The next mayor of Los Angeles could influence the trajectory of the city’s debt practices.
And it’s a crowded field.
U.S. Rep. Karen Bass, a Democrat who was said to be on the Biden campaign's short list for vice president, announced Monday that she has joined the race to replace Eric Garcetti, the termed-out incumbent who is expected to leave office early to become U.S. ambassador to India.
A first round of voting in June will send the top two finishers to November's general election.
Kevin de Leon, former state Senate pro tem and a councilman representing the city’s eastside 14th District; City Attorney Mike Feuer; and Joe Buscaino, the city council’s president pro tempore have all announced plans to run. Jessica Lall and Mel Wilson, two business leaders have also joined the contest. All five are Democrats; the election is run with a nonpartisan structure.
The mayor’s primary impact on debt management is through the policy goals she or he establishes, combined with the power of persuasion. With Los Angeles’ weak mayor system, the mayor introduces a budget that has to be approved by the city council with the latter controlling the city’s purse strings.
“The city established a written debt policy in 2005, and they actually have a pretty good approach historically to the way they manage their debt,” said Lori Trevino, a Moody’s credit analyst. The policy governs how much debt the city can have relative to the general fund and there is also debt that has to be approved by voters, Trevino said.
The city had $2.8 billion in outstanding direct debt at the end of 2020 and that debt is rapidly amortizing, said Linda Vanderperre, a senior director at Kroll Bond Rating Agency. More than 70% will amortize in the next 20 years, Vanderperre said.
The debt management policy was most recently revised in September 2020 with provisions regarding affordability and capacity, post-issuance compliance, disclosure and the city administrative officer’s role as debt administrator for the city codified into the city’s administrative code in February 2021.
The debt management policy limits the impact the mayor can have on the city’s debt program to decisions around financing the acquisition of capital assets, including capital equipment and real property. These decisions are generally part of the city’s annual budget process and require City Council approval.
“They have been pretty consistent at keeping their debt levels well below the ceiling set in their policy,” Trevino said. “That has been a strength over the years. They tend to have rapidly amortizing debt. They use 20 years, rather than 30 years, which is more common in California. They tend to maintain lower debt levels than many cities.”
Garcetti established a “back to basics” program when he was first elected in 2013 that included the goals of building out the city’s mass transit network and later tackling the city’s homelessness problems.
The city's direct transit role is limited because rail and most bus services are provided by a regional agency, though the Los Angeles mayor usually carries weight in Los Angeles County Transportation Authority decision-making. The mayor serves as chair of LA Metro's board on a rotating basis with county supervisors who also sit on the board.
During Garcetti’s tenure, the logjam preventing the last mile connecting the city’s light rail system to the airport
“Homelessness became such an important issue after 2013-14,” said Natalie Brill, who
The question then was “How do you fix the permanent supportive housing program?" Brill said. The city attorney answered that question, which was to allow developers to purchase tax credits and use tax increment debt, Brill said.
Both Los Angeles and Los Angeles County voters
City Council President Nury Martinez
She will become acting mayor when Garcetti leaves after the Senate confirms his appointment by Biden as ambassador to India.
The City Council could hold a special election to replace Garcetti, but given the approaching mayoral election dates that isn’t considered likely. The council also has the power to appoint an interim mayor.
Biden nominated Garcetti, who was co-chair of Biden’s presidential campaign, on July 9. The Senate could take up the matter in October, but nothing has been officially scheduled yet, according to the mayor’s office.
The confirmation process is moving at a snail's pace; by mid-September, the Senate had only confirmed two of Biden's ambassadorial appointments,
The 50-year-old mayor, the son of former Los Angeles County District Attorney Gil Garcetti, was first sworn in as mayor in June 2013, after representing Silver Lake and parts of Hollywood on the city council from 2001 to 2013, serving as council president for the last six years. He was re-elected mayor in 2017 with 81% of the vote.
If confirmed by the Senate, Garcetti would head to a country that has
With such a broad field vying to be the city’s next mayor, it’s hard to say exactly what policy positions that person would decide to focus on — and thus what kind of debt program would follow.
Prior administrations had different positions. Richard Riordan, who was mayor from 1993 to 2001, “was a staunch pension reform advocate,” Vanderperre said.
Even 10 years ago, Riordan lobbied to get the city to adopt a 401(k)-style defined-contribution plan. He
Garcetti was council president at that time and Villaraigosa was mayor. Villaraigosa did work with the City Council following the 2008 crash to create a new tier for newly-hired civilian employees that increased contributions and raised the retirement age.
“Villaraigosa supported a $2 billion bond initiative for environmental programs, but he was not as much of a pension hawk as Riordan was, though he did implement measures to keep things under control,” Vanderperre said. “If you look at Los Angeles’ pension costs since 2011, as a percentage of the budget, it hasn’t increased. It stays flat.”
All cities are going to have to address and contend with climate change and with the infrastructure needed to address those issues, said Karen Daly, a KRBA senior managing director.
“So no matter who is elected there will be a set of challenges presented to that particular mayor,” Daly said. “And how that mayor responds and the policies that are formulated will be part of our evaluation.”
Though management is a rating criterion for all of the rating agencies, they don’t typically opine on individuals, but rather rate institutions, according to Eric Hoffmann, a Moody’s senior director.
“When we look at any city, we follow a ratings methodology that includes management, but it’s not a situation where we look forward and try to project what might happen if a certain individual becomes mayor or gets elected,” Vanderperre said.
Kroll takes a look at debt metrics and long-term liabilities from a historical perspective, and then takes a look at what past mayor’s positions were on debt and how things worked, Vanderperre said.
“We can draw conclusions on a historical basis,” Vanderperre said.
In this case, given there are six major candidates, and there won’t be a primary for another eight months, “it’s hard to take a proforma read of where that might be going,” Vanderperre said.
