BELL, Calif. — Nearly a year after an entirely new slate of City Council members were elected to replace corrupt officials, Bell, Calif., a Los Angeles-area working-class city of 50,000, is beginning to find its financial footing.
The Council approved a workout plan Wednesday night for the city’s $50 million of outstanding general obligation bonds, rejecting an idea proposed in August to refund the bonds.
“The former council left you a tax time bomb,” Arne Croce, Bell’s interim chief administrative officer, told council members during the meeting. “The City Council realized in August with no action, the city faced a steep increase in property taxes. One of the goals of the council is to avoid increasing taxes.”
If the city chose not to take corrective action, the City Council would have to increase property taxes by 70%, to $259 from $152 on the current assessed value per $100,000, to make the bond payments, according to the presentation.
The city has one of the highest tax rates in Los Angeles County, according to city officials.
KNN Public Finance, hired in September as financial advisor on the workout plan, determined a refunding would not be the best move, because it could end up with higher interest rates on the debt because of its widely publicized fiscal problems, said William Statler, former director of finance and treasurer for San Luis Obispo and currently serving as a pro bono consultant to Bell.
The city had planned to use $20 million in unused bond proceeds, designated for an unrealized sports complex and several other projects, to reduce the principal in the refinancing. Instead, it now plans to use the money to purchase outstanding bonds directly from current bondholders through a tender offer.
To the degree the tender offer falls short of $20 million, the city would place the remaining amount in an escrow account and pay back that portion of the bonds early. For instance, if the city is able to purchase $15 million of the bonds through the tender, it would defease $5 million.
The advisors recommended the combined approach, because a direct purchase results in a higher level of savings for the city, but given market conditions, the city might not be able to buy back the entire amount, Statler said.
Statler told council members the workout plan can be executed before March 2012, well before the next budget is due in June 2012 and the next levy action required by the council in August.
The council also approved hiring a team of financial advisors, including bond counsel, and the Bond Communications Group to facilitate tracking down the bondholders at a cost of $115,000, also to be deducted from the $20 million in bond proceeds.
The city’s previous administrators, currently facing pretrial hearings on charges including fraud and financial mismanagement, issued $50 million of GOs, secured by a voter-approved property tax levy. Voters authorized $70 million in 2003, but $20 million remains unissued. Only 933 people voted in the election.
The cost of the GO debt went unnoticed by taxpayers for the first five years after the bonds were approved because the city didn’t impose the tax increases until August 2009.
Almost $6 million in bond proceeds were used to make debt service payments in the meantime, according to the council’s budget report.
Aside from its GO debt, the report said Bell faces a deficit of $676,000 in 2011-12, which will need to be paid from other sources.
The financial advisors did not mention how city officials plan to deal with other bond debt, which includes $35 million of privately placed lease-revenue bonds issued to fund an intermodal freight project that failed to materialize.