Supervisors Hear New Borrowing Plan

Despite stern warnings from Wall Street bond rating agencies that reliance on one-time budget fixes could threaten Los Angeles County’s credit rating, the Board of Supervisors on Monday heard a detailed plan for more borrowing to pay for current operations.

Still hoping that Washington and Sacramento will come to the county’s aid, the supervisors delayed until later in the week any decisions on how to close a $1.2-billion deficit that is growing larger each day.

With no solution to the county’s unprecedented budget woes in sight, County Treasurer Larry J. Monteilh presented a series of options for additional borrowing to help with the immediate problems that threaten to trigger deep cuts in county services.

Monteilh and a financial consultant to the county presented board members with a menu of options, including borrowing from reserves set aside to repay bond issues and spending future interest earnings now.

“You can put your hands on the cash today,” the county’s financial consultant, Douglas S. Montague, told the board.

But Supervisors Zev Yaroslavksy and Deane Dana warned their colleagues that reliance on one-time borrowing to pay one-time expenses has contributed to the depth of the current fiscal crisis.

“It is clear that you are robbing future dollars to pay today’s needs,” Yaroslavsky said. “The county has played this strategy out almost to its illogical conclusion.”

Dana questioned why the county would want to engage in more borrowing when interest payments are devouring an ever-larger share of the county’s dollars.

“All we’re doing is what we’ve done in the past,” Dana said. “Nothing is for free.”

But with the budget problem growing bigger, Supervisor Yvonne Brathwaite Burke appeared poised to press for more borrowing when the board meets today.

Supervisor Gloria Molina, chairwoman of the board, asked for more details on the impact of the borrowing and how the proceeds could be used to finance continued programs.

The Times reported earlier this month that county supervisors have mortgaged most of the county’s major real estate assets or used them as collateral for more borrowing.

The moves have stripped the equity from major county landmarks, including the Hall of Administration, the Criminal Courts Building, County-USC Medical Center and Marina del Rey.

The borrowing binge has driven the county’s debt service costs from $175.5 million in 1989-90 to almost $382 million in 1994-95. The cost of repaying bondholders is the third-largest expenditure of the county’s own funds after the Sheriff’s Department and health services. (Almost two-thirds of county expenditures are funded by the state and federal governments.)

Chief Administrative Officer Sally Reed said she opposed all of the borrowing proposals with the exception of refinancing a portion of $2 billion in pension bonds to take advantage of lower interest rates.

The proposals presented by the treasurer include tapping reserves set aside to pay debt service on various bond issues and spending future interest earnings from those reserve accounts.

Montielh will also propose today that the county borrow $150 million in short-term, tax-exempt notes to pay for a portion of next year’s county contribution to employee pension funds.

The proposals come despite warnings from major Wall Street rating agencies that continued use of one-time moves to mask a deep imbalance between the county’s spending and its income could have serious consequences.

The credit rating agencies downgraded the county’s rating last October after the $2-billion pension fund bond issue.

And last month, Standard & Poor’s placed $3 billion in the county’s long-term debt under review “with negative implications” until budgetary uncertainties are resolved.

“Lack of structural balance or use of deficit financing in some form could result in lower long-term ratings,” Standard & Poor’s warned.

Moody’s Investors Service also placed the ratings of all of the county’s long-term obligations under review pending adoption of the final budget. The rating agency said the county’s financial problems are “due in large part to the reliance on one-time revenues and reserves to balance recent years’ budgets.

Meanwhile, Reed reported to the supervisors that little progress has been made toward getting financial help from the state and federal governments.

As the supervisors began budget deliberations, Molina said the board members need to make the cuts now or risk losing even more money with each week they delay reducing the county’s spending.

“We need to conclude our end of the budget process by the end of the week,” Molina said.

Reed said recent signs from Sacramento, coupled with the refusal of the state Supreme Court to hear an appeal on earlier reductions in county general relief payments to the poor, are making the budget problem even worse.

“It does not look good,” she said.

At a press conference Monday evening at the headquarters of the county’s largest labor union, the Rev. Jesse Jackson denounced proposed cuts that could lead to the elimination of one of every five county jobs and sharp reductions in services.

“We cannot stand by as parks, libraries and recreation centers are closed and jails are being filled,” Jackson said. “We must go another way.”