Hawthorne officials received a much-needed $500,000 cash infusion from Los Angeles County this week, but that good news was tempered by a warning from a major bond rating agency.
Moody's Investors Service said Hawthorne's bond rating could suffer if the city's financial condition gets worse. A lower bond rating could scuttle plans for future loans.
The city, which is reeling from a $10.5-million deficit in its $27-million budget, has a stack of bills that total $4.8 million in expenses.
Weeks of emergency City Council meetings, packed public hearings and seemingly endless employee negotiation sessions have culminated in hundreds of thousands of dollars in immediate fee hikes and service cuts, but no layoffs.
The council increased sewer, towing and parking fees, closed a youth camp, cut trash service and found other sources of funds to keep the community pool open.
But City Manager Todd W. Argow has warned that this is only the beginning.
Argow has designed a 24-point plan to raise $7 million, but many of his proposed tax increases, including a utility tax and hotel tax, have not yet been discussed by the council.
The cuts made by the city helped persuade County Chief Administrator Sally Reed to release about 60% of the city's property tax money early, said Charles Bookhammer, a former councilman and now city liaison for County Supervisor Yvonne Brathwaite Burke. The balance of the money is expected to be released as more cuts are made, officials said.
The $500,000, which would normally be issued to the city in April, is expected to help pay employees' salaries through the end of February. City officials have not yet determined how to pay employees in March.
The council rejected Argow's plan for a monthlong furlough of city employees, but the city manager has not ruled out paying employees with IOUs.
"Future payrolls are not guaranteed," Argow said. "If we have 90 cents on the dollar, we may have to pay them 90 cents and give them an IOU for the 10 cents."
Employee union representatives say they are negotiating with the city.
Mayor Larry Guidi, Argow and other officials have been trying to get a $10-million loan from a local bank, but borrowing money to fund long-term recovery plans may be getting harder--and more expensive.
Rumors that the city might file for protection under Chapter 9 of the U.S. Bankruptcy code prompted Moody's Investors Service to take a second look at a $14-million bond issued by the city's redevelopment agency in 1994, said Moody Assistant Vice President Elizabeth Bauch.
The city's rating was not changed, but a warning was issued.
"This is just a way to show that we are concerned," Bauch said.
The lower the bond rating, the more it costs cities to borrow money, and Hawthorne's current bond rating is the lowest investment-grade rating, Bauch said. If the rating goes lower, investors may not want to lend the city money.
Guidi has said that if the city does not get a loan, officials will have to declare bankruptcy. Argow said that declaring bankruptcy, although still an option, is not likely.
But to avoid bankruptcy, Argow says, the city must adhere to his 24-point plan, which includes tax and fee increases that could cost local businesses millions of dollars.
The prospect of increased utility, hotel and other taxes has worried local business owners.
A proposed hike in the utility tax from 5% to 8.5% would raise $2.5 million for the city, according to a city report. The increase would cost the average homeowner a few dollars a month, officials have said.
But Mark Schoenfeld says the increases would cost his catering company hundreds of dollars each month. Schoenfeld's monthly utility bill, which was about $350 this time last year, will be about $850 if the tax is increased, he said.
"I hope they don't balance the budget on the backs of business, but it looks like that's what they are doing," Schoenfeld said.
A proposed 3% hike--from 8% to 11%--in the transient occupancy tax, usually placed on hotel rooms, could hurt the already financially beleaguered Cockatoo Inn, said the inn's manager, Eddie Pearson. The cost, Pearson said, would only be about $1 a room, but it would cost hundreds of dollars to tour businesses that book rooms for the whole year.
The City Council is expected to vote on the proposed tax increases in early March.