Supervisors Say They Will Curb Extensive Borrowing

Following revelations that Los Angeles County has mortgaged its major real estate assets, county supervisors said Monday they intend to halt the practice of extensive borrowing that has hamstrung their ability to provide services.

“You cannot continue to finance operations with one-time borrowings,” said Gloria Molina, chairwoman of the Board of Supervisors, as the first layoff notices went out to hundreds of county employees.

Molina’s remarks reflected the emerging consensus of the five-member board that the county, faced with its worst fiscal crisis, cannot continue business as usual.

The Times reported Sunday that the supervisors have engaged in a borrowing binge at an accelerating pace over the past decade. They have voted repeatedly to strip the equity out of the county’s real estate assets, including most landmark county buildings, or pledged them as security for ever-increasing amounts of borrowing.

Supervisor Mike Antonovich said the borrowing was done out of necessity to maintain health and welfare programs in the hope the economy would improve and that the state and federal governments would provide the resources necessary to fund the programs.

But Antonovich said the county can no longer afford such moves. He said the money that the county spends to repay its debts, expected to reach $439 million this year, cannot continue to escalate.

In the past six years alone, the amount of county dollars devoted to debt service has grown faster than any major program and now is the third-largest expenditure of exclusively county funds.

In 1989-90, the county spent $175.5 million on debt service. Every dollar that is spent to repay bondholders is one less dollar available to finance county services.

“And that is why this year, this proposed budget is going to have a severe downsizing, which I am supporting,” Antonovich said. “And there are [the] votes on this board for severe downsizing.”

Supervisor Deane Dana said the time has come for the county to stop borrowing from the future to pay today’s expenses.

“I don’t believe we can borrow our way out of anything anymore,” Dana said. “The day of reckoning has come. All of these funds we have been dipping into and borrowing against . . . now we have to pay the piper.”

“There is no question that borrowing is in large measure what got us into this problem,” said Supervisor Zev Yaroslavsky. “We are starting to resemble the U.S. government with one not so subtle exception--we can’t print money.”

Supervisor Yvonne Brathwaite Burke, who joined Yaroslavsky in Sacramento on Monday at a meeting with state Finance Director Russell Gould, said state officials suggested that the county engage in some short-term borrowing “to get us to a time when we can vote on a sales tax” increase.

Yaroslavksy responded that under no circumstances would the county borrow more money.

Over the weekend, Burke supported more borrowing as the county wrestles a $1.2-billion budget deficit that threatens to prompt severe cuts in services.

But by Monday evening, she said: “Our ability to borrow is coming to an end. No one wants to borrow. I think there is a unanimous agreement that we don’t want to borrow. The question is, how far would you take that? Do you allow the county to go into bankruptcy?”

The Times disclosed Sunday that the supervisors have mortgaged most of the county’s major assets, helping obscure the worsening financial condition in recent years that has left them with the huge deficit and few alternatives.

The mortgaging involves all of the county’s major landmarks: the massive Hall of Administration, county government’s headquarters, the Criminal Courts building, County-USC Medical Center and highly valuable coastal property in Marina del Rey.

County jails and court facilities, sheriff’s substations, hospitals and health centers, fire stations, cultural centers and some parks, golf courses and libraries also have been mortgaged or pledged as collateral to support borrowing.

While other governments have engaged in such borrowing and mortgaging of assets, Los Angeles County has far outpaced other major urban counties, state officials said.

At least one credit-rating agency, Moody’s Investors Service, said recently that the huge deficit now facing the county was “due in large part to the reliance on one-time revenues and reserves to balance recent years’ budgets.”

And last week, the nonpartisan legislative analyst’s office in Sacramento also said such one-time borrowing exacerbated the county’s fiscal crisis.

The head of the taxpayer group that spawned Proposition 13 expressed outrage at the disclosure that the county has mortgaged most of its major real estate assets and has been on a borrowing binge during the past decade.

Joel Fox, president of the Howard Jarvis Taxpayers Assn., said county supervisors’ use of $2.6 billion in certificates of participation to construct buildings and purchase equipment violates the spirit of the property-tax slashing measure.

Certificates of participation are IOUs issued by local governments to investors. They carry a higher interest rate than other bond issues because they are more risky.

Before passage of Proposition 13 in 1978, local governments in California relied heavily on general obligation bonds to finance construction projects. But the bonds, which are backed by property taxes, require approval by two-thirds of voters to win approval.

The certificates of participation, which the county has been using extensively, are backed only by a payment that must be appropriated annually by the supervisors, skirting the need for voter approval.

“We don’t like these decisions,” Fox said, complaining that the public has not been involved in the issuance of debt the county must repay with tax dollars.

Fox denounced the ever-increasing share of county funds devoted to debt service instead of county programs. “It’s outrageous, this kind of debt eating into the yearly seed corn,” he said.