Gardena Settles 2 Big Debts

After years of fretting under a $26-million debt, the city of Gardena has reached a settlement with two creditors.

Under the agreement, the city will refinance $20-million worth of debt and pay $19 million by June 14 to Sumitomo Trust & Banking Co. and Union Bank of California.

The city will make an additional payment of $2.6 million by the end of the year, and with that, Gardena’s obligation to the banks will be over.

“It’ll be done. And the stigma of are we going bankrupt or aren’t we is gone,” City Manager Mitchell Lansdell said.

A key aspect of the settlement is that the city will have 30 years to pay off the refinanced debt. But by selling city assets in the future -- including land where the old transportation department sits -- the city could repay the debt earlier, Lansdell said.

The City Council unanimously approved the settlement Tuesday night.

The debt was the result of financial gambles the city took more than 12 years ago when it created two municipal programs. The largest and most costly involved the creation of the Municipal Mutual Insurance Co. in 1993 with $14.9 million borrowed from selling bonds. City leaders at the time thought they could make a profit from having their own insurance company sell coverage to other cities.

But the venture became a drag on the city’s finances, and the debt grew when it was refinanced. The city also owed $6 million because of a failed program for first-time homeowners.

In the last few years, city officials have said that the debt was insurmountable unless it was radically reduced, restructured or forgiven by the banks.

Lansdell said the city can now reclaim a credit rating that has taken a beating because of the specter of the debt.

“Without an agreement in place, would anyone want to buy our bonds?” he said. “This was the cloud hanging over what was going on in the city for the last seven years.”