Mayor Eric Garcetti and the City Council have convinced themselves that the proposed 2017-18 budget is a “fiscally responsible spending plan” that supports the Mayor’s Back to Basics priority goals of a safe, prosperous, livable, sustainable, and well run city looking to fulfill its destiny as a world class city.
But the Los Angeles Times does not buy into Garcetti’s overly optimistic rhetoric, stating in an editorial that “the Mayor and the City Council need to GET REAL on the City’s finances” if they want LA to be a “progressive, transformed city.”
Underlying the Times’ reasoning is that although City revenues have increased by $1.2 billion since Garcetti became mayor, the “City is still stuck with an ongoing $200 million Structural Deficit” that requires “all kinds of budget gymnastics” to balance the budget, resulting in even more reductions in essential services to Angelenos.
The Times also pointed out numerous budget vulnerabilities, ranging from fewer federal dollars, the legality of the $242 million Transfer Fee from the Department of Water and Power, more expensive labor contracts, significantly higher pension contributions, and another budget busting recession.
Unfortunately for the next generations of Angelenos, Garcetti and the City Council are focused only on the present and have their heads in the sand when it comes to any discussion about the City’s financial future. And understandably so as they will be long gone when the spaghetti and meatballs hit the fan.
The City’s Four Year Budget Outlook anticipates a budget gap next year (2018-19) of $104 million and a cumulative budget gap of almost $300 million. But this does not include the impact of new labor contracts, increased contributions to its two pension plans, or any comprehensive plan to repair and maintain our lunar cratered streets, broken sidewalks, and the rest of our deteriorating infrastructure.
Over the next four years, the City is expected to negotiate new labor contracts with the police, firefighters, and civilian unions that will cost an estimated $200 million a year by the end of the fourth year.
If the City adopted a comprehensive plan to repair and maintain our streets and sidewalks, this $4 billion program will cost an estimated $250 million a year. Alternatively, the City could continue to neglect our streets, but the ultimate cost would be considerably more than $4 billion.
This does not include money needed for the City’s parks, urban forest, street lights, buildings and facilities, or its antiquated computer systems.
The City is also underfunding its two pension plans as it is relying on an overly optimistic investment rate assumption of 7.5%, rather than 6.5% as recommended by knowledgeable investors, including Warren Buffett of Berkshire Hathaway fame and fortune. But if the City used the more realistic rate of 6.5%, the City’s annual required contribution would increase by an estimated $400 million.
Overall, these three adjustments would increase the annual deficit to over $800 million while the four-year cumulative deficit balloon to $3.4 billion.
While some of these deficits may be offset by new sources of revenues such as the pot tax, a billboard tax, revenue resulting from the new gas tax, and the linkage fee, there is still a considerable gap that needs to be addressed.
The Mayor and the City Council will ignore these findings. After all, these financial wizards are the smartest people in the room. But this is where the Los Angeles Times comes to our rescue by demanding that we have an open and transparent discussion about the City’s budget and its future obligations that have been ignored for years.
For the sake of the next generations of Angelenos, it is time for the Mayor and the members of the City Council to GET REAL about the city’s precarious finances.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: firstname.lastname@example.org.)