County Officials Woo Concerned Wall Street

Top Los Angeles County officials, seeking to borrow $1.1 billion against next year’s tax receipts, told Wall Street rating agencies and institutional investors Thursday in New York that the nation’s largest county government is on the road to recovery from its worst fiscal crisis ever.

“We are presenting a budget that is much more manageable than the 1995-96 budget,” acting Chief Administrative Officer Sandra Davis told a late afternoon meeting of investors at the World Trade Center.

But the rating agencies, which have downgraded the county’s long-term credit rating several times in recent years, remain concerned about the county’s continuing, though less severe, financial troubles.

Wall Street has been warning in recent years that the county must balance its budget by bringing spending into line with income. The rating agencies complain about the county’s continued reliance on more than $400 million in one-time money to pay for ongoing programs.

The county has been on a “credit watch” issued by Standard & Poor’s for more than a year. “Credit watch is one indication that we are concerned about the budget,” said director Peter Bianchini of the firm’s San Francisco office.

“The county has come a long way from the problem of a year ago,” he said, and has made significant progress in closing the gap between spending and income.

Bianchini said the rating agency expects the county eventually to structurally balance its budget by reducing its dependence on one-time excess earnings from its pension funds and carry-over balances from previous fiscal years.

In a January report, the other major rating agency, Moody’s Investor Service, signaled that “continued reliance on one-time measures would be a cause for concern and trigger a new review of the county’s [credit] ratings.”

Generally, the lower the county’s credit rating, the more it costs to borrow. As a consequence, the county ends up paying bondholders interest that could have been spent on public services.

Rather than seeking to have the $1.1 billion in one-year notes rated on the county’s own credit worthiness, Treasurer-Tax Collector Larry Monteilh said the borrowing will be highly rated based on a letter of credit from Swiss, German and American banks that guarantees repayment to investors.

In the aftermath of the Orange County bankruptcy and facing dire fiscal problems, Los Angeles County for the first time had to buy a $1-million bank letter of credit last June to insure its tax and revenue anticipation notes.

Before leaving for New York, Monteilh said the county will have lower borrowing costs by having the notes insured.

Many California counties were also forced to buy insurance last year to guarantee repayment of their short-term borrowing.

But Zane Mann, publisher of the California Municipal Bond Advisor newsletter, said the number of local governments in the state needing such guarantees for their short-term borrowing has been substantially reduced this year and is “very rare these days.”

Mann said Wall Street is still concerned about the “fiscal mess” in Los Angeles County and “the manner in which it conducts its affairs. If anything, it has a worse reputation than Orange County, whose problems stem from [former treasurer] Robert Citron and his psychic.”

Davis said the county has made “very significant progress” since it faced an unprecedented $1.2-billion deficit last summer. She said the county imposed deep cuts in health services, laid off employees, imposed a hiring freeze, closed jails and cut general relief grants to the poorest of the poor.

The county expects the federal government to make a commitment this month to support the second phase of the county’s plan to move the hospital-heavy health system to an emphasis on primary and preventive care at community clinics.

The county plans to sell its tax-exempt notes June 19.