million, one-year loan with Mechanics National Bank, then loaned the money to the casino to make the mortgage payment.
City and casino officials had planned to roll over the short-term loan, which carries a 12% interest rate, when it came due next month. But instead, they decided to refinance the loan for 20 years through the bond issue, which carries a lower interest rate of 9%, Jeffers said.
The casino will now be responsible for making all payments on the $2.9-million bond issue, Jeffers said. About $900,000 of the bond proceeds will be used to establish a reserve fund for the bonds, and to pay fees and other costs.
The casino has met its deadlines for paying gambling revenue to the city and for making payments on the short-term loan, Jeffers said. In a bankruptcy petition filed last October, however, casino officials reported that they owed $610,382 to 20 other creditors.
In addition, the casino is delinquent on its property tax payments to the county. The casino, which opened in 1984, accumulated about $400,000 in property tax debt and penalties over the last five years, said Deputy County Counsel Martha E. Romero. County officials were moving to collect back taxes when the bankruptcy petition was filed, stalling the effort, Romero said.
The bankruptcy case is pending, a spokeswoman for the U.S. Bankruptcy Court said this week.
The Huntington Park Casino, on Alameda Street, has been struggling in recent years to compete with bigger casinos with better access to freeways, including the Commerce Club along the Santa Ana Freeway in Commerce, and the Bicycle Club near the Long Beach Freeway in Bell Gardens.
The Huntington Park Casino's revenues have declined since 1986 when the city received a record $660,000, more than double what it received last year.
CARD CLUB REVENUES Annual revenues paid by the Huntington Park Casino to the city of Huntington Park.
Year Revenues 1984 $257,780.51 1985 $505,416.54 1986 $660,285.19 1987 $527,269.01 1988 $433,949.02 1989 $319,684.06 1990 $349,436.68
Source: City of Huntington Park