Hawthorne Faces $11-Million Deficit, Depressing Options

Hawthorne city officials, unable to pay a stack of bills that have added up to an estimated $11-million budget deficit, are eyeing a long list of depressing options that range from higher city taxes to cuts in services to bankruptcy.

The deficit is more than one-third the size of the city’s annual $27-million budget.

Some of the major creditors include the state Public Employees Retirement System, the West Basin Municipal Water District and numerous law firms. The city also owes the Hawthorne School District and a number of local firms, from Hawthorne Hardware to Robert F. Kennedy Medical Center. Some firms have said they can no longer deal with the city until they are paid.

In addition, the debt estimates include pending lawsuits. The city’s redevelopment agency, which has borrowed at least a million dollars from the general fund, could owe millions more in unresolved lawsuits, a result of business deals gone sour, City Councilman Steven Andersen said.

“This is going to be a bitter pill to swallow and the decisions (we) make are going to be very unpopular,” Andersen said.

Municipal officials in the city of 71,000 trace the problems back several years but say it was not until earlier this year that they discovered the scope of the debt.

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

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

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Newly hired City Manager Todd W. Argow and Finance Director Julia A. James say solving the fiscal mess will not be easy in a city where taxes already have been raised, jobs slashed and morale is falling quickly.

Council members will pick their remedies from what Argow calls a fiscal problem-solving menu. The menu, which is due by Jan. 9, will have hundreds of options, Argow said. Nothing will be left off the list, including the prospect of seeking protection from creditors under Chapter 9 of the Federal Bankruptcy Code, the same strategy employed by Orange County in its financial crisis caused by investment mismanagement.

“It is very possible,” James said.

But declaring bankruptcy is not option No. 1 for many elected officials.

“I’m not considering it at this time. I’m ruling it out,” Andersen said.

Councilwoman Ginny M. Lambert, who has advocated calling for a grand jury investigation to sort out blame for the fiscal mess, also is not eager to file under Chapter 9.

“I suppose it could be only a last resort,” Lambert said.

But as unpaid warrants sit in the vault and interest on the city’s debt continues to rise, the city’s credit rating is falling, James said. She could not say how much it had fallen.

In a move to stop the short-term bleeding, the City Council has approved taking out a $1.5-million line of credit from Wells Fargo Bank and has told Argow to look into financing up to $9 million in loans, backed by next year’s city tax revenue. That money, officials said, would be used to meet the city’s payroll and most pressing bills.

Other options, officials said, include assessing residents to pay for fire services, closing the city swimming pool and shortening the workweek for employees. Officials also may consider a 10% pay cut for employees and layoffs.