LA WATCHDOG - On Friday, we will have a better understanding of how Mayor Villaraigosa proposes to balance the General Fund’s budget, eliminating the projected deficit of $222.3 million - caused primarily by a $208 million increase in personnel expense (salaries, pensions, benefits, and workers’ compensation).
But this budget gap is understated. General Fund revenue estimates are at least $50 million too high based on recent pronouncements by the Controller.
This projected budget gap also does not reflect adequate funding for the repair and maintenance of our lunar cratered streets, our parks and sidewalks, and the rest of our infrastructure.
The City has also cleverly managed to lower its annual required contributions to its two massively underfunded pension plans by decreasing the rate of healthcare inflation (a good trick in an era of ever increasing medical bills!) and phasing in over several years the impact of the change in its investment rate assumption and in the demographics of the members of the pension plans.
In addition to cooking the books, the Mayor is devising dubious deals that generate cash by deferring expenses to later years or accelerating revenues into the current year.
In the past, the City has talked about “securitizing” parking revenues, a Chicago style financing gimmick where the City borrows against future parking meter revenues. But as we all know, this debt will come due, but not until Our Dear 11% Mayor has departed for greener pastures, leaving Angelenos holding the proverbial sack of cow manure.
The City may even resort to selling capital assets, using the net proceeds to pay everyday operating expenses. This is reminiscent of the previous boneheaded plan to sell our parking garages to private investors who were anticipating eye popping rates of return at our expense, just like they did in Chicago.
The City will also continue with its “full cost recovery” efforts, allowing it to tag charter funded and special revenue departments with expenses previously absorbed by the General Fund. These charges would include utility bills for water and power and the allocation of pension and benefit expenses as well as charges for City overhead such as the $50 million for the Mayor, the City Council, and their bloated staffs.
While there may be merit to “full cost recovery,” it certainly is a jolt to those charter funded departments who are then forced to cut back on their level of service to Angelenos.
The City’s General Fund may also dump services and tasks onto special revenue or proprietary departments. A classic example is that the Department of Water and Power, the owners of the City’s fire hydrants for whatever reason, is now required to reimburse the Fire Department for inspecting those very same hydrants.
But the real budget battle will be over personnel expense that is projected to increase $208 million next year, $135 million more than the overly optimistic $73 million increase in General Fund revenues.
The City will no doubt continue to defer civilian raises and to bank police overtime, a clear violation of Generally Accepted Accounting Principles.
But the fireworks will be over the City’s request to freeze the salaries of City employees and to require City employees to pay 10% of the cost of their very generous healthcare plan, all in an effort to avert significant layoffs.
The City’s Partners in Labor will go ballistic over this perceived giveback and betrayal.
But City employees have benefited mightily during the Villaraigosa era of profligate spending. Personnel costs have increased by almost $1.3 billion. Average compensation of unionized City employees has increased by almost 25%, while benefits and pension contributions have increased by 50% and 150%, respectively.
And over the next five years, personnel expenses are scheduled to grow by almost $1 billion, while, once again, our streets, parks, sidewalks, and the rest of our infrastructure continue to be short changed.
The focus of the Mayor, the Controller, and the Wesson led City Council will be to make it through another year by continuing to “kick the can down the road.” As such, our fiscally irresponsible Elected Elite will not focus on the $1.7 billion cumulative budget deficit over the next five years as expenses continue to increase faster than revenues.
Nor will City Hall even consider the impact of the Ardon class action lawsuit that exposes the City to a $750 million liability in connection with the illegal collection of the Telephone Users’ Tax from 2005 to 2007.
Nor will they plan for the very real possibility that the $250 million transfer from our Department of Water and Power is illegal under the provisions of Proposition 26.
The Mayor will more than likely endorse increases in user taxes such as the documentary transfer fee and parking taxes as outlined by City Administrative Officer in his comprehensive report of April 6.
On Wednesday, the budget show begins as the Mayor will give his State of the City Address at Paramount Studios. And on Friday, the Mayor will release his budget
And while the globetrotting Mayor will no doubt be eloquent about his efforts to balance the budget and save the City from bankruptcy, what we will not hear is the Mayor’s endorsement of a charter amendment that forces the City to “Live Within Its Means.”
As it is, Angelenos do not trust the Mayor Who Broke LA, the Wesson led City Council, or their many self serving cronies. And as a result, the odds of the voters approving any new taxes are slim, very slim, regardless of what programs or services are held hostage by our not so honorable Elected Elite.
Los Angeles, the second most corrupt city in the nation, is on the verge of bankruptcy.
The current and projected budgets are not balanced; we face a five year cumulative deficit of $1.7 billion; personnel costs are out of control, rising significantly faster than revenues; our infrastructure is falling apart; our pensions are $10 billion underwater; we have a massive judgment looming over our heads; the DWP transfer is in jeopardy; the campaign funding unions are unyielding; the citizens have little faith in City Hall and its “dirty deeds;” and our Elected Elites are unwilling to confront reality.
We are in for a wild ride.
(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: Jack Humphreville, LA Watchdog, LA Budget, City Budget
CityWatch
Vol 10 Issue 31
Pub: Apr 17, 2012