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County Grapples With Pressing Need for Funds : Budget: Supervisors to consider hiring cash flow consultants. Managers told to delay spending if possible.

August 07, 1995|JOSH MEYER | TIMES STAFF WRITER

Like paupers squeezing every penny, Los Angeles County officials say an unprecedented lack of ready cash early in the fiscal year is forcing them to take extraordinary measures to make sure they don't run out of money--and into bankruptcy.

Citing an unequaled cash flow problem so soon after adopting a budget, county auditors and financial managers are instructing all departments to maximize their funds in hand, delaying expenditures as long as possible while raking in all expected revenues from the state and federal governments as fast as they can.

But with cash flow problems expected to mount, more drastic responses are under consideration. On Tuesday, the Board of Supervisors is scheduled to consider a last-minute addition to its weekly agenda that would allow it to hire "one or more qualified firms for cash flow advisory services" and to take other measures to deal with the problem.

Already, the county is operating so close to the margin as a result of low current and expected cash reserves that it will be forced for the first time to borrow from its trust funds to cover operating expenses as early as September--just two months into the fiscal year, Chief Administrative Officer Sally Reed and other county officials said.

"That, of course, is an alarm," Reed said. "You have to have enough cash on hand to pay your bills."

Compounding the problem, she said, is the fact that the county tried to close its $1.2-billion budget gap Tuesday but had to pencil in at least $300 million in state and federal revenues that are not guaranteed, some of which may never come through.

Supervisor Zev Yaroslavsky said Sunday he strongly supports Reed's recommendation that the county hire independent financial help.

"Do we have enough cash to meet our needs?" asked Yaroslavsky. "The fact that we cannot even answer that question is very ominous.

"It is a crazy position to be in," said Yaroslavsky, who has been the most outspoken board member in warning that the county could run out of cash and not be able to pay bills. "It demonstrates how tenuous, how stretched, the county's financial situation is--it is stretched almost to the breaking point."

The cash problems, and the use of phantom revenues in balancing the budget, are likely to have an immediate effect this week as Wall Street is expected to hammer the county with a significant downgrade in its coveted bond rating. Such a setback could force the county to pay millions of dollars in higher interest on future bond issues that it needs to cover operating costs or to finance capital projects at a time when it most needs to save money, county officials said.

Reed also plans to ask the supervisors Tuesday to instruct her staff and the treasurer and tax collector's office to "develop alternatives for cash flow borrowing," presumably to make sure they can come up with quick cash to make payroll and a host of other expenses to keep county government running if needed.

And Yaroslavsky, citing his own concerns, plans to ask Tuesday for a list of immediate health services cuts he says are needed to slash operating costs even further--by $75 million or more--so the county doesn't keep spending more than it is taking in and exacerbate the cash flow problem.

The county could run out of cash within several months, he said, if some expected revenue sources don't come through and the county can't act quickly enough to close hospitals or take other drastic measures it may require to balance the budget.

And if that happens, the county's cash on hand could evaporate and it could lurch into insolvency or even bankruptcy, county officials say. "If you run out of cash, you can't pay your bills," said one. "If you can't pay your bills, you figure out what's going to happen."

Supervisor Deane Dana said Sunday that he, too, is concerned about the county's lack of cash on hand, but that he plans to speak to Reed today about what needs to be done before committing to hiring outside help. "I don't want the county to go broke," he said. "We have to be very concerned about that."

Because the proposals were contained in agenda items made public late Friday, Treasurer and Tax Collector Larry Monteilh was unavailable for comment, and it could not be determined exactly how much readily available cash the county has in its coffers.

But Reed, Yaroslavsky and Assistant Auditor-Controller J. Tyler McCauley all said the county is in far worse shape than in any previous year in memory because of a number of factors.

Among them: By waiting until a month into the fiscal year to make the cuts needed to pass its budget, the county extended its deficit spending. Also, by putting off some of their most controversial cuts in health care until Oct. 1, the supervisors didn't really wipe out their massive deficit, particularly a $655-million shortfall in the Health Services Department budget.

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