Prodded by a nationwide union campaign, the Los Angeles City Council is
trying to get out of an arrangement with two banks that was supposed to
reduce the city’s borrowing costs but instead has increased them by $19
million annually.
City Councilman Richard Alarcon said city
officials should refuse to do business with any bank that won’t rework
the terms of the so-called "interest rate swaps," transactions that
were embraced by Los Angeles and other cities over the last decade.
Alarcon
said he did not believe that the banks involved in the transaction,
Dexia Credit Local and Bank of New York Mellon, intentionally sought to
harm the city when the swaps were created. Still, he compared the two
banks to merchants in the San Fernando Valley who sold water for $20
per gallon in the days after the 1994 Northridge earthquake.
"To me, this is tantamount to gouging," said Alarcon, who represents the northeast Valley.
The
City Council followed Alarcon’s lead last week, voting unanimously to
instruct its financial analysts to ask the two banks to rewrite or
cancel the terms of its two interest swaps. Those deals, approved in
2006, cover $316.8 million in debt incurred by a wastewater program
that pays for the repair and replacement of sewer lines and sewage
treatment plants, according to city officials.
–David Zahniser
Photo: Alarcon. L.A. Times file