Budget Shocker: Los Angeles Shows $119 Million Surplus

For five years a chorus of voices has been predicting bankruptcy for Los Angeles, while often calling for deeper cuts to city employee pensions. Today, however, Mayor Antonio Villaraigosa proposed a budget for Fiscal Year 2013-2014 that includes a one-time surplus of $119 million. While some of that surplus would rely on additional pay and benefit reductions for city workers, even without such cuts the city would have a projected surplus of close to $100 million.

“It’s better than seeing the light at the end of the tunnel – we’re almost out of the tunnel!” Matt Szabo, Mayor Villaraigosa’s deputy chief of staff, told Frying Pan News in an interview last week. Szabo discussed the city’s financial picture and said that dire financial warnings have been largely overblown.

“One of the issues that’s highly irritating is the ease with which some people have thrown around the bankruptcy term,” Szabo said. “That’s not going to happen.”

Only last year City Administrative Officer Miguel Santana, Los Angeles’ top budget official, cautioned that the city could face bankruptcy or a breakdown in essential city services, unless it adopted new taxes, laid off city workers and privatized certain city services. Among other options, he said the city should consider contracting out management of the Convention Center and zoo, and hiring private companies to take over ambulance service from the Fire Department.

Santana’s gloomy prophesies have been just one part of a steady drumbeat of warnings about bankruptcy and other potential disasters allegedly facing the city – warnings that usually circle back to a supposed need to curb city employee pensions.

“Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy,” wrote former mayor Richard Riordan and Alexander Rubalcava, the president of an investment advisory firm, in a 2010 Wall Street Journal opinion piece. Two years later, Riordan promoted a ballot initiative to get voters to approve “pension reform” that would have made changes to employee pensions that were more radical than city unions have already agreed to.

Riordan’s measure never made it onto the 2013 ballot, but its motivating fear of insolvency – accompanied by fingerpointing at employee pensions — remains a potent mantra in some quarters.

More recently, Mayor Villaraigosa and other officials warned of cutbacks in services and layoffs of police officers if voters didn’t approve a sales-tax increase. The day after the proposal lost, however, Villaraigosa acknowledged that the budget shortfall was far less than what he had been claiming it was. (While some observers were critical of the mayor’s initial claims about the shortfall, they continue to support the need for new revenues.)

The city’s financial situation – and bankruptcy panic — has dominated the mayor’s race, with some candidates in the winter primary arguing that the city is on the brink of ruin. The city’s budget problems took center stage at Royce Hall during a January mayoral debate at UCLA.

“Bankruptcy doesn’t happen overnight,” pro-business mayoral candidate Kevin James said during the debate. “This happened over a period of time because of a series of bad decisions.” James later told Frying Pan News that if elected, he “would seek a temporary revision of [employee] raises” and would “ask our city employees to invest in our future by foregoing . . . future raises.”

Sitting in his third-floor City Hall office, Szabo said city workers have been unfairly singled out over the past several years for Los Angeles’ financial difficulties.

“It’s an easy argument to make, it’s easy to scapegoat the employees and say city employees get paid too much,” Szabo said. “I don’t buy into demonizing city employees. It’s counterproductive in every way.”

Szabo suggested that the bankruptcy projections may have come from people with political agendas, such as those favoring the privatization or contracting out of city services. “It’s to the advantage of those that have an interest in the dismantlement of public sector work to cry bankruptcy,” he said.

“Some people have tried to use city and state [fiscal difficulties] for a political agenda, and have often tried to blame public sector workers for the financial problems,” says David Madland, director of the American Worker Project at Center for American Progress in Washington, D.C. “They’ve particularly gone after public sector pensions.” He adds: “When you have one side pushing the extreme argument that city governments are collapsing and blaming it on public sector workers, it permeates into more centrist [thinking].”

Nationally such efforts are largely being pushed by the American Legislative Exchange Council (ALEC), which is heavily funded by the billionaire Koch brothers.

“There is an ideological and self-interest agenda.” says Madland. “They get a scapegoat for budget problems instead of raising taxes on the wealthy.”

Like most cities across the country, Los Angeles was hit hard by the recession. But studies by the respected Pew Charitable Trusts have consistently found that Los Angeles is in relatively good financial shape.

In a study released this year, Pew found that cites have seriously underfunded pension and retiree health plans. But among the cities surveyed, Los Angeles had a relatively healthy pension funding level of 89 percent as of fiscal year 2009 (the most recent year for which numbers were available) and was near the top in terms of money set aside for retiree health costs, though it had put aside only 55 percent of the funds it will need for retiree health costs.

The reasons for Los Angeles’ comparatively good financial condition include a legal groundwork laid years ago that required specific funding safeguards, recent give-backs from public sector unions and an improving economy.

Some of Los Angeles’ financial problems, moreover, can be traced to lost revenue opportunities. For instance, the city currently collects about $85 million a year in taxes from parking lot operators. But, according to a report last year from the Commission on Revenue Efficiency, it is losing out on an additional $21 to $25 million a year in revenue because rogue parking lot operators who collect the money from customers fail to turn it over to the city.

A prime cause is that many parking lot operators accept only cash. The situation is made worse by the fact that city officials don’t even know how many parking lots are operating in the city, according to the commission and a separate city audit. The problem could be easily fixed, at least partly, by requiring parking lot operators to accept credit and debit cards, so the tax revenue can be traced or funneled directly to the city, the commission found.

The financial problems of the past five years have taken their toll on city residents and neighborhoods. City libraries had their hours reduced, street and sidewalk repairs were deferred, and swimming pool repairs were put off. With the exception of emergencies, there was a decades-long waiting list for tree trimming.

City officials and budget documents cite several factors for the turnaround, including anticipated growth in property, sales and other tax revenues, pension savings and reductions in certain city services.

The mayor’s budget anticipates that the $119 million surplus will go toward sidewalk repair, tree trimming services, replacement of police cars, fixing public pools, graffiti removal and citywide arts funding. It also proposes restoring seven-day service at the Central Library, while avoiding layoffs and furloughs of city employees.

However, an accompanying budget summary notes that the mayor’s budget

• Proposes the elimination of 5.5 percent pay raises scheduled for January 1, 2014 for 60 percent of the City’s civilian workforce

• Proposes that all civilian City employees cover 10 percent of their health benefit premium costs on an on-going basis

Cheryl Parisi, whose American Federation of State, County and Municipal Employees union represents 9,000 city workers, deferred comment on the new budget until the Coalition of LA City Unions, of which AFSCME District Council 36 is a member, has time to review its details. In the meantime she released a statement which said of the budget:

“After looking it over briefly, we are glad to see that the Mayor is putting some much-needed money back into funding critical city services such as road repair and tree trimming. Our concern is that this budget does not go far enough to protect the people of Los Angeles now and in the future as our city continues to recover from the recession of the past few years.”

Last week Szabo, sounding a cautiously optimistic note, said, “The next administration is going to have a tremendous opportunity – and a tremendous responsibility – to build back the city we had to break down. The next mayor is going to have an opportunity to do things to make people believe we are on a comeback.”