L.A. Wheeling and Dealing to Save Money
Los Angeles is scrambling to find savings wherever it can, from bank deals to city employees.
The L.A. Times reports on the city trying to reverse some complicated "interest rate swap" deals with banks that ended up costing the city more than they expected. Details:
The City Council...vot[ed] unanimously to instruct its financial analysts to ask...two banks to rewrite or cancel the terms of its two interest swaps. Those deals, approved in 2006, cover $316.8 million in debt incurred by a wastewater program that pays for the repair and replacement of sewer lines and sewage treatment plants....[T]he Service Employees International Union, which has been staging rallies to publicize the swaps, has begun prodding other government agencies in California to follow suit. Union leaders have tried to tie the borrowing arrangements to the budget crises plaguing many cities, which have been forced to slash payroll and impose furloughs to reduce expenses. But Natalie Brill, the chief of debt management for Los Angeles, said the higher cost of the swaps will not affect the budget because the wastewater program is maintained separately from the general fund, which pays basic services such as police and fire protection.
Still, it is money that the city is responsible for, regardless of the bookkeeping technicalities. What is this "interest swap" thing all about, anyway?
In a typical swap transaction, a local government pays a bank a fixed annual rate of interest to cover a specific amount of debt, and in exchange, the bank pays the city a variable interest rate. That formula, embraced by Los Angeles in 2006, was designed to free up $3.7 million annually for the city's wastewater program, according to a report on the agreement.For the first two years of the swap, Los Angeles was paying 3.34% and receiving between 4% and 5% from the banks, according to city officials. After the economy collapsed, the city continued to pay 3.34% but only got 0.12%.
The municipal workers unions, as noted above, are pushing to get the city to rearrange/renege on its interest swap deals with the banks. City workers are also, as reportedby Steve Lopez in the L.A. Times, saying the city is missing other chances to save money besides slashing at workers salaries or jobs.
"We don't deny there's a crisis," said Victor Gordo, an attorney with a coalition of six city unions that represent more than 20,000 employees who run rec centers, maintain roads and streetlights and work as librarians, among other professions.But Gordo and his colleagues blame City Hall for being slow to implement reforms suggested by the coalition, and for failing to produce reliable numbers or a coherent plan. .....the City Council says it needs to ax 4,000 workers. If not layoffs, we were told, we'd need to slash pay by 5% -- no, make that 10%, or maybe even 15%. City Council President Eric Garcetti, who knows the budget as well as anyone, told me some of the claims by the Coalition of L.A. City Unions are legit. Among employee groups, he said, the coalition has "been the most creative and the most productive" player, pushing its ideas for more aggressive debt collection.... Unfortunately, he said, 85% to 90% of total city costs are for employees, so that's where the bulk of the additional cuts have to be made.
In other city government/union news, the L.A. Weekly is reporting today that one city workers union, the United Firefighters of Los Angeles, has tentatively agreed (without rank-and-file approval yet) to $12 million in concessions to the city.
The image associated with this post was taken by Flickr user Mr. Littlehand. It was used under user Creative Commons license.
