Council OKs Conservative Debt Policy

The Los Angeles City Council adopted a comprehensive debt policy Tuesday that limits civic borrowing, requires a strong reserve fund and is designed to maintain the city’s high Wall Street bond rating.

But while some lawmakers championed the debt policy as one of the council’s strongest moves toward fiscal responsibility, others said it ultimately will have little impact because the mayor and council could vote to change it whenever they need additional funds. Others, including Mayor Richard Riordan, worried that the council could be limiting its ability to purchase such big-ticket equipment as police cars and ambulances, forcing the police and fire departments to compete for funds with other city departments.

Still, the city’s top financial and legislative officials, along with a majority of the council members, urged adoption of the policy particularly to establish conservative limits on nonvoter-approved debt, which accounts for about $20 million in the city’s $4-billion budget.

“This is a very sound break from the past--one which we are best able to make when economic times are good,” said Councilman Mike Feuer, who brought the issue to the council. “We are going to be exceptionally fiscally responsible . . . as a policymaking body. That’s a great outcome.”

Not everyone agreed.

Riordan is extremely concerned about the council action and will be reviewing it more closely over the next few days, said Jennifer Roth, the mayor’s budget director.

“It’s an unnecessarily restrictive policy,” Roth said. “It puts us in an almost no-win situation.”

Roth said the city expects to have a $40-million budget gap next year and that the debt policy does little to help close that. In fact, she said, it too severely limits the city’s ability to purchase cars and equipment, forcing public safety agencies into competition with parks and libraries for funds.

Some council members took the policy less seriously, saying that because it can be changed by the council and the mayor, it is little more than window-dressing.

“What we’re really engaged in is political posturing,” said Councilman Hal Bernson. “The policy is meaningless. It’s really a sham.”

Ultimately the council approved the policy 14 to 0, with Councilman Nate Holden absent. It sets a cap on nonvoter-approved borrowing at 6% and limits overall debt at 15% of general fund revenues.

Most of the policy was met with little controversy. Among its main elements are these:

* The reserve fund will be two-tiered, with $20 million in a contingency account and $24 million in an emergency fund with the goal of beefing up the emergency fund to $34 million in the future;

* The reserve fund, which currently has 1.6% of general fund revenues, will have a targeted balance of 2% by 2000-2001;

* The city will identify and prioritize its capital needs over a five-year period and propose a financing system to pay for those needs;

* The city will make multiyear assessments of revenues and expenditures, allowing more efficient financial planning. For example, if a particular funding source is running out, the mayor and the council will be able to perhaps identify other sources or at least not be caught off guard during a particular budget cycle.

Overall, disagreement on the debt policy came during discussion of the limits on debt approved by the mayor and council. That includes large equipment purchases, such as cars and computers, which the city has financed by taking on debt rather than purchasing with general fund revenues.

But some council members, such as Joel Wachs and Rita Walters, urged the council to take the most restrictive path possible to limit that type of borrowing.

“The cities who have gotten themselves in trouble in this country . . . got themselves in trouble because they borrowed too much,” Wachs said. “I really think it’s important we rein in our spending so it matches the income we have.”

At the other end of the spectrum was Councilman Richard Alarcon, who urged his colleagues to avoid restricting themselves.

“I think you’re boxing yourselves in a corner and three years from now you’re going to be changing the policy,” he said.

Others, however, strove to find the middle ground in which debt incurred by the council and the mayor would be limited to 6% for items that have a life span of six years or more--such as cars and ambulances.

Keith Comrie, the city’s administrative officer, had urged a 6% target with a 7.5% cap, saying that the city needs to maintain its flexibility. But Ron Deaton, the chief legislative analyst, and City Controller Rick Tuttle pushed for the 6% cap.

But in the end, Comrie said the policy is solid and that it will maintain the city’s “AA” Wall Street bond rating.

“Wall Street has signed off on all of it,” Comrie said, referring to the policy. “Wall Street likes the way we do business.”