- Written by Jack Humphreville
20 Nov 2012
LA WATCHDOG - “The budget reflects our values.”
This statement was made by Council Member Paul Krekorian, the Chair of the City Council’s powerful Budget and Finance Committee, to over 100 budget representatives of the City’s Neighborhood Councils who gathered at City Hall for the Mayor’s Community Budget Day on Saturday morning.
Unfortunately, the lack of values of our fiscally irresponsible Elected Elite are more than evident, as once again, they are addressing next year’s budget deficit of $216 million by “kicking the can down the road” rather than engaging in true structural reform.
To “balance” next year’s budget, the Mayor has proposed a 10% across the board cut for all departments, excluding sworn members of the Police and Fire Departments.
The Mayor is also dredging up the old Chicago style plan to sell the City’s parking facilities, where the proceeds from the fire sale of these capital assets will be used to fund every day operating expenses, a sure sign of desperation.
Alternatively, the Herb Wesson led City Council is proposing to raise $215 million by permanently raising our sales tax to 9.5%, an amount that covers the projected $216 million deficit caused by a $300 million increase in salaries, benefits, and pension contributions.
But what is the long term strategy to balance the budget, fix our streets (and the rest of our deteriorating infrastructure), and fully fund the City’s two pension plans?
There is no long term strategy as City Hall, true to form, does not have the will to confront the campaign funding union leadership and address the Structural Deficit, where expenditures, primarily labor costs, increase faster than revenues.
Over the next four years, the City is projecting a cumulative budget deficit of over $1.1 billion, as increases in salaries, benefits, and pension contributions of $768 million outstrip the growth in revenues by almost $300 million.
However, this deficit is seriously understated as it does not reflect adequate funding for the repair and maintenance of our streets or make any provisions for contingent liabilities such as the class action law suit that is seeking to recover $750 million of OUR money as a result of the illegal collection of the Telephone Users Tax between 2005 and 2007.
Nor does it provide adequate funding for our City’s pension plans.
For example, last year the Fire and Police Pension Plans had an $860 million shortfall in its projected return on its investment portfolio, an amount that will have to be paid by hard working Angelenos.
The City claims to have made heroic changes in the way it operates. But once again, the City is blowing smoke in our face.
The Mayor’s penny ante attempt at pension reform saves only $15 million in 2017, about a penny (1%) for each dollar of the $1.3 billion in pension contributions.
The City has also scaled back its work force so that the General Fund has 5,000 fewer employees on the payroll. But at what cost?
The Early Retirement Incentive Program will cost $600 million over 15 years, an average of $250,000 for each of the 2,400 employees that participated. A majority of this burden is being shouldered by the City.
Over 2,100 employees were transferred to special revenue and proprietary departments, including 1,600 workers who were dumped on the Department of Water and Power, requiring Ratepayers to foot $175 million in additional salaries and to fund almost $200 million in unfunded pension obligations.
City employees were also “coerced” into contributing an additional 4% of their compensation to the City’s pension plans to fund post retirement medical benefits. But that bump was more than covered by the 35% increase in wages from 2005 to the end of the existing contract in June, 2014.
The City is also considering, over strong union objections, public private partnerships for the Convention Center and the Zoo. But the savings are chump change as these two departments represent less than 1% of the General Fund.
Rather than engaging in structural reform, our Elected Elite have taken the easy road where the next generation of Angelenos will be burdened by over $25 to $30 billion of debt and off balance sheet liabilities, including $10 billion in unfunded pension liabilities and another $10 billion (or more) in deferred maintenance on our streets, sidewalks, parks, and the rest of our deteriorating infrastructure.
If the City was required to liquidate these onerous obligations that are equal to 7% of the assessed value of your house or property, it would have to double your real estate tax for the next seven years.
Rather than continue on this disastrous path to insolvency, Angelenos must demand that the Budget and Finance Committee, the City Council, and the Mayor endorse structural reform of its financial affairs by placing on the ballot a measure that requires the City to “Live Within Its Means.”
This common sense amendment would require the City to develop and adhere to a Five Year Financial Plan, approve two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next ten years, provide adequate funding for the elimination of the City’s unfunded $10 billion pension liability and the repair and maintenance of our streets, parks, sidewalks, and the rest of our crumbling infrastructure.
Angelenos will also have the opportunity to express their fiscal frustrations in the March election by rejecting the permanent half cent increase in our sales tax to 9.5%.
And in May, Angelenos may have the opportunity to vote for pension reform by approving Mayor Riordan’s plan for pension reform that appears to result in substantial savings for the City and the DWP Ratepayers.
Paul Krekorian was right in saying that “the budget reflects our values.” But these values of fiscal irresponsibly and screwing the next generations of Angelenos by burdening them with $25 to $30 billion of debt are not ones that our parents taught us.
The paramount question still remains to all of our Elected Elite: How are you going to balance the budget, fix our streets, and fully fund the pension plans?
Vol 10 Issue 93
Pub: Nov 20, 2012