Council Poised to Take Harbor Funds : Budget: New authority granted by state allows transfer of up to $45 million of port’s reserves to ease fiscal crisis.

Facing a $120-million budget deficit, the Los Angeles City Council Wednesday seemed prepared to raid the Harbor Department’s coffers for up to $45 million to avoid a financial crisis that could mean devastating cuts in city services and layoffs of police and fire personnel.

Despite warnings that the unprecedented transfer of port funds could lead to legal action by bondholders or others, lawmakers emerged from an hourlong closed-door meeting and indicated that the city appears to have no choice but to take the money from the port’s operating reserves under a new temporary authority granted by the state Legislature and Gov. Pete Wilson.

“I can’t imagine that the council is not going to exercise its option,” said Councilman Zev Yaroslavsky, chairman of the council’s powerful Budget and Finance Committee. “The alternative is laying off police officers . . . and who’s going to do that?”

The council will not vote on the measure for at least two weeks. But if a vote to transfer the funds were held now, Council President John Ferraro said, “I would say it would pass.”

The possibility of using port funds to ease the city’s budget crisis emerged several weeks ago when California lawmakers, hammering out a new state budget, allowed five coastal cities to tap into their ports’ reserves under a formula that places limits on the transfers.

Under those limits--tied to the amount of property tax revenues lost by cities to the state--Los Angeles could take an estimated $45 million from the port this fiscal year and next. That represents 25% of the port’s operating reserve of approximately $180 million.

Historically, the port fund has been protected under a state law that restricts its spending to matters that deal with navigation, commerce and fisheries.

While no formal action to protest the move has been taken by the Harbor Commission, port officials have made clear their concern that the transfer of funds would not only affect the port’s ambitious expansion plans--which would bring new jobs--but also could hurt its financial standing, particularly its bond rating.

Moreover, port officials have said the transfer could lead to lawsuits by bondholders on grounds that their investments do not seem as financially secure.

It was the prospect of lawsuits that prompted the council’s closed-door meeting, where members heard from city staff and from attorneys from two large law firms that do bond counsel work for the port, O’Melveny & Myers, and Orrick, Herrington & Sutcliff.

During the executive session, the council did not vote to transfer the funds. Instead, with a budget dilemma looming, lawmakers directed the city’s legal, legislative and financial analysts to study the port transfer further and return in two weeks with more details of its implications.

Still, even without a vote, the transfer seemed sure to be enacted by the council, officials said Wednesday. While Harbor-area Councilwoman Joan Milke Flores continues to raise questions about the action’s consequences for the port, other council members clearly favor the transfer and Mayor Tom Bradley was said by a spokeswoman to have reconsidered his vehement earlier opposition to taking the port’s money.

The mayor, said acting press secretary Vallee Bunting, is “actively” considering the transfer as part of the solution to the city’s budget shortfall.

While the transfer would ease the shortfall, even supporters of the move blasted the Legislature and Wilson for providing the city with so few budget-balancing options.