Sun, Jul

How to Drop the Curtain on LA’s Never Ending Budget Drama

LA WATCHDOG - Here we go again.  Another budget crisis!

And that is why Los Angeles needs to establish a Financial Control Board, just like New York City did in 1975 when nobody trusted the political leadership of The Big Apple.

This time around, LA’s projected budget deficit for the year beginning July 1, 2012 is about $250 million, while the cumulative budget deficit over the next four years is approaching $1 Billion.

Underlying these continuing budget deficits is the continuing massive increases in personnel costs for compensation, pensions, and medical benefits for City employees: $225 million next year and almost $750 million over the next four years.

But a good portion of this budget drama would have been avoided if the Mayor Villaraigosa and the Garcetti-led City Council had taken the time and effort to develop a long term operational and financial plan.

Unfortunately for 99% of the Angelenos who are not on the City’s bloated payroll, City Hall and their Partners in Labor, view our wallets as ATM’s for the 32,274 City employees, representing less than 1% of the City’s population.

So rather than making long term decisions, the Mayor and the Garcetti-led City Council have taken to “kicking the can down the road,” relying on one year fixes.

At the Mayor’s Community Budget Day held at City Hall on Saturday, October 29, Villaraigosa told over 125 Budget Representatives from over two-thirds of the Neighborhood Councils about his herculean efforts in “balancing” over the last three years.   

These efforts included cutting over $1.5 billion from previous General Fund budgets, eliminating about 5,000 positions from the City payroll over the last three fiscal years, and increasing employee contributions to their pension plans by an amount equal to 4% of their compensation.

But he neglected to tell the disbelieving Budget Representatives the whole story.  

So, while he touted his cost cutting efforts, he failed to disclose that the cuts were based on projected budgets that included substantial increases in personnel costs from the previous year.  

And he failed to mention that of the almost 5,000 positions that were eliminated, 2,400 employees received $355 million in enhanced retirement benefits, and that less than 500 were laid off, implying that over 2,000 were transferred to other non General Fund departments, including the Department of Water and Power.  

Nor did the Mayor mention that the increase in employee contributions to the pension funds was an offset to the elimination of furloughs or that the value of future benefits for Los Angeles City Employee Retirement System and Fire and Police Pension Plans have increased by $5.7 billion (21%) for the three ending June 30, 2010. Nor did he discuss how he threatened the LACERS Board of Commissioners when they wanted to lower the Investment Rate Assumption to a more realistic, but still overly optimistic, 7.75%

And these one year quick fixes are continuing as the Mayor has asked all General Fund departments to submit budget proposals by December 9 which reflect 6% and 12% reductions from the current year General Fund appropriation, but only after taking into consideration obligatory increases (read increased personnel costs).  

Rather than rely on the Mayor and City Council to develop and implement a five year operational and financial plan for the City, we need to establish a Financial Control Board.

Our Financial Control Board would require the City to develop a five year operational and financial plan that includes a balanced budget based on Generally Accepted Accounting Principles (a minor $100-$200 million detail that has been neglected by the Mayor and the Garcetti-led City Council over the past several years) that also takes into consideration the adequate funding for the repair and maintenance of our deteriorating infrastructure and the proper funding for our seriously underfunded pension plans.

The Financial Control Board would also require that the City submit a two or three year budget for approval.  If this multiyear budget is not acceptable, the Financial Control Board would have the right to restrict any and all payments by the City until such budget was acceptable.  And if City Hall is unable to submit a balanced budget, the Financial Control Board would have the ability to allocate funds, giving preference to public safety, the infrastructure, and the pension plans.

And like New York City’s Emergency Financial Control Board, LA’s Financial Control Board would have the right to review and approve any financial plans and borrowings as well as any and all major contracts, including those with the City’s unions.

But the City does not have a long term horizon.  Rather, it is budget to budget, crisis to crisis, often times relying on over optimistic assumptions.  

For example, is it reasonable to assume that revenues are going to increase by about $125 million next year?  Or is it reasonable to assume that revenues are going to increase by almost $600 million over the next four years?

And why has the City failed to consider the impact of Proposition 26 (the Supermajority Vote to Pass New Taxes and Fees Act) or taken into consideration the potential $750 million time bomb associated with the litigation involving the Telephone Utility Tax. (Link)

Rather than developing long term solutions for the City’s perennial budget deficits, our infrastructure, our underfunded pension plans, and its bloated, inefficient, and poorly managed work force, the City is considering a variety of tax increases that total over $250 million.

These include:

● $80 million from the doubling of the Documentary Transfer Tax;
● $43 million from a $55 parcel tax to fund paramedic and fire services;
● $55 million from an increase in the 911 Fee of $27 per year per line;
● $25 million from a 50% increase in the parking occupancy tax to 15%, up from 10%;
● $42 million from increased parking tickets related to street sweeping; and
● $10 million from an increase of 1% in the Hotel Tax.

But if the City wants to increase revenues and fees that require a vote, then we must demand greater transparency and accountability.  And that is why we need a Financial Control Board that has the ability to review and analyze the 1,500 pages of budget presentations that is far beyond the understanding of mere mortals.

And given the self-serving City Hall lobbyists and union leaders, that is why the Financial Control Board needs the power to demand a truly balanced budget that meets the goals of the City’s long term operational and financial plan.

After the Mayor’s Community Budget Day, the Neighborhood Council Budget Representatives elected 14 members (and a like number of alternates) to be the Neighborhood Council Budget Advocates.  And while the Budget Advocates will review and analyze the operations and finances of the City’s General Fund and special revenue departments and make appropriate recommendations, they will also be asked to more fully develop the establishment of a Financial Control Board to protect the interests of the 99% of the Angelenos who do not work for the City.

And one last minor detail: NYC’s Emergency Financial Control Board never had to use its power!

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

Tags: Los Angeles, City Budget, Los Angeles Budget, Financial Control Board, Jack Humphreville

Vol 9 Issue 89
Pub: Nov 8, 2011