Council declines to securitize tobacco settlement now; approves reserve and hybrid approach to Rampart liability

The Los Angeles City Council on March 15 adopted the Budget & Finance committee's core approach to potential financial liabilities arising from the Rampart police-corruption scandal, rejecting immediate securitization of tobacco settlement proceeds and instructing staff to create a reserve for extraordinary liability claims.

During a prolonged public hearing and council discussion, public-health and tobacco-control advocates urged the city to preserve a portion of its tobacco settlement funds for tobacco-control and youth-prevention programs. Speakers included Steven Gallegos of the American Heart Association, Gail Watts of the L.A. County Tobacco Control Alliance and Esther Schiller of Safe Smoke Free Air for Everyone; all warned against using the settlement as a short-term fix for other city costs.

Budget and Finance recommendations — presented by the committee chair — balanced two goals: prudent planning for an expected liability and preserving flexibility so future councils can respond as actual costs are resolved. The committee report recommended:

- creating an ordinance to establish a reserve for extraordinary liability claims; - adopting in principle a hybrid financing approach that prioritizes cash and, if necessary, judgment-obligation bonds; and - instructing the CAO to work with departments to identify and encumber available prior-year funds for the reserve.

The committee advised against securitizing the tobacco settlement now, citing high transaction costs, greater long-term constraint on future legislatures and uncertainty about the liability amount. The mayor’s office requested more time to examine the budgetary implications of some proposed transfers; the council agreed to hold specific fund-transfer items and a securitization proposal for one week for further review.

Councilmember Feuer moved to adopt items establishing the reserve and the hybrid approach and to hold the transfer/appropriation items for one week; several councilmembers spoke in support, noting prudence and the need to avoid diminishing city services. The motion passed 10 ayes, 1 no. Items involving actual transfers of funds were continued for one week for further analysis by CAO/CLA and the mayor's office.

The action establishes a near-term planning posture: a liability reserve ordinance will be prepared and departments will be asked to identify potential encumberable funds. The council also left open other financing options for future councils, should the final liabilities be larger or different in timing than currently expected.