COMPTON — The City Council is on the verge of hiring four consulting firms to determine if it is both legal and wise to float up to $40 million in redevelopment bonds so money can be diverted into the city's strapped general fund.
The council agreed Tuesday to let City Manager James C. Goins negotiate with the firms and bring back proposed contracts for approval. A lone objection came from City Councilman Maxcy D. Filer, who argued that all four experts need not be approached until the bond plan's legality is certain.
But Councilmen Robert L. Adams and Floyd A. James said the city can only settle that question by turning to the consultants. Also, city officials are not certain how much of the bond issue could be placed in the general fund and how much would be spent on redevelopment.
If the bonds are issued:
Chilton & O'Conner Inc., the Los Angeles investment banking firm that proposed the unusual revenue-raising plan, would receive up to 2% of the proceeds--as much as $800,000--to cover underwriting expenses and the firm's own bond-marketing fee.
Grant & Duncan, a Los Angeles law firm, would receive up to $75,000 for acting as bond counsel to make sure that the financing plan is legal.
Wilson, Becks and Pyfrom, another Los Angeles law firm, would receive up to $25,000 for acting as special counsel to the city's redevelopment agency.
Westpac Banking Corp. of Los Angeles would receive up to $120,000 for analyzing the city's financial problems and structuring the bond plan in a way that would solve the problems.
If the bond deal falls through, according to Interim Redevelopment Director Lawrence H. Adams, the city won't be obligated to pay either the underwriter or the two law firms.
However, Assistant City Manager Paul H. Richards told the council that some portion of Westpac's fee would be due since that firm is being asked to render "independent" financial advice that conceivably could recommend against issuing the bonds.
Adams said the underwriters could have the bond issue ready within two weeks if it looks as if interest rates are about to rise.
Under the plan proposed by James C. Chilton, chairman of the Century City underwriting firm, the bond proceeds would primarily be spent on some as yet unspecified redevelopment project. However, several million dollars would be used by the redevelopment agency to repay some operating loans that the council provided when the redevelopment agency was set up.
Although bond money is supposed to be used solely for redevelopment, Chilton contends that the operating loans could be legally repaid to the city's general fund.
In an interview Wednesday, Chilton said it is common for such loans to be repaid once a redevelopment agency becomes "mature," such as Compton's 20-year-old agency. But Chilton said he did not know how often the practice is used to shore up slumping general revenues.
In recent weeks, city financial experts have warned that budget cutbacks or personnel layoffs may soon become necessary if the city doesn't replace some of the $2.5 million that federal revenue sharing used to annually bring Compton until Congress halted the program last year.
Chilton said his bond plan is only possible because property values in the city's Walnut Industrial Park redevelopment district now generate more taxes than are needed to cover previous bond debts. After growing at "about 8% per year," the district's redevelopment "increment" is $9.7 million annually, while debt service on the city's half dozen earlier bond issues is $6.2 million, he said. The remaining $3.5 million could thus be used to secure the new bond issue.