City Expected to Keep Good Credit

Los Angeles can maintain its high Wall Street credit rating if the City Council limits civic borrowing and maintains a firm reserve fund, a Wall Street credit rating agency official said Tuesday.

Kenneth B. Kurtz, the senior vice president of Moody’s Investors Service, gave the council’s five-member budget committee a relatively upbeat analysis of several financial proposals under consideration by the city.

Kurtz told the panel that the agency examines four main areas when determining the city’s credit rating: debt, underlying economic strength, finances, and management and administration. Overall, the city is likely to maintain its good credit rating in all those areas, Kurtz said.

The city now has an AA rating, which Kurtz said probably will hold up, if the council approves a comprehensive debt policy and preserves Mayor Richard Riordan’s proposed $38-million reserve fund. The committee heard from Kurtz in its second day of deliberations on the mayor’s $2.7-billion spending plan.

“The budget seems fairly reasonable to me,” Kurtz said after addressing the council panel. “Increasing the reserves is good. They’ve been a little volatile over the years.”

City Council members appear supportive of a higher reserve fund, but it typically has been used to pay throughout the years for unexpected litigation settlements and lawmakers’ special projects. Riordan has said he hopes that the reserve won’t be used as a “pork barrel” for pet projects.

A comprehensive debt policy appears to have support within the council. At issue, however, is not whether to adopt such a policy but rather how high to set the limits. City Controller Rick Tuttle is seeking a 6% cap on voter-approved borrowing; City Administrative Officer Keith Comrie is seeking 7.5%.

Whichever level the city adopts, however, would maintain the city’s credit rating, Kurtz said. Comrie’s higher debt limit, 7.5%, would “not be troublesome,” Kurtz said.

Council members, including Mike Feuer, said they were eager to adopt such a policy to reduce the city’s indebtedness. Several council members said they wanted to err on the more conservative side, but Feuer said the difference in the limits is relatively small.

“I’m not necessarily sold on 6%,” Feuer said. “There’s no magic to this. They’re all arbitrary to some degree.”

The council budget panel, which is reviewing the budgets proposed for all city departments this week and into next, also discussed the spending plan for the city attorney’s office.

In an issue that Feuer foreshadowed Monday, City Atty. James K. Hahn protested the mayor’s proposal to shift $1.5 million from a court settlement with R.J. Reynolds to the anti-drug program DARE.

DARE officials acknowledged that anti-smoking messages are a small component of their program, which focuses mainly on drugs and alcohol.

Hahn for months has been working with a council committee to develop anti-smoking programs geared toward reducing teenage smoking, in particular.

“After Joe Camel spent billions trying to get teenagers to smoke, we want to spend a little to try to get teenagers not to smoke,” Hahn said. “The mayor simply took the money and stuck it in the budget and said, ‘This is for DARE.’ ”

Hahn and several council members said the DARE program, which operates in schools, should be funded with a solid source of money rather than a onetime “windfall.”

Hahn is seeking to create the first licensing program of its kind in the state--requiring cigarette sellers to obtain a license to sell tobacco products. That license could be revoked if teenagers purchase cigarettes from those locations.

Hahn is seeking a reorganization in his police litigation unit, adding several positions to better serve the Los Angeles Police Department.