County Cuts Millions, Delays Health Care Vote

As another Wall Street rating agency placed Los Angeles County’s finances under review, the Board of Supervisors on Tuesday approved the outlines of an interim budget that calls for $257 million in cuts--but postpones hard choices about drastic reductions in the county’s troubled health care system.

The supervisors, facing a $1.2-billion deficit, unanimously passed a compromise package of immediate 20% cuts in all areas of county government except four departments: sheriff, probation, coroner and health services.

Instead of moving to swiftly close a $655-million deficit in health services, the supervisors agreed to create a Health Crisis Task Force to recommend alternatives to Chief Administrative Officer Sally Reed’s proposal to close County-USC Medical Center and slash other medical services.

By day’s end, it was clear that the fate of one of the nation’s largest and busiest public hospitals would remain up in the air for at least several weeks, while the five-member health task force studies how to restructure the county’s largest department to make cuts and save services at the same time.

“I think the board today took a first but decisive step in putting its financial house in order,” said a visibly drained Supervisor Zev Yaroslavsky. “We have a long way to go, but I’m surprised we did what we did today. We began stabilizing the county’s finances.”

In other developments Tuesday:

* A spokesman for Gov. Pete Wilson said the county should not expect any cash or other bailout from Sacramento--although the governor would be willing to discuss lifting some state mandated programs to help relieve Los Angeles County’s budget woes.

* Dr. Joseph P. Van Der Meulen, a vice president at USC, told supervisors that the university felt “a sense of betrayal” about proposals to close County-USC Medical Center. “I’m afraid that the [budget] proposal reflects a philosophy that the county should be out of the business of health care delivery,” Van Der Meulen said to cheers from scores of hospital workers in the audience.

* The county’s largest employee union planned a demonstration and march this morning from the Ronald Reagan State Building to the county Hall of Administration to protest Reed’s proposal to eliminate one out of every five county jobs.

* County officials held a private conference call with a group of bankers backing the county’s $1.3 billion in short-term borrowing, with Board Chairwoman Gloria Molina reassuring them of the county’s financial health.

“They had some concerns,” Treasurer Larry J. Monteilh said. “The bottom line is they were looking for a commitment they will get paid.”

The group of banks, including three Swiss, two American and one German institution, had agreed to provide a letter of credit guaranteeing repayment of $1.3 billion in short-term borrowing by the county in advance of next year’s property tax receipts. The bankers’ concern was expressed on the eve of today’s planned sale of the notes.

The Supervisors Meet

Emerging from an unusually long session behind closed doors, the supervisors got down to the business of shrinking a county government that for years has been spending more than it receives.

While delaying action on the biggest issue--health services--they embraced some of the $1.2 billion in cuts proposed by Reed in her $11.1-billion blueprint for restoring the county to financial health.

Although the actions are not final and can be altered when a final budget is adopted later this summer, the board unanimously adopted a motion by Supervisors Yaroslavsky and Mike Antonovich that would cut a broad array of county services by 20%--from the district attorney’s and public defender’s offices to parks and libraries.

Despite its stopgap nature, the board’s actions Tuesday could have very real consequences beginning July 1, when more than a dozen county libraries and 30 parks will begin to shut down and as many as 2,000 layoff notices go out.

On Tuesday, dozens of county employees and residents rose to decry the cuts, in English and in Spanish. Many said the proposed budget cuts and layoffs--especially in health and welfare services--will shred what they described as an already threadbare safety net for the county’s poorest residents.

“People cannot be thrown on the sidewalks as if they are not human beings,” said Javier Mercado, an East Los Angeles community activist who pleaded for the supervisors to save County-USC Medical Center. “They are human beings. The money must be found somewhere else.”

Shouted another, Augustin Cebada of the Brown Berets de Aztlan: “This is a declaration of war . . . and we are not going to stand for it!”

The Los Angeles City Council also went on record Tuesday as opposing the proposed closure of the mammoth hospital.

The county supervisors unanimously voted to create the task force on health that will draw on the expertise of non-governmental health experts, three county-affiliated medical centers, the chief administrative office and private accounting and auditing firms. The task force is supposed to begin its work by early next week.

