The mayor of Santa Ana, Calif., dismissed reports that the city — facing a $24 million deficit in 2012 — is on the verge of bankruptcy.

The city’s budget crisis is dire enough that officials are contemplating outsourcing fire services and shutting down its 128-year-old fire department.

While a $24 million shortfall warranted hiring consultants, Mayor Miguel Pulido said a $24 million deficit in a $210 million annual budget hardly puts the city in bankruptcy territory. “There is no way we are going to go there,” he said.

Eric Hoffman, a senior vice president in Moody’s Investors Service San Francisco office, said analysts are still working on an updated credit analysis of the city, but added that “having a shortfall of more than 10% in the general fund budget is certainly a substantial challenge.”

On Nov. 17, 2010, Moody’s downgraded Santa Ana’s rating to A2 from A1 on $9.8 million of certificates of participation used to fund a city hall expansion project in 1998.

Santa Ana, the ninth largest city in California with a population of 355,662 is the seat of Orange County, to which Moody’s assigns an Aa1 issuer rating.

Standard & Poor’s hasn’t rated the underlying bonds, but it put Assured Guaranty, the bond’s insurer, on CreditWatch negative in September while affirming the insurer’s AA-plus rating, said Misty Newland, an analyst in S&P’s San Francisco office.

Pulido said the steps city leaders have taken to deal with the projected deficit have raised alarms simply because they are taking action outside of the normal budget cycle.

The first step city leaders took was to hire Management Consultants earlier this year to help them find further methods of cost cutting, he said.

Pulido cited state legislators’ decisions to take $49.5 million in license fees from Orange County, reducing Santa Ana’s share by $1.5 million. Lawmakers also forced city redevelopment agencies to hand over part of their funding or go out of business.

The city was already anticipating a shortfall of $13.6 million. A report from Management Consultants anticipated a deficit for next year if spending was not reined in this year, along with deficits over the next five years.

The consultants recommended such stringent measures as outsourcing 16 city services. The list included outsourcing fire services to the Orange County Fire Authority.

Other city services contemplated for outsourcing were the city jail, the Santa Ana Zoo, street sweeping, police training, police animal-control services and the Santa Ana Public Library.

City officials have been meeting with fire, police and the public employees union, hoping to achieve concessions that preserve jobs and put the city on a sounder fiscal track. “Our goal is that before December, we have a new set of cost structures that enable us to have a balanced budget,” Pulido said.

The mayor said meetings with union officials have been going well, because union leaders are cognizant of the difficulty of employees finding new jobs given the current economic situation. The city had to lay off 400 employees last year decreasing the total number of city employees to 1350.

“The reality is that if we lay someone off in this economy, it will be tough for them to get another job,” he said. “Employees are willing to give us some concessions in exchange for no layoffs.”

The city also has the ability to furlough employees or require employees to pay higher benefit contributions without the union concurring, he said.

Personnel costs represent 79% of the city’s $210 million budget, according to the Management Partners report. Fire department salaries comprise 26% and police salaries make up 55% of the budget, the report states.

Union leaders could not be reached for comment.

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