- Written by Jack Humphreville
06 Jan 2012
LA WATCHDOG - The City of Los Angeles is projecting a budget deficit of over $900 million for the next four years. This so called “structural deficit” is being fueled by out of control increases of $740 million in Employee Compensation, Health & Dental Benefits, and contributions to the Los Angeles City Employees Retirement System (“LACERS”) and the Fire & Police Pension Plans (“FPP”).
And this deficit does not even include at least $1 billion necessary to repair and maintain our infrastructure: our lunar cratered streets, our bridges that are considered some of the worst in the nation, our cracked sidewalks and curbs, our poorly maintained parks, our flickering street lights, our antiquated computer hardware and systems, our rundown buildings and facilities, and our stormwater system.
So what are the Mayor, the City Council President, the Controller, and the rest of our Elected Elite going to do to “balance” the budget and curb runaway personnel costs?
Same as they have done for the past several years: cook the books, just like the crooks at Enron.
Two years ago, as part of its plan to eliminate the projected $450 million budget gap, the City stuck the Los Angeles City Employee Retirement System with a $600 million tab for the infamous Early Retirement Incentive Program. Unfortunately, the E-RIP Off will be a continual drain on the City finances for the next 15 years, eventually exceeding $50 million a year. (Link)
And last year, as part of its plan to reduce the City’s projected $350 million shortfall, the Executive Employee Relations Committee (“EERC”), the super secret, back room committee that was controlled by the politically ambitious axis of Mayor Villaraigosa, Council President Eric Garcetti, and Councilmember Dennis Zine, met behind closed doors with the representatives of the campaign funding municipal unions and approved contracts with the Police Protective League and the Coalition of City Unions that resulted in significant deferrals of compensation until 2014.
However, contrary to Generally Accepted Accounting Principles, the City and its Controller Wendy Greuel elected not to “recognize” this every day operating expense, pretending it did not even exist, dumping hundreds of millions of financial obligations into the future.
In Tuesday’s Los Angeles Times, David Zahniser’s excellent expose, Villaraigosa Delays Payment of $100 Million of Personnel Costs, outlined the City’s financial chicanery in deferring $100 million of police overtime expense into the future. (Link)
The civilian workers also deferred about $100 million in salary increases to January 1, 2014. This was part of a multifaceted agreement that included the ending of furloughs, the commitment of the City to make layoffs a last resort, the building of “cushions” in special revenue departments for new jobs, the contribution by civilian workers of 4% of their pensionable pay to defray a portion of the City’s cost of providing retirement healthcare, and, often overlooked, the extension of the labor agreement by one year to June 30, 2014.
This year, as part of its efforts to reduce the projected $200 to $250 million deficit, the City will once again be raiding the City’s two seriously underfunded pension plans. By tinkering with the underlying assumptions related to the demographics of the members and the future cost of healthcare, the City will be able to lower its contributions to LACERS and FPP, “saving” the City $100 to $125 million.
At the same time, the Annual Benefits paid by the underfunded pension plans and their Total Future Benefits are increasing at rate that exceeds the growth in the number of active and retired members.
So far, there does not appear to be any real attempts at pension, work place, or financial reform. Rather, it will be business as usual, relying on one-off gimmicks that put additional burdens on future revenues and the next generation.
And in that vein, we will no doubt hear about the cutback or elimination of vital services, the need for layoffs, and the negative impact they will have on Angelenos and the City Family.
There will be the call for Public Private Partnerships for the Convention Center, the Zoo, golf courses, parking garages, animal services, and El Pueblo. The City will also consider partnerships for capital intensive services such as information technology, fleet maintenance, trash collection, and ambulance services.
And some of these Public Private Partnerships may be worthwhile, as long as they do not involve the sale of capital assets to fund operating expenses as was the case last year when the Mayor Who Broke LA proposed to sell our parking garages.
And our exhausted Elected Elite, saying they have done everything known to mankind, and then some, will even propose new taxes, such as parcel taxes to support Recreation and Parks or the Fire Department and its ambulance services. New levies may also include increases in the Documentary Transfer Tax, the Parking Occupancy Tax, the Hotel Tax, and the 911 Fee.
And no doubt, the Mayor’s ill conceived “LA Road Works” program will be touted, despite the fact that it hijacks future Measure R local revenues and requires substantial interest payments over the next 27 years. In reality, this theft of future sales tax revenues will fund City workers who are currently paid out of the General Fund, yet will do very little to fix our lunar cratered streets. (Link)
The City’s finances are further endangered by the potential $750 million liability associated with the Ardon class action litigation involving the illegal Telephone Utility Tax and by the impact of Proposition 26 on the legality of the 8% DWP Power System Transfer Fee that is anticipated to provide the City’s General Fund with over $250 million.
You would think that the City’s multibillion dollar budget crisis would prompt a serious discussion at City Hall about the LA’s long term financial plan. But that is not in the best interests of the campaign funding municipal unions who continue to negotiate behind closed doors with the Mayor and Herb Wesson, the new City Council President who is not known for fiscal responsibility.
Or as Pat McOsker, the president of the United Firefighters of Los Angeles City, said, “We don’t negotiate in the press and the newspaper.”
Debate about the City’s fiscal crisis was further stymied when the Villaraigosa-Garcetti led EERC agreed to extend the contract for civilian workers by a year so that its expiration would not coincide with the Mayor’s race in early June of 2013.
As one union leader said, “We believe it is in our best interests to extend the contract so that our wages and benefits do not become hot-button issues in the next city election.”
But you know something is rotten in Los Angeles when The Los Angeles Times, The Daily News, LA Weekly, CityWatch, and even Ron Kaye all agree that candidates for city office need to develop concrete financial and operational priorities and plans that address the budget crisis.
This requirement should also be applied to the City’s municipal unions: the Police Protective League, the United Firefighters, the SEIU, and the AFSCME if they want to be part of the debate.
Unfortunately, talk is cheap, especially when it comes from our politicians who have been known not to honor their campaign promises when it comes to our money.
That is why we need a Financial Control Board / Citizens Advocate to oversee the City’s finances by requiring that the City develop and ADHERE to a Five Year Financial Plan that requires a truly balanced budget based on Generally Accepted Accounting Principles and provides for the proper repair and maintenance of our infrastructure and the funding of our pension plans based on reasonable investment rate assumptions.
Without increased oversight, the prospect of voters approving any new taxes is highly unlikely, especially in this economy.
And business as usual will eventually lead to insolvency. And that does not work for Angelenos, the City, and its 32,000 employees.
Tags: Mayor Villaraigosa, Los Angeles, City Hall, City Council, Eric Garcetti, Herb Wesson, Dennis Zine, ERIP, pensions, healthcare, Jack Humphreville, LA Watchdog
Vol 10 Issue 2
Pub: Jan 6, 2012