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Pacific Grove urged to seek advice on bankruptcy

Source of short-term loan, TRAN notes, didn't pan out this year



By KEVIN HOWE
Herald Staff Writer
Updated: 07/07/2009 09:12:40 AM PDT


The $3 million bridge loan Pacific Grove planned to take advantage of didn't materialize this year, leaving the city scrambling for cash.

As a result, the city's Budget and Finance Commission has urged the City Council to look at getting legal advice for possible bankruptcy.

Pacific Grove participates, along with 22 other public agencies, in a $250 million Tax Revenue Anticipation Note (TRAN) pool administered by California Communities. TRAN notes are short-term borrowing instruments used by cities to cover the cost of paying routine bills over the time between property tax payments.

In ordinary years, the notes are sold by late June and repaid when property tax revenues come in, said Jim Becklenberg, Pacific Grove's director of management and budget.

The tax-exempt TRANs didn't sell this year, he said. California Communities, he added, "is working on other options" to get the cash needed to tide its client agencies over for the short term, possibly by selling tax anticipation notes to banks within the state.

The state's financial situation has made jittery investors reluctant to invest in anything that has the name "California" attached to it, Becklenberg said.

"What we're hearing," he said, "is that any bonds or notes associated with California really have a hard time in the market."

Local banks, Becklenberg added, might have "a more nuanced understanding of our circumstances."
"We don't anticipate the city running out of cash," he said.
The city could borrow restricted funds for the short term to cover debts until the TRAN issue is resolved, he said.

Pacific Grove's Budget and Finance Advisory Committee last week recommended that the council consider getting legal advice about the consequences of the city going bankrupt.

Councilwoman Lisa Bennett, chairwoman of the finance committee, said it recommended that the council put the matter on its July 15 agenda to find out how much such legal advice would cost.
"We have a structural budget deficit that, had the economy not imploded, we would have been working our way out of," she said.

The city undertook a major staff reorganization in 2007, and in November, voters approved an increase in the city sales tax, which staved off shutting down city services, Bennett said.

But wage, benefit and retirement commitments to city employee groups are continuing to erode city finances, and "they're not going down as our income and the economy is going down," she said.
The council, Bennett said, should look at "what the downsides of bankruptcy might be and learn them before we're in an emergency situation."

The need to issue tax revenue notes "is due to the fact that we don't have much in the way of reserves," she said. "If we had them, we would pay our bills out of reserves in the summer and repay ourselves in the fall."

The city "can kind of weather the storm" during the current year, said Councilman Bill Kampe, another finance committee member. But Pacific Grove faces an uncertain future with the prospect of the state borrowing city tax revenues to cover its own deficits and with the continued decline in sales and hotel tax revenues.

The council will convene at 6p.m. July 15 in its chambers at City Hall.





Kevin Howe can be reached at 646-4416 or khowe@montereyherald.com.

Last Updated: Jul 13, 09

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