Tue, Jul

Budget Day Highlights: Los Angeles Faces Structural Deficit Due to Salary Increases


GELFAND’S WORLD - Over the weekend, neighborhood council participants held an event which is called Budget Day. At Budget Day, people in city government tell us about the Los Angeles budget process -- and its results -- and try to justify their own efforts. 

We therefore got to hear from the city's Controller and from the chair of the City Council's Budget and Finance Committee. 

The Context was Everything 

Over the past couple of years, the city was doing pretty much OK as we began to emerge from the pandemic. But the City Council and the mayor have now chosen to go ahead with a substantial increase in police salaries. There is also a salary increase for the rest of the city's workforce in the cards. 

The result, as you have read here and elsewhere, is that the city government has once again placed itself into a deficit situation. In brief, we are going to owe more every year than we are likely to take in. So much spending is built into the budget that it is going to be impossible to carry out the regular activities of city government based on expected tax revenues. The partial remedy for this deficit is that the city will stop hiring people and will thereby cut back on the services that the lost employees would have provided. We will look more like a poor city than a rich one. 

Anyone with a little imagination can understand that the city has walked itself right to the edge of a cliff, and it would only take some new stress to push us over -- a sustained bad weather event, an economic downturn, or even an act of terrorism would do it. But this is southern California, so let's also consider a substantial earthquake. Any single one of these things would be hugely damaging, and a combination of two would be that much worse. 

Now you have to admit that there is something strange about the idea of a major American city voting itself into a structural deficit at this moment. The economy has been growing, unemployment is way down, and inflation itself is actually under control. If the city had just continued as before, we would be in fine shape. 

I don't pretend to be a financial wizard, so I attended Budget Day as an observer, wondering how the leadership would rationalize our city government's behavior. 

This Was the Result of a Choice 

The neighborhood council Budget Advocates is co-chaired by Kay Hartman. She gave a brief but cogent introductory speech, and what she said should be considered by the rest of us. The current budget problem was not inevitable, she told us, but was the result of a choice. 

It didn't take much for us to understand what that choice was. Once again, the City Council has created the structural deficit by voting substantial salary increases for city employees. Those of us who have been following the city finances for the past 20 years or so can remember this happening time after time. Each time the contracts run out, the City Council agrees to these big increases. 

It was not always so, at least everywhere in the county. Some of us can remember when the bus drivers went on strike and the county went without most bus service for something like one-third of a year. Eventually a deal was reached, but there were two opposing sides in this negotiation, and they both did their best to defend their interests. 

Clearly the City of Los Angeles does business in a different way. The cyclic salary increases result in what I have described in an earlier column as exponential salary growth, in the sense that wages tend to increase proportionally -- about 5% -- from year to year. 

Yes, it was a choice by the City Council to give in to this cycle's increases. 

But Budget Day did not delve into the underlying reasons for why this particular choice was made, or how things could have been done differently. 

It's actually an old story, one that has been brought up repeatedly. People running for the City Council need votes, and they need a large amount of money to carry out an effective campaign. Unless you are already independently wealthy and willing to spend your own money, you have to go begging. City Council candidates can get the support of municipal unions by being seen as pro-union, in spite of the fact that this is effectively a major conflict of interest on their part. You can either represent the people of your district and the people of the city as a whole, or you can represent the interests of the city's salaried employees. 

An Old Argument that Seems to Have Been Forgotten 

At one time, there was a lot of discussion about the problems inherent in candidates trading their integrity in exchange for campaign contributions. There was talk about public financing of elections. The idea was that each candidate who reached some defined threshold for nominating signatures and a certain number of five-dollar contributions would become eligible for public campaign financing. The argument was that public financing would free candidates from having to sell their souls to the special interests that were donating money. 

But Los Angeles has a public financing component based on matching funds, which is described in numerous articles including this one. In the one most important test of candidate integrity -- whether or not the City Council would vote the city into near-bankruptcy in order to benefit one special interest group -- the system is obviously inadequate. Maybe we should just recognize it to be a failure and try to think of something better. 

Two Possible Approaches to Better Government 

Members of the City Council have been talking about another round of Charter reform. Apparently, the changes that were passed in the 1999 election were not adequate. It might be possible to enact changes that would require a legitimately balanced budget and would create some safeguards in the way the City Council enacts salary increases. 

The other possibility is political. If the people of Los Angeles were to vote for City Council candidates based on the promise of fiscal integrity, things would change. There is a problem with this concept in the sense that this philosophy is associated in the public mind with Republican Party philosophy, and the Republican Party has turned off much of the electorate due to its weird social policies. The result is that there aren't many Republicans elected to any level of government in this area. 

The Democratic Party candidates could move towards fiscal integrity if there were enough public pressure. It's curious that there isn't that kind of pressure, even though the people of Los Angeles recognize the city's problems at the micro level, as in the broken sidewalks and the potholes in front of their houses and the fact that the city has a big problem in answering its phones. 

What the Electeds Said to Us 

The Controller said that the budget process is broken, but he referred mainly to procedural issues. He proposes that we have a two-year budget process, which, he claims, would save thousands of hours of staff work. It was disappointing that he didn't get into the corruption we've seen, and how that affects the quality of government. 

The chair of the City Council's Budget committee gave what I would call a good political speech. He referred to the increase in police salaries and defended them as the need to compete with salary levels in surrounding cities. The argument is that we have been losing police officers to surrounding forces because they pay more, so the aim was to move our police salaries into the middle of the curve. 

Maybe so. It didn't seem all that convincing to me, because police salaries are already pretty good compared to lots of other professions. It's not clear that the current slow drip of decreasing policing levels is due mainly to defections to other departments, or partially to other factors. It would be useful to do some careful studies on why people apply to be police, why they stay, and why some of them leave. 

But it is painfully obvious that when you raise salaries for a department that generally uses about half the city's budget, you are creating a long-term problem. 

Let's just hope that it doesn't become a crisis the way it did back in 2008. 

(Bob Gelfand writes on science, culture, and politics for CityWatch. He can be reached at [email protected].)