In the end, the board also spared the sharp reductions in the sheriff’s and probation departments. Supervisors made clear that they did not want to see jail inmates released early or Probation Department camps for juvenile offenders closed. Also spared the budget knife for now was the overworked coroner’s office.

The supervisors said they had to move immediately to show Wall Street they are serious about balancing the budget.

Antonovich said each month of delay in making cuts significantly worsens the county’s budget woes. “Given the precarious nature of the county’s finances,” he said, “we can ill afford to delay this.”

Reed created a storm of controversy this week when she released her proposed budget, which included the elimination of 18,255 jobs and closure of County-USC.

The board needs a tentative budget in place by July 1, when the 1995-96 fiscal year begins. Final budget approval will take place weeks later, after a series of hearings on the effects of the proposed cuts.

Molina fought to have the first round of cuts go into effect immediately. But she said later that she will now look for ways to restore some of the funding eliminated Tuesday for social services, parks, the district attorney’s office and probation programs.

Another Credit Review

Even before their budget deliberations could begin, the supervisors were told that Standard & Poor’s, a major Wall Street credit rating agency, had placed $3-billion worth of the county’s long-term debt on a “credit watch” with “negative implications” until uncertainties concerning the county’s budget are resolved.

S&P; said it will monitor the budget situation to determine whether any change in the county’s credit rating is necessary.

The move follows rival Moody’s Investors Service’s decision Monday to put the county’s debt ratings under review.

Standard & Poor’s said a “lack of structural balance [in the county’s upcoming budget] or use of deficit financing in some form could result in lower long-term ratings.”

A lower credit rating would force the county to pay higher interest rates on future note and bond sales, boosting credit expenses that are borne by taxpayers or that reduce money available for other county uses.

Meanwhile, the county today will issue $1.3 billion in one-year notes, borrowing against next year’s property tax revenue.

The notes, which Los Angeles County and many other California municipalities issue routinely each spring as cash management tools, have been insured through a bank letter of credit to make them more palatable to investors who are jittery in the wake of Orange County’s bankruptcy.

Bank of America, which is leading the Wall Street group that is selling the notes to investors, is expected to offer them at a tax-free yield of 3.9%. If the final yield is higher than that--even though the notes are insured--it will be viewed as a sign of rising investor anxiety over the county’s fiscal health.

Other California counties have issued such notes in recent weeks at yields of 3.8% to 4.1%. Some institutional investors, angry over what they regard as Orange County’s arrogant treatment of its creditors, have been playing hardball with California note issuers, demanding higher-than-expected yields or forcing them to buy insurance for their notes.

Looking to the State

The Service Employees International Union Local 660, the county’s largest employee union, is mobilizing against the cuts, with its largest demonstration yet planned for today. To underscore their demands that the state help the county, demonstrators will gather at the State Building and then march to the Hall of Administration.

Both Democratic and Republican members of the Board of Supervisors appealed to Wilson and legislative leaders to pay attention to the county’s fiscal crisis. Yaroslavsky asked lawmakers and the governor to give supervisors the ability to impose a tax on every alcoholic drink sold in the county to narrow a $655-million deficit in the county’s health services budget.

In Sacramento, a spokesman for Wilson said the governor has no position on a tippler’s tax. Such a levy would require “new taxing authority” for Los Angeles County, Wilson spokesman Paul Kranhold said. “It would require weaving its way through the Legislature before reaching the governor. It would be at that time that he would make the appropriate decision, whatever that might be.”

Kranhold said the governor would gladly discuss lifting state-mandated programs and services if doing so would help relieve Los Angeles County’s budget crisis.

“If Los Angeles County has any particular mandates that they feel are constricting their ability to deal with their budget situation, we are certainly willing to talk about providing relief,” Kranhold said. “But we are not in the position where we could provide cash relief, even if we wanted to.”

Asked if the governor would approve the proposal to allow the county to tax alcoholic beverages served in bars at 25 cents a drink, Kranhold said Wilson would make that decision after the Legislature acts.

So far, the county has been unable to find a lawmaker to sponsor the proposal.

Times staff writers Tom Petruno in Los Angeles and Carl Ingram and Max Vanzi in Sacramento contributed to this story.

* HOPEFUL OUTLOOK: Budget crisis doesn’t reflect county’s stronger economy. D1