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Gardena Dealt Lemons, Needs Aid

Nissan is moving its headquarters, banks want a $26-million debt repaid and now Wall Street has lowered the city's bond rating.

November 24, 2005|Hector Becerra | Times Staff Writer

Barring what might qualify as a holiday miracle, cheer will be in shorter supply this year in Gardena.

Earlier this month, Nissan North America announced it was relocating its corporate headquarters and 1,300 jobs to Tennessee. City officials say possibly hundreds of Gardena residents will undoubtedly face a choice between moving or losing their job -- and city merchants are expected to take a major hit.

Then this week, the working-class South Bay city was hit with another blow: After a year of the city standing on the brink of bankruptcy, a Wall Street firm announced Gardena's bond rating was going to take another dive.

Looming over all of this is an old $26-million debt that city officials frankly assert they could never hope to pay unless it was radically restructured. As early as next month, after a year of extensions, the city could have to start paying close to $200,000 a month to two Japanese banks that hold the loans.

City Manager Mitchell Landsell said it's something the city cannot afford to do for very long.

According to a Wall Street credit agency, the city probably won't climb out of this hole unless something drastic happens.

"The city, speaking in terms of their credit, faces a significant conundrum right now," said Gabriel Petek, a San Francisco-based credit analyst with Standard & Poor's, which lowered the city's rating. "So far, Gardena has demonstrated a good willingness, but limited capacity to move forward."

The city's dilemma is the legacy of the $26 million that officials borrowed 12 years ago when they gambled by creating their own insurance company as well as a first-time homeowners program that failed. The venture, Municipal Mutual Insurance Co., flopped, then drained the city's finances. That debt grew to occupy virtually all that the city owes.

Gardena has been negotiating with the two banks to either get the debt forgiven or significantly restructured. But Lansdell said an agreement has eluded the city.

"The bond rating validates to me what we've been telling the banks. 'Look, we can only afford to pay you so much, and beyond that, there isn't anything,' " Lansdell said. "If we can cut a deal here folks, let's get it done."

Lansdell said with the city's bond rating reduced to "highly speculative" it would be very difficult for Gardena to borrow money.

He said there are no plans to file for bankruptcy, which would cause the city's bond ratings to plummet to junk status, though that option could not be ruled out.

"It's certainly out there," Lansdell said. "But it's not something I'm asking the council to consider tonight."

It's been a difficult month for Gardena, which is off the 110 Freeway and east of Torrance and the South Bay beach cities.

Though the Nissan plant has a Gardena address, it is across the street on a strip in the city of Los Angeles.

However, many Gardena residents work there.

"A lot of businesses are going to suffer within a five-mile radius of that building," said John Bruno, whose J. Bruno's Restaurant on Gardena Boulevard relies heavily on Nissan employees for business. "This is going to hurt our revenue tremendously. These people all have to have lunch, and we're a lunch place."

Bruno said he has talked to several very good friends who work for Nissan who have said they are going to move.

"I've gotten to know a lot of people who worked there," Bruno said. "We used to get all the girls who work there coming in for lunch. But that's dwindling down now."

City Councilman Oscar Medrano, who owns Osmar Jewelry on Gardena Boulevard, said his business took a major blow when the aerospace industry left in the 1980s.

Medrano said he expects his business to take another hit when the Nissan headquarters close sometime before summer.

"It's a big deal any time a business leaves the area," said Medrano, who added that local businesses like the Nissan plant contribute as much as $40,000 a year to his store.

The relocation had been expected for some time. A study of the benefits of moving to the Nashville area was begun nearly a year ago.

The study found that Nissan would ultimately save money by moving to Tennessee, where wages, housing prices and benefits are cheaper than Southern California.

Officials said it was too early to tell how Nissan's exit would affect the city's coffers.

Although the city does not receive any direct revenues from Nissan's operations, officials expect to see a dip in retail sales because so many of the workers shopped and dined in Gardena. Currently, the city's largest revenue producers are two casinos.

City officials say they are especially frustrated that the setbacks come after eight years of reversing a long-standing trend of deficit spending.

"We've done everything we physically and financially can do to show creditors and investors that we're a sound investment and a city that continues to deliver services," Councilman Steven Bradford said.

But the decade-old debt has hung over the city like a hammer, officials say.

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