The Secret $20 Billion Dollar Budget Shortfall LA’s Mayor Doesn’t Want to Talk About

LA WATCHDOG - The $238 million deficit that the Mayor’s Proposed Budget attempts to cure is vastly understated.

Revenues are overly optimistic as the Mayor’s revenue projections exceed Controller Wendy Greuel’s March 1 estimates by over $100 million.  

Next year’s revenue estimate also includes $30 million of this year’s property tax revenues that flowed to the City as a result of the dissolution of the Community Redevelopment Agency.

Expenditures are also understated as the City once again is banking police overtime and deferring a major portion of the civilian wage increases.  

But the more than $200 million of overstated revenues and understated expenditures is chump change compared to the incremental costs associated with the City’s Enron like, off balance sheet $20 billion BLACK HOLE.

The Black Hole consists of the City’s unfunded pension liabilities and the financing needed to repair our lunar cratered streets, our tree damaged sidewalks and crumbling curbs, our overgrown parks, the rest of our deteriorating infrastructure, and our Stone Age computer systems.

The $20 billion Black Hole is a huge 4.4 times General Fund Revenues.  As for its impact on individuals, if the $20 billion Black Hole was financed exclusively through an increase our real estate taxes over the next five years, our taxes would double.  The owner of a home that is assessed for $500,000 would be tagged for an additional $25,000, a frightening thought in this economy.  

This $20 billion Black Hole will require at least $800 million and probably more than $1 billion a year if the City is serious and willing to address this albatross that is rapidly pushing the City to brink of insolvency.

The City’s failure to address the infrastructure and pension problems is the result of the absolute failure to plan for the future.  

During the profligate Villaraigosa era, salaries, benefits, pension contributions, and workers’ compensation expense have increased by over $1.3 billion as City salaries and medical benefits have increased by 25% and 50%, respectively.

But if the City had a proper planning process that addressed the need for billions of investment in our infrastructure, would the Mayor and the Garcetti-led City Council have granted such generous compensation and benefit packages to the employees of our City?

On Friday, the Budget and Finance Committee of the City Council began a series of hearings on the Mayor’s Proposed Flimflam Budget where its members will review the line item budgets of the City’s departments and the Mayor’s plan to cure the $238 million shortfall.

But to date, there has been no discussion about reforming the City’s finances and budgeting process, the causes of and solutions to the City’s precarious