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Garcetti’s Financial Follies

LA WATCHDOG--Mayor Eric Garcetti’s Budget and Policy Goals memo for Fiscal Year 2019-20 that was sent to the General Managers of the City Departments is using the homeless crisis to divert attention away from his fiscal mismanagement of the City’s finances despite record revenues from a robust economy. (See letter below.) 

Next year, the City is forecasting a budget short fall of $160 million on record revenues of $6.3 billion.  But unlike previous years, Garcetti did not mention the amount of the upcoming deficit or the need for departments to cut expenditures. (Photo above left: Mayor Garcetti performing.) 

Unfortunately, the budget deficit is in the range of $1 billion when considering revenue shortfalls and unidentified savings, salary increases, infrastructure repair, and underfunded pensions.    

For openers, the revenues may be overstated because the City has not implemented the controversial Street Damage Restoration Fee ($62 million) and the digital billboard fee ($13 million).  

Nor has the City documented the $45 million in unidentified savings that was part of this year’s budget. 

The Mayor has also failed to incorporate the increase in salaries for the City’s 20,000 civilian workers, the police, and the firefighters that are estimated to be in the range of $100 to $125 million. 

The civilian workers have been without a contract since June 30, 2018 and labor agreements with the police and firefighters expire on June 30, 2019. And given the political clout of the campaign funding police, firefighters, and civilian unions, they will not go away empty handed. 

Revenue shortfalls and anticipated salary increases that are being negotiated in secret will cause the projected budget deficit to hit $300 million.  

The budget projection also fails to provide adequate funding for our existing infrastructure.  For example, the Mayor’s pothole strategy has not allocated resources to repair and maintain the City’s failed streets that are in desperate need of repair.  

If the city addressed our failing infrastructure, it would push the shortfall to at least $500 million.   

But that’s not all folks.  The City’s two pension plans are being shortchanged by at least $500 million because the City is relying on an overly optimistic investment rate of return of 7¼%.  If the more conservative but still optimistic rate of 6¼% is used, the unfunded pension liability for the City’s two pension plans increases by $6 billion to $15 billion (70% funded, a very low level and even lower when considering that we have been in a bull market for the last nine years), thereby requiring the increased contribution.  

What is Mayor Garcetti doing to address this billion-dollar shortfall? And what is he doing to address the City’s Structural Deficit that is estimated to total $4 billion over the next four years. 

Not much as he continues to kick the can down our lunar cratered streets as he is gallivanting around the country pursuing his presidential ambitions.  

Rather than operating behind closed doors, Garcetti should support increased transparency so that we Angelenos have a better understanding of how our money is being spent and what services are being performed or neglected. 

Garcetti and his budget team should host monthly town hall meetings to discuss the city’s budget and finances.  This would include a frank discussion about the status of any labor negotiations, including any offers and counter offers; the City’s $15 billion pension liability and plans for pension reform, including the introduction of voluntary participation in defined contribution plans; the plan to repair and maintain our streets, sidewalks, parks, trees and the rest of the deteriorating infrastructure; the plans for expansion of the Civic Center and the Convention Center and the revitalization of the Los Angeles River; and the strengthening of the Reserve Fund to $1 billion so that the City is better prepared for a downturn in the economy.  This would also include the disclosure departmental budgets that are due on November 16. 

Mayor Garcetti told us back in April, “As long as I’m your Mayor, I won’t duck bad news.  I am going to own it and I’m going to attack it.” Unfortunately, Garcetti is more quack than attack.

 

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 **Mayor’s Budget and Policy Goals Memo:

 

Date:   September 19, 2018 

To:       General Managers of All City Departments 

           (Except Airports, Harbor, Water & Power, LACERS, and Fire & Police Pensions) 

Cc:       The Honorable Members of the City Council 

           The Honorable Mike Feuer, City Attorney

           The Honorable Ron Galperin,

           City Controller Sharon Tso, Chief Legislative Analyst

 

From: Mayor Eric Garcetti 

Dear Friends, 

On September 10th, we opened Los Angeles’ first A Bridge Home facility in the historic heart of our City at El Pueblo -- the first of many emergency bridge housing sites we will build and open in the coming year. This facility, now fully occupied, is housing 45 formerly homeless Angelenos who are taking their first steps toward a permanent home. Your tireless commitment and collaboration, along with smart investment and sound budgeting, are what have made this critical milestone possible. But we know the hard work has just begun. And now is the time to push forward as aggressively as ever, so that we can help all of our homeless neighbors find their way off the street. 

In the coming budget, I will ask each of you to continue stepping up in our fight against homelessness, and finding strategic, collaborative ways to reduce risk and liability. Because risk reduction doesn’t just save valuable tax dollars – it makes our city safer and more prosperous, and enables us to invest in the kind of infrastructure and services that make life better for Angelenos every day. 

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BUDGET INSTRUCTIONS 

Proposals must comply with the following: 

Prioritization

  • Your budget proposals must be ranked in order of your priority and should reflect the long-term priorities set during our GM Review process and your strategic plans.
  • Where feasible, proposals should use Target Local Hire classifications. Proposals using TLH classifications will be heavily favored over those that do not. 
  • Proposals that work towards ending homelessness, reducing the City’s risk and liability, or providing services more equitably will be favored. 

 Fiscal Stewardship: 

  • Where appropriate, budget proposals should maximize the use of special funds. Proposals requesting General Funds will receive the highest amount of scrutiny.
  • Proposals must demonstrate clear Returns On Investments (ROIs) or show evidence of fiscal or operational efficiencies. 
  • Proposals must detail how existing resources, including vacant positions, are being leveraged.  Departments are expected to use vacancies for new or critical needs before requesting new positions.

Innovation: 

  • Propose innovative solutions to solve the City’s problems. These can include new methodologies, process improvements, adoption of best practices, or the use of technology.
  • The City’s Innovation Fund is available for pilot programs to test ideas. Proposals that have completed a successful Innovation Fund pilot will be heavily favored. 

 

The CAO’s forthcoming Budget Instructions and the required budget forms will guide you through the specifics of this year’s budget development process. Training will also be provided to ensure that your staff understands these topics and prepares high-quality budget packages.

My staff will be available to directly assist you and will convene meetings to solicit feedback on ideas, address potential issues, and receive guidance on possible solutions. 

All budget submissions are due Friday, November 16, 2018, by 5:00 p.m.  

 

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(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:  lajack@gmail.com.)

-cw