Fiscal Crisis Looms for New City Manager : Hawthorne: Todd W. Argow will inherit a city government in which lawsuits and mismanagement have helped create a debt estimated at $11 million.

When Todd W. Argow takes over as Hawthorne city manager in two weeks he will inherit a city that has cut 10% of its work force, has asked its creditors to delay payments already past-due and has an estimated debt of up to $11 million.

But Argow says he is not worried. As city manager of South Gate, he turned a $200,000 debt into a $4-million surplus in just under three years. And Hawthorne has the same kinds of problems, albeit larger.

“If you want to slay dragons and you’ve only got so much time to do it, why not slay the biggest dragons?” he said.

But dodging fiery breath might be easier than controlling Hawthorne’s most feared liability: its rapidly deteriorating financial condition.

City officials are not exactly sure how much debt the city has, although finance officials have estimated it at $11 million. Years of fiscal mismanagement and a relatively new city staff and council, officials say, have made it difficult to come up with a number.

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The debt, as well as pending lawsuits that could cost millions of dollars, have lowered the city’s credit rating substantially over the past year, making it more expensive and difficult to borrow money, said city Finance Director Julia A. James.

On Monday, the City Council weighed a proposal to borrow $9 million by selling short-term bonds, but city officials were skeptical, given the city’s credit rating, that the bonds would sell. The council also considered taking out a $1.4-million line of credit to cover the city’s cash-flow problems.

But the council postponed a decision on incurring more debt until Argow takes over.

Both Argow and council members say they have a crisis on their hands. The problem is so acute that finance officials have sent more than 1,000 letters to the city’s vendors, asking them to wait for payment while the city works out its financial difficulties, James said.

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Many of those companies have refused to give the city credit, operating on a cash-on-delivery basis only; others have hired collection agencies in a futile attempt to get their money, James said.

“If the city can’t pay, no amount of letters will do any good,” she said.

Officials declined to release a list of the companies that received the letter. Only city payroll, attorney’s bills and emergency costs have not been delayed, James said.

“Eventually we’ll pay everyone,” she said.

Now officials are waiting for Argow’s Nov. 28 arrival and the balance of the city’s property tax revenue, which is due in December.

In the meantime, city checks made out to vendors remain in the vault, and old expenses, such as continuing lawsuits, are growing larger. In addition, new expenses are being added, including a court-ordered sales tax rebate to aerospace companies that will cost the city hundreds of thousands of dollars.

City officials trace the problems back over several years but say it was not until earlier this year that they discovered the scope of the problems.

In May, the council fired former City Manager James H. Mitsch, citing fiscal mismanagement. At the time, city officials estimated the city’s debt at $2 million and hoped a change of management and an improved local economy would remedy the situation.

After Mitsch’s dismissal, however, the city went through three interim managers. One temporary manager balanced the city’s budget by trimming the city’s work force, raising the city’s utility users tax and postponing maintenance on emergency vehicles so long that the engine in one of the city’s paramedic vans broke down.

By August, the city’s debt was estimated at $4 million.

Argow admits that attacking the fiscal problems will not be easy. He has a two-tier plan that is short on specifics and sounds like a prescription for a patient in critical condition: Handle the crisis and stabilize the situation, then look at a long-range plan for recovery.

Argow declined to guess how long the recovery will take; James said it will take years.