Official Warns of L.A. Debt : Finances: City must take care to avoid crisis like L.A. County’s, controller says.

City Controller Rick Tuttle on Wednesday warned that Los Angeles is on the threshold of a budget crisis like that now rocking county government because of the growth of its long-term debt.

“We have to be very careful about how we prioritize and manage our future debt because we’re on the threshold of a county-type situation,” Tuttle said in an interview Thursday, surveying a $1.6-billion principal debt obligation owed by the city. “The horse is in the barn, but he’s banging on the doors.”

Still, in a report to Mayor Richard Riordan and the City Council, Tuttle described the city’s condition in less ominous tones. “In recent years, the amount of city debt has risen and is projected to continue to rise over the next several years,” Tuttle wrote to the other elected officials.

“In spite of this rise, the city is still in a favorable debt posture, and unless the projected borrowing changes dramatically, we will not have a ‘debt crisis’ at our current level of borrowing,” he said in the report.

“My main observation,” Tuttle wrote, “there is a need for closer monitoring of the growth of debt financing by all levels of city government, with special attention to borrowing that does not require voter approval.”

Michael Keeley, Riordan’s chief operating officer, said the city’s financial condition is sound.

“We’re a long way from the county predicament,” Keeley said. “Their debt is twice that of ours and our credit rating is AA. That rating reflects the fact that Wall Street believes the city’s financial affairs are prudently managed.”

This year, the city’s debt service ratio is estimated to be 7.76%. The number reflects the fact that 7.76% of the city’s general fund revenue will be spent on paying debt principal and interest. The financially strapped county’s debt service ratio is 15%.

Jerry Miller, the city administrative office’s financial adviser, said that Wall Street does not become concerned about a city’s debt service ratio until it reaches 10%. “That’s when they get worried and that’s the level of borrowing that we’ve targeted as a maximum,” Miller said.

Tuttle’s report noted that the city will spend $195 million this year to pay off debt, arising from the issuance of voter-approved bonds and the issuance of short-term debt that has not been approved by voters.

By 1998-99, the city’s debt service ratio is expected to reach 9.97% if it incurs no further debt and its revenue grows at a rate of 3% per year, the Tuttle report stated.

The city’s debt situation is largely the result of bonds issued in 1989 and 1990--with the approval of voters--to pay for the seismic strengthening of City Hall and other municipal facilities, for establishing a new emergency communications system for the Fire and Police departments and for building branch library facilities.