LOS ANGELES — Like other cities across the country, Los Angeles has been forced to make tough budget decisions over the past four years.
This year will be no different as city leaders wrangle with hard choices wrought by another year of austerity.
As in past years, however, city departments that generate money for Los Angeles will likely be spared along with public safety positions.
Mayor Antonio Villaraigosa’s $7.2 billion budget proposes to eliminate 669 positions and raise the retirement age for city workers to 67.
Among his stated goals: maintain the city’s $200 million reserve and close an estimated $238 million budget gap. But he also asked that the council consider adding a new full-time position to the city’s debt management staff.
“Over the last several years, [chief administrative officer Miguel Santana] has worked closely with departments to identify savings within the city’s debt portfolio,” mayoral spokesman Peter Sanders said in an email. “Given the historically low interest rates and the ongoing need to identify savings wherever and whenever possible, it is fiscally prudent to provide additional resources to the city’s debt management unit.”
The City Council will spend the next two months in budget hearings before voting on a final spending plan on June 1.
After that the mayor has 10 days to approve or veto the budget.
Villaraigosa isn’t the only city leader who thought it would be a good idea to bolster the debt department at a time when local and state governments are ramping up refunding efforts to capture savings in an era of low interest rates.
City Councilman Tony Cardenas introduced a motion in December asking Santana to produce a report on what additional resources the city’s debt management department, which works under the chief administrative officer, would need in order to capitalize on savings from refundings.
The report was due back to the council’s finance committee on April 23 but it has yet to be finalized.
“While we are still waiting for the final report, I got some feedback that the CAO has been able to take advantage of cost savings on some of the older bonds,” Cardenas said. “What I’m looking for is, how we can leave no stone unturned to take advantage of the incredibly low rates?”
He said he applauds the successes the debt management office already has achieved.
“I want the department to look at every option and opportunity, and where it merits it take advantage of opportunities,” Cardenas said. “I think we could save $100 million or more over the next 20 years by repositioning and resetting the commercial paper the city has committed to.”
That figure could be a little high, but Los Angeles does have 90 outstanding bonds, said Natalie Brill, head of the debt management department.
And while Cardenas thinks the window of opportunity to realize savings from low interest rates could close as soon as November, Brill believes it could extend through 2013.
“We are trying to do advance refundings on bonds when they reach that maturity level,” Brill said.
She ticked off several refundings the city has done over the past several months that saved millions of dollars.
Cardenas said he wasn’t sure the department needed to add two or three full-time people from “here to perpetuity,” but he did support adding more people, through consultants or otherwise.
“The window of time is months long,” he said. “I envision experts coming on board to help the permanent staff identify opportunities to refinance debt.”
Brill said she has been seeking to add another position to her department over the past two years. She doesn’t plan to request additional help beyond the new post recommended by the mayor in the final report, which is headed for the city’s finance committee.
“I’m just happy the mayor included an additional person in his budget, and I hope the council decides to support the mayor’s decision as they go through the budget process,” Brill said.
While Cardenas’ motion focused on the department’s refinancing efforts, Brill said her request for an additional person was also driven by the volume of administrative work her office handles to issue bonds in an environment where expectations for bond disclosure have increased dramatically.
“Refundings are just one thing we do,” Brill said, adding that the number of assignments her staff is required to do has doubled since she first took the position in 2000.
The city’s debt management team is comprised of Brill and four employees.
In addition to orchestrating the issuance of short-term and long-term debt for departments that fall under the auspices of the general fund, they also work with proprietary departments such as the Port of Los Angeles, the Los Angeles Department of Water and Power, and the Los Angeles World Airports on their bond prospectuses.
The first 10 pages of the proprietary department’s bond documents are provided by Brill’s staff, because they all contain information about the city’s fiscal health, she said.
“Since I came here in 2000, our workload has increased dramatically,” Brill said.
The work also has become more complex, according to Brill. “We had the Standard & Poor’s problem. We had some swaps. We sold three MICLA [Municipal Improvement Corporation of Los Angeles] deals,” she said. “Wastewater sold two weeks ago. We have another refunding in a week. We have been systematically refunding the debt, which means we fall behind on other assignments. It is not like we just do refundings.”
Her department was charged with doing the research for the proposed privatization of the city zoo and the convention center, which did not end up passing the council.
“We spent two years on that,” Brill said.
Her department also helped craft the bond piece to the city’s agreement with AEG, the company that has proposed to raze half of the city convention center to make room for a National Football League stadium at L.A. Live, the multi-block entertainment center adjacent to the convention center.
“The CAO’s office has a lot of people, but my group does not,” Brill said. “We have been four staff, plus me, since 2000.”
Los Angeles had its bond rating downgraded by S&P two years ago during budget talks after the mayor and City Council members spoke publicly about the potential for the city to go bankrupt. At the time, the city was facing a deficit of $1 billion by 2013-14 if it did not take action, according to the mayor’s 2012-13 budget report.
Moody’s Investors Service rates Los Angeles general obligation bonds Aa3, while Fitch Ratings and S&P rate them an equivalent AA-minus.
