The Los Angeles City Council voted Tuesday to keep moving forward with borrowing up to $60 million to help pay for civil lawsuit settlements, but maintained the option to back out of the plan if the city's financial picture keeps improving.
Before the vote, Councilman Paul Krekorian explaind why the Budget and Finance Committee,which he chairs, recommended the move. Krekorian pointed out that the city's financial outlook for the fiscal year was bleaker in January when the idea was first approved, and noted the looming threat by President Donald Trump to pull federal funding from the city or the entire state.
With other financial uncertainties also still in the air, Krekorian recommended that the council authorize moving forward with a judgment obligation bond, but tacked on an amendment that the council would take another vote before it became official. That vote would likely come in June or July.
"I think it would be foolish, frankly, to take that option off the table at a time when we still face so much uncertainty about where we might be in the coming fiscal year," Krekorian said. "As it stands now, I would not go forward with a judgment obligation bond, but conditions could worsen in the coming months, and if they do, then I believe we need to have that option available to us in case we need it," he said.
The motion was approved on a vote of 13-1, with Councilman Mitch Englander casting the dissenting vote. Englander has been against the proposal from the beginning, saying in January that it was like "putting a mortgage payment on a credit card." The City Council had already approved $67 million in settlement payments over what was budgeted when it initially approved the borrowing plan in January, and at the time was facing a potential $245 million deficit for the current fiscal year.
In a letter to the City Council on March 23, City Controller Ron Galperin advised against borrowing the money because the projected fiscal year- end deficit has been adjusted to $38 million.
"I believe that debt financing of liability claims should only be used in extraordinary circumstances and in times of great need. This year does not meet those criteria, and the city should live within its means instead of borrowing unnecessarily," Galperin wrote.
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The legal settlements the city has had to pay this fiscal year include an agreement last August to spend at least $200 million over the next 10 years to settle a disability lawsuit.
The city had to dip into its reserve fund to help pay for this year's settlements, which caused it to fall below 5 percent of the operating budget. Because the city tries to keep its reserve above 5 percent, former City Administrative Officer Miguel Santana recommended using a judgment obligation bond to reimburse the fund.
However, Galperin predicted the reserve fund will finish the fiscal year back above 5 percent when unspent funds by departments are returned.
Issuing the bond could require the city to pay about $20 million in interest over 10 years, Galperin estimated. Despite the city controller recommendation, Assistant City Administrative Officer Ben Ceja told City News Service, "We think the continuing revenue and expenditure problems we outlined in our last financial status report make it prudent for the council and mayor to continue to the next step of the judgment obligation process."