LOS ANGELES — La Mirada, a city of 50,000 southeast of downtown Los Angeles, on Friday received a downgrade from Moody’s Investors Service to A1 from Aa3 on $13.6 million of outstanding lease revenue bonds after officials declared a fiscal emergency.
As a result of what city officials described as $25 million worth of “money grabs” by California and the dissolution of the state’s redevelopment agencies, the government faces a $3.87 million deficit in next year’s $34.2 million budget, according to city manager Thomas Robinson.
La Mirada has experienced an $8.3 million decrease in sales tax revenues as a result of the recession over the past several years, Robinson said. “The redevelopment ruling comes at a time when we have already made significant budget cuts, reduced the number of full-time and hourly employees by about 28%, and were just beginning to see a slight improvement in our revenues,” he said.
Robinson said he was told part of the reason for the downgrade was the feisty language used in the resolution officials unanimously approved on Feb. 14 to declare a state of emergency.
“Through no fault of its own, La Mirada has come to a financial tipping point that places in serious jeopardy the city’s ability to deliver vital services, maintain infrastructure, protect property values, and preserve the city’s quality of life and business environment,” the resolution stated.
Though the state’s move to claim redevelopment money has created a deficit in the upcoming budget, the city is in no danger of defaulting on its bonds or becoming insolvent, officials said.
“We will still be able to pay our bills,” Robinson said. “There is no risk to bondholders, but we will have to economize further.”
City officials voted to declare a fiscal emergency in order to have a half-cent supplemental sales tax to pay for an estimated $80 million in future infrastructure expenses placed on the November election ballot, Robinson said. The state constitution requires the city to declare a fiscal emergency before it can place the question on that ballot or else it would have to wait for the city’s election in March 2013.
“The city’s financial profile appears strong, with reserve levels that could accommodate the lost RDA revenues,” Moody’s analysts said. “However, the declaration of a fiscal emergency casts a certain level of doubt on this strength.”
La Mirada has around $14 million in general reserve funds, according to city treasurer Kevin Prelgovisk.
The lease revenue bonds represent the city’s only debt related to the general fund, according to the Moody’s report
The historically debt-averse city plans to use cash for capital projects, and has no near-term debt plans, Robinson said.
“We can pay all of our normal operating costs, but we are looking, proactively, at how we are going to handle our long-term infrastructure costs,” he said.