Budget update outlines difficult challenges
COMPTON—Interim City Manager Lamont Ewell gave the Compton City Council a mid-year budget update on Tuesday, Dec. 20, guiding them through the complex issues standing in the way of financial health for the Hub City.
“This has truly been a very challenging and daunting experience,” Ewell said. “ The issues are complex, and I hope the city can move forward in the near future.”
In October, the city reportedly had a $39.3 million general fund deficit caused by internal fund borrowing. The deficit has been updated and stands at $41.9 million.
“The difference is because funds carried into this fiscal year should be in the 2010-2011 budget,” Ewell said. “That increased the deficit by $1.6 million.”
The city’s cash flow is hampering credit worthiness, so Ewell approached Bank of the West to obtain a line of credit.
“We could not go to the bond market to obtain funds,” he said. “We have a goal of creating capacity to handle the outstanding debt, which gives the City Council time to develop a more holistic financial approach.”
The Council approved hiring the financial consulting group PRAG, (Public Resources Advisory Group) and developed a cash flow model that tells a true story of the financial situation and its plans to address deficiencies.
The city needed a repayment plan to retire the current general fund deficit, and the group formulated a solution.
“Anytime you have that much debt, you have to repay the money with interest in a reasonable period of time,” Ewell said. “If the city does not act, the auditors assign it as a general fund obligation payable in one year.”
The plan is to treat the debt as a long term obligation, and pay it off in 20 years instead of one, beginning in fiscal year 2013.
“We need to establish separate bank accounts to track our progress,” Ewell said. “We want to have a clean record with banks in dealing with this issue.”
The city will remedy the current year deficit of $3.5 million by using $1 million from the city attorney’s worker compensation fund, and $1.1 million in lease revenue bonds to pay debt service. Ewell is proposing that labor unions cover the remaining shortfall.
“We continue to leave city jobs vacant and eliminate outside contracts save money,” Ewell said.
Another key element to the financial recovery is to share the cost with the labor unions employed with the city. Another 35 people will need to be laid off if an agreement is not in place by Dec. 27.
“We have been in some very productive talks with the unions,” he said. “They want to be part of the solution, and I hope we can reach an agreement. We cannot continue overspending on labor.”
Layoffs remain the most contentious labor problem. Ewell said the city violated its own policies relating to layoff procedures when they went into effect in August.
“ These people will be made whole, regardless of the negotiations to share the cost of the deficit,” Ewell said.
The money owed to the Los Angeles County Sheriff ’s Department as of Dec. 20 is $7.1 million.
“City Treasurer Douglas Sanders did release two checks to the LASD today (Dec. 20) reducing that total,” he said. “Unfortunately, the Los Angeles County Auditors advised us that due to late payments, they may seize property tax money owed to the city. City Controller Stephen Ajobiewe and I talked about temporary relief strategies with Supervisor Mark Ridley-Thomas.”
The county attorney expressed a desire to look at the city’s finances, a process that will begin once the work with the financial advisors is complete.
“Reducing the LASD contract is an option,” Ewell said. “We asked them to give us an impact report for reductions in service totaling 3, 5 and 10 percent.”
The city can save $544,000 per year if it adoptsa3percentstaffreduction.Thefield deputy total would be reduced to 63. Capt. Diane Walker will present a complete impact report to the Council in January.
“The Metropolitan Transit Authority recently informed us of an audit because of the 2010-2011 financial report,” Ewell said. “Legislation states clearly that all funds owed to transportation must be used for those services.”
The MTA alleges that money dedicated for transportation has funded city services and ineligible projects.
“We explained the city’s banking procedures,” Ewell said. “These funds were commingled but not used for other projects. We agreed to separate the monies in the future, eliminating any concern. The MTA removed the negative citations.”
Restructuring city services begins when the City Council hires a permanent manager.
“Making city departments more efficient should save approximately $1 million per year,” Ewell said. “Maintaining services remains a challenge.”
The bond report was the only bright news of the evening.
“Moody’s gave our sewer bonds an A2 rating,” Ewell said. “Had it been anything less, the bondholders would probably panic even more than they already are.”
The city is looking into developing a bond workout strategy, allowing note holders to tender an offer to sell bonds back.
“I was on the phone with a bondholder whose company has a $40 million stake in our bonds, and he said the company has an interest in doing this,” Ewell said. “If we tender an offer at 75 cents on the dollar and buy $14 .5 million worth of lease revenue bonds, the city will save $1.2 million annually.”
Keeping the bonds and using the money for economic development is another option for council members.
Ewell said it could take up to five years before the city will be out of the woods.
The next City Council meeting is on Tuesday, Jan 3