City Debt Is Rising, Report Says

Amid renewed calls for a formal limit on civic borrowing, a new city report released Tuesday shows that Los Angeles’ debt could reach 12% of general fund revenues, potentially threatening the city’s favorable bond ratings.

But the report, by Chief Administrative Officer Keith Comrie, cautioned that the major bond rating agencies have indicated that the city’s debt “will not, in and of itself” result in a lowering of the bond rating, but it will be considered, among other economic factors.

In dueling reports Tuesday, Comrie and City Controller Rick Tuttle both called for the adoption of a formal city policy on debt. But they differed in their suggestions for firm limits on city borrowing.

Comrie’s proposal, which calls for a more comprehensive policy on debt targets and ceilings, as well as debt structuring, also differs from Tuttle’s in the suggested amount of borrowing.

Comrie suggests a 6% “target” for nonvoter-approved general fund debt with a 7.5% ceiling; Tuttle proposes a 6% limit. Comrie also proposes a 10% target for voter- and nonvoter-approved debt with a 15% ceiling; Tuttle proposes a 10% limit, if the city doesn’t approve a formal debt policy.

Bond rating agencies have generally considered it risky for cities to commit more than 10% of their general fund revenues to debt repayments, whether or not the debt was approved by voters.

As a result, Tuttle said the city needs to create firm limits to guarantee favorable bond ratings.

“The whole picture [of rising debt] . . . speaks more and more for the need of a debt policy,” Tuttle said.

Thus far, the city has used informal targets and ceilings, allowing city officials to exceed them when necessary.

But Gerry Miller, chief of debt administration, said the major bond rating agencies do not find the city’s debt levels “excessive.” He said the agencies probably would take a positive view of a formal city policy limiting borrowing. Such a policy would have to be approved by the City Council and the mayor; it was discussed briefly Tuesday during a council budget and finance committee meeting.

The city’s nonvoter-approved debt includes judgment obligation bonds used to satisfy multimillion-dollar judgments against the city, financing of such goods and equipment as computers and police cars, and lease-finance guarantees for the Convention Center and the new downtown sports arena.

If term-limited lawmakers choose to pay for initiatives such as those by borrowing, neither the voters nor the elected officials who follow would be able to change those policies, Tuttle said. Without a firm policy, those debts could impede future attempts to improve such civic facilities as libraries and police stations, as well as other city services.

“It is my view that a formal debt policy should set binding limits on borrowing approved by this and future mayors and councils,” Tuttle said in his report.