Hawthorne Ponders Deep Cuts, Tax Hikes to Ease Financial Crisis

Things have gotten so bad in Hawthorne that officials are considering selling City Hall.

Hoping to extricate the town from its mounting fiscal crisis, City Manager Todd W. Argow has given the City Council a list of proposed Draconian cuts and tax hikes that also include eliminating the city Fire Department, paving the way for selling City Hall and the city airport, and slashing employee salaries as much as 20%.

The proposals are an attempt to fill a $10.5-million budget shortfall and an ever-increasing long-term debt that is being blamed on years of overspending and accounting problems.

“The city has lived above its financial means for many years, and the day of reckoning has arrived,” Argow said. “Now we’ll have to live below our means to make up for that.”

At a time when the Orange County bankruptcy filing is dominating the headlines, a different kind of financial crisis is being played out in Hawthorne, one blamed not on risky investments but on years of deficits and business deals gone sour. The result could be much the same: tax increases, service cuts and residents wondering how their city became stuck in such a fiscal morass.

The prospect of slashing services has sent tremors through this normally low-profile South Bay city of 74,000 that once was a hub of opportunity for aviation industry workers after World War II. The city is home to Northrop Grumman, which has been hit hard by defense industry cutbacks.

On Monday night, more than 100 worried and frustrated city employees, residents and business people, many wearing “No Layoffs” and “Save Hawthorne” buttons, packed City Hall to hear the council weigh its options.

The grim list of proposed cuts is in the hands of the council, which must decide how to reduce a deficit that represents more than one-third of the city’s $27-million annual budget. Argow cautioned that not all the proposed cuts are necessary and that a combination of some items would best ease the crisis.

Although not on the list, the prospect of declaring bankruptcy has been discussed by city officials. But they hasten to say that that strategy would be a last resort.

Dismantling the Fire Department in favor of contracting with Los Angeles County for services would save the city millions of dollars, according to Argow’s 26-page report. Selling city property, including City Hall and the city pool, and leasing the space back at a monthly rate might also help raise funds, Argow said.

Raising the utility users tax--the second such increase in six months--could generate as much as $7 million a year, and increasing the business license fee could add another $110,000, according to the report. It also suggests eliminating crossing guards and combining city commissions.

Pressuring the council to act are the growing stacks of unpaid bills that line the vault in the city treasurer’s office. The bills total about $3 million, but the figure is expected to exceed $5 million within weeks, said finance director Julia A. James.

No easy cure is in sight. Although the council has approved taking out more than $10 million in short-term loans, the city has not found a willing lender.

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City officials, warning that “an immediate infusion of cash is necessary to prevent a complete collapse of the city’s finances,” Monday asked Los Angeles County for a $1-million advance on property tax revenues. A county official said such an advance, although rare, is under study.

Two City Hall newcomers have been charged with untangling city finances.

Argow, who was hired six weeks ago, and James, hired six weeks earlier, spent most of December culling through six years of city budgets, audits and bills.

Elected city officials are hesitant to place or accept blame for the crisis. But internal city memos, independent auditor reports and interviews with current and former city employees point to such problems as lax bookkeeping, failed redevelopment deals and related lawsuits, a lingering recession and funding cuts by the state.

Annual audit reports trace a history of deficit spending, and a confidential memorandum from the city’s auditing firm, KPMG Peat Marwick, describes past accounting problems.

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In that February, 1994, memo to the City Council, the auditors, who took over in 1991, say that annual financial statements dating to 1987 had not been issued by the former auditor and that cash accounts had not been reconciled for more than two years.

In addition, a long-term loan for $650,000 from the California Department of Transportation had never been recorded, advances made by the city to its Redevelopment Agency had “never been accurately accounted for” and “certain (revenues) due from other governments . . . went undetected, unrecorded and uncollected for several years,” the memo said.

The result, James said, may have been commingled accounts from which thousands of dollars, earmarked for transportation and other projects, may have been spent on city debts.

R. Kenneth Jue, city manager from 1977 to 1990, said, “When I was there, we did everything under an auditor, and he never found fault with anything we did.”

Some council members say they were never fully informed of the financial situation by previous city administrations.

“It was never disclosed to us that there were major deficits,” said Councilwoman Ginny M. Lambert.

Jue said, however, that he told the council everything about the financial situation.

Former City Manager James H. Mitsch, hired after Jue retired in 1991, says he balanced the budget in 1992.

But according to audit reports, the deficit rose to almost $5 million over the next two years. Mitsch said that he submitted three balanced budgets in 1993, but that the council rejected them.

Councilwomen Lambert and Betty J. Ainsworth say they were not fully informed of the deficit problems during Mitsch’s administration, despite memos in 1993 and 1994 from city Treasurer Edelma Campos warning of spending troubles.

Mitsch, however, says he explained the city’s financial condition to the council repeatedly.

The council fired Mitsch in May, saying it had a “lack of continuing trust and confidence” in him.

Millions of dollars borrowed by the city and loaned to its Redevelopment Agency contributed to the crisis, said former City Atty. Michael Adamson.

The problem, he and others say, started in the late 1980s with new and aggressive redevelopment plans intended to make the city more economically competitive.

Two grand plans--a multimillion-dollar stadium and a “Fashion City” garment industry center--never materialized.

When the 1990s recession swept Southern California, revenue fell and deals went sour.

The recession stalled the Cloverleaf project, a 22-acre plan for housing, shops and a hotel, said Leonard (Bud) Cormier, assistant Redevelopment Agency director, and the agency borrowed millions from the city to buy a site the developer could no longer finance. Now the developer has sued the city, and the site sits vacant.