Sense on L.A. Debt Ceiling

Today the Los Angeles City Council is expected to take a welcome and sensible step in establishing a formal municipal debt policy. It would set a limit on how much debt the city (and its taxpayers) would be allowed to incur. The limit would be based on a traditional measuring stick: the percentage of the city’s general fund paid out annually to cover principal and interest.

There are two kinds of debt involved. One is non-voter-approved debt, which includes such things as bonds to cover judgments and the financing of goods and equipment purchases. Voter-approved debt is borrowing that the public endorses at the ballot box; typically it involves projects such as library construction.

There are competing proposals before the council that differ only in small ways, according to municipal bond rating experts. All would set a debt ceiling of 15%, with variations of between 6% and 7.5%, under specific circumstances, for the non-voter-approved share of that total.

Councilman Mike Feuer has a further goal. He wants the city to stop borrowing for short-lived goods, like computers and cars, and says that would eventually save $5 million a year. Sounds fine, but Feuer should have some idea of where the money would come from, now, to pay off what is currently owed for such purchases.

The significant point in the council’s deliberations is that the city’s financial health is good, and a debt policy is a wise investment in the future.