Faced with the unpleasant alternatives of raising taxes or cutting its budget, the Beverly Hills City Council has decided instead to refinance the debt on the city's imposing new Civic Center.
Mayor Max Salter voted against the measure at Tuesday night's meeting, calling it "credit card living" that will amount to a tax on future generations.
But the other four council members agreed with city staffers, who said that taking advantage of lower interest rates will save more than $600,000 in finance charges and bring in several million dollars to help complete the Civic Center and pay for new and existing programs.
The debt, now due to expire in 15 years, will be extended until 2019, but Councilman Allan L. Alexander defended it as a prudent decision.
"The life of the Civic Center will be significantly longer than the period we're talking about," he said. "And we're doing it at a time when interest rates are at the second lowest point that they have been in the last 10 years."
The refinancing deal is expected to bring in an additional $30 million, raising the Civic Center debt to between $110 and $115 million at an interest rate slightly more than 7%, depending on the state of the market the day the deal goes through.
The new money will go for "necessary expenditures," Alexander said. He said the biggest single expense will be the city's $8-million contribution to a proposed $50-million face lift for the downtown shopping district.
The rest of the money will go for other uses, including a redesign of traffic patterns in residential neighborhoods and the completion of several capital projects.
The biggest capital project is the Civic Center, which is scheduled for completion in December or January. The $83-million estimated construction cost includes renovation of the 58-year-old City Hall, expansion of the library and construction of new police and fire headquarters.
"The reason (for the refinancing) is to give us cash flow at the present time, which the city sorely needs," said Salter, who was the only member of the current council to vote to go ahead with the Civic Center renovation when it was approved in 1986.
"My contention is, as long as we add debt and do not assume responsibility, we'll have the same (deficit spending) that we have at the state and federal level," he said.
Salter said that the city should look for ways to cut its budget and seek to borrow funds that are set aside to develop parks, water supplies and parking lots. City staffers said they were not sure how practical or legal that would be.
"The problem is that you guys never had to kite checks to cover a payroll like I had to," said Salter, who owns a statewide chain of clothing stores.
"I used to prosecute cases like that," said Councilman Robert K. Tanenbaum, a former deputy district attorney in New York.
Like other City Council members who voted for the refinancing, Tanenbaum also spoke in favor of seeking budget cuts. But, although he spoke out against going into debt to renovate the Civic Center during his 1986 election campaign, he said that refinancing now is "the only way to go."
"We're going out to 30 years and spreading it (the debt) thinner, and all the people who committed us to it . . . will have to live with that," Tanenbaum said.
Don Oblander, the city's finance director, compared the deal to homeowners refinancing their mortgage to take advantage of lower interest rates and using some of their equity to pay for a renovation.
City officials pride themselves on balancing their budgets and returning a surplus in the past 10 years, but Oblander said the demands for cash now threaten a deficit.
"It must be understood that there is a serious and immediate cash shortfall in the city's capital accounts," he said in a report to the City Council.
"Capital spending is running at a pace where it can scarcely be slowed. A deficit, tentatively estimated at $23 million, will occur if funding is not provided."
He also said that a delay in taking advantage of a similar form of financing in 1987 may have cost the city several million dollars when interest rates bounced up.
"Although circumstances are significantly changed since then, the same risk does exist," he said.