The Elephant in the Room: LA’s Precarious Finances

Over the next three years, City Hall is projecting a cumulative deficit of $425 million, including next year’s budget deficit of $165 million. But these estimates of red ink may be understated as the leaders of the City’s political powerful unions are demanding raises that are contrary to the City’s assumption of no increases in compensation for the next three years.

The City also has long term liabilities of $25 to $30 billion, an amount equal to an incredible five to six times the City’s General Fund budget of $5 billion. These obligations include unfunded pension liabilities, deferred maintenance on our streets, sidewalks, and the rest of our failing infrastructure, and existing long term debt.

But the City’s shaky finances did not stop the candidates from proposing initiatives that would cost billions.

For example, the six participants supported the repair and maintenance of our lunar cratered streets and cracked sidewalks. But not one presented any thoughts on how to finance these two programs that will cost in excess of $5 billion over the next ten to twenty years.

A majority of the candidates also called for the elimination of the gross receipts business tax over the next four years. But none had any realistic idea of how our cash strapped City would replace the $470 million in revenue (over 9% of the General Fund budget) that this job killer tax generates.

Even Mayor Eric Garcetti, despite his campaign promises, was unable to lower this tax by $30 million (a 15 year cycle) last year due to the negative impact on the budget deficit.

One candidate, Wally Knox, rightly opposed the cutting of the gross receipts business tax because of the additional strain it would put on the budget. On the other hand, former Sacramento Assemblyman Knox supported Proposition A, Herb Wesson’s proposed permanent half cent increase in our sales tax that was rejected by 55% of the voters in March of 2013.

Teddy Davis, a former employee of the SEIU and Mayor Villaraigosa’s office, also opposed the blanket elimination of this tax unless certain revenue milestones were met.

On the pension front, the candidates seemed to be in agreement that the City should implement the LA 2020 Commission’s recommendation to establish a “Commission for Retirement Security” that would develop information on the City’s two pension plans and make recommendations within 120 days on how to “achieve equilibrium on retirement costs by 2020.”

But there were not any concrete proposals to lower the investment rate assumption to a more realistic level or to adopt other reforms that would save the City billions.

Nor did any of the candidates endorse another key recommendation by Mickey Kantor’s LA 2020 Commission to establish an independent “Office of Transparency and Accountability” to oversee the City’s finances.

Over the next eleven weeks, we must demand that all candidates for the City Council, regardless of their Council District, provide us with their concrete proposals on how to eliminate the City’s budget deficit, to finance the repair and maintenance of our streets and sidewalks, and to reform the City’s two pension plans.

And while we are at it, we may want to ask Mayor Garcetti and all of the members of the City Council provide us with their answers to these key questions so we can get an understanding of their plans to avoid dumping $30 billion of liabilities on the next generation of Angelenos.

*The Chamber selected the six candidates who have raised the most money: David Ryu, Carolyn Ramsay, Steve Veres, Wally Knox, Joan Pelico, and Teddy Davis. Seven candidates were not invited to participate: Sheila Irani, Tara Bannister, Fred Mariscal, Tomas O’Grady, Jay Beeber, Step Jones, and Michael Schaefer.

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, The Ratepayer Advocate for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at: [email protected].)
-cw