LOS ANGELES  -- Compton, the Los Angeles-area city sued by the California Public Employees’ Retirement System, plans to issue a $10 million note within the next few weeks to cover its delinquent pension fund payments, according to city officials.

City Manager Harold Duffey said the city has found a way around the issues that have prevented it from getting the short-term debt it needs to smooth out its cash-flow problems.

An unnamed creditor agreed to issue Compton a line of credit if the city’s 0.5% parcel tax on Compton properties earmarked for its city employee pension and healthcare is held in a lockbox and the tax and revenue appreciation note is paid directly by Los Angeles County, Duffey said.

The county normally collects the tax and then releases it to the city in June and December.

CalPERS filed the lawsuit in Sacramento Superior Court after the city fell behind on its retirement and healthcare payments.

Compton owes the pension fund $2.6 million and has not made a payment since Sept. 21, said Amy Norris, a CalPERS spokeswoman.

The city has until Friday to respond to the lawsuit.

Compton’s plans to issue short-term debt earlier in the year were squashed after Mayor Eric Perrodin sent a letter to California Controller John Chiang in December requesting that he conduct a forensic audit of the city and suggesting that the general fund deficit was caused by “possible fraud, waste, and-or abuse of city monies.”

Then in June, the city’s former audit firm, Mayer Hoffman McCann, refused to sign off on its financial statements and quit citing the allegations made by Perrodin.

Standard & Poor’s suspended its long-term rating on the city’s $275 million in outstanding debt in September.

But the rating agency said in its report that it would consider reinstating the rating after the city completes an audit.

Compton recently hired the Sacramento-based accounting firm Macias, Gini & O’Connell to conduct an audit.

The city will receive a draft report from the firm on Dec. 30 and a final audit in late February, Duffey said.

Duffey contends that CalPERS "lumped his city in with Stockton and San Bernardino," two cities that declared bankruptcy this year.

“We don’t fit the profile of a Stockton or San Bernardino,” Duffey said. “We have short-term cash-flow problems, but we conducted a five-year study of our revenues and our revenues will equal our expenditures.”

The city was able to close its $9 million deficit for fiscal 2011 by negotiating employee salary cuts and changes to its trash hauler contracts, Duffey said. It also made two bond payments of $2.3 million by using bond proceeds, he said.

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