Casting the Lone "No" Vote on Judgement Obligation Bonds
Posted by Councilmember Englander on January 20, 2017 at 11:53 PM
This week, I cast the lone “no” vote against the Los Angeles City Council issuing a Judgement Obligation Bond of up to $90 million to help cover extraordinary payouts related to civil lawsuits.
Civil liability is an ongoing cost in the City of Los Angeles. While the cases are different year to year, the settlement amounts have grown. Not adequately budgeting for this reality by calling it a “one time cost” is simply not responsible.
Judgement obligation bonds are one of the worst forms of debt. It is akin to paying for your mortgage with a credit card in order to keep cash in your savings account. Yes, this is an option, but a very poor one that signals to the financial world that you are not in good fiscal shape. When cities partake in this type of borrowing, it indicates to Wall Street and the financial markets that the City may not be partaking in sound financial management. This is the kind of action that often leads to a downgrading of our bond ratings. Unfortunately, this makes the cost of all borrowing – including that for necessary infrastructure improvements in our streets, sanitation systems and public facilities cost the taxpayers more.
As a member of the Budget and Finance Committee, I have worked tirelessly with my fellow committee members to maintain the largest Reserve Fund and Budget Stabilization fund in the City’s history as well as to add back services lost to the great recession. I believe that at this time it would be more fiscally prudent to look at expenditure and contractual reductions and inter-fund borrowing before trying to sell bonds to pay for lawsuit settlements. My direction to the CAO to look at reductions in spending prior to issuing bonds was approved by the Council.
Click here to listen to my interview with Doug McIntyre on the City's Fiscal Responsibility.