Ron Kaye: Empty desks, a new way of life

The email from Moody's credit rating service that popped up on my computer screen boggled my mind: Glendale was among 40 California cities that were downgraded or are facing downgrades, but Los Angeles and San Francisco could get upgrades.

I'm an old newspaperman who knows a lot more about words than money, but that made no sense at all. How could a fiscally conservative city like Glendale be a worse credit risk than free-spending Los Angeles?

So I dropped by Glendale City Manager Scott Ochoa's office last week in search of answers. What I found were a lot of empty desks everywhere I looked.

“It's a new way of life for us,” explained Assistant City Manager Yasmin Beers, “after the 122 retirements and the 55 layoffs and the 100-plus vacancies and the 28 positions that we eliminated with redevelopment, and now the 28 with Glendale Water & Power. We're just going to try to settle in and see what this all means for us.”

Since the economy crashed four years ago this month, Glendale has gotten wage concessions and increased contributions to pensions and healthcare from its employee unions — concessions of up to 13.5% of salaries for police and firefighters.

The exception is utility workers who are in stalled talks on an initial contract since voting to be represented by the IBEW.

That's a lot different than L.A., a city 20 times the size of Glendale, where union concessions have been far less substantial and fewer than 500 workers have faced layoffs while three times as many have been transferred to the harbor, airport, utility or other departments that don't rely on the General Fund.

Real budget cuts in tough times versus kicking the budget can down the road so the big bills will come later — that's the way I see the difference between Glendale and L.A.

So I put the Moody's question to Ochoa.

“Los Angeles is like a bull elephant that is so large it has no natural predators,” he said. “What I took away from the Moody's article is that they are so large when you look at the types of (borrowing) instruments that Moody's was looking at, that they can make the argument with a straight face that L.A. is going to be fine. It's so big it can't help but succeed.”

What Moody's is reviewing for possible downgrade, he explained, is the city's lease-back arrangement, which was used to pay for construction of the new police headquarters. The city used what are called certificates of participation to avoid issuing bonds and so is paying off the $52.4 million it owes out of the General Fund over 30 years.

The bill last year was $1.7 million toward principal and $100,000 for interest at less than 1%, including a standby purchase agreement, which Ochoa said might be exercised if there is a downgrade and it is cheaper simply to issue bonds with a dedicated revenue stream in place of the certificates of participation.

“Glendale has been very, very conservative financially for a very long time,” Ochoa said. “Our debt service ratios are very good and our liquidity ratios are very strong. Despite the loss of redevelopment, which cut our reserve fund in half, it's still at 26% of our General Fund, so we're in pretty good shape.”

Moody's doesn't challenge that claim, noting that Glendale has a higher credit rating overall than L.A. or, for that matter, California. The concern in the face of the growing number of municipal bankruptcies in the state is the drain on general funds to pay borrowing costs for lease-backs in Glendale's case, or the $70 million L.A. borrowed to pay legal judgments — an action that led to an earlier credit downgrade.

“What all this comes down to is the type of debt we're looking at,” said Moody's spokesman David Jacobson, noting that L.A.'s $3.17 billion in general obligation bonds has tax revenues targeted to pay the costs.

“What we have noticed in California over the last few years is that across the board — both for cities that are doing better, like Glendale and Los Angeles, and cities that are not doing so great — is that general funds have quite a few constraints. Because of Proposition 13, cities have very limited new ways to raise revenue, while General Fund expenditures continue to rise quite a bit, driven mainly by pension costs and healthcare.”

Moody's is going to review Glendale and the other cities on credit watch over the next 90 days before making decisions on downgrades.

OK, the downgrade, if it happens, isn't the end of the world; but how are all those cuts in staffing and take-home pay working out?

“The anxiety coming up to this was strong, but now that we're here, the people that are here, they are excited, they are motivated and they are having a good time for the most part,” said Beers.

She added, “there are places .... that we're going to have to tweak, like Neighborhood Services. Our expectation is not to say we're going to be mediocre just because we don't have as many employees. We're going to be better than we ever were. That's not just lip service. That's the expectation of every executive and everyone on down.”

RON KAYE can be reached at Share your thoughts and stories with him.

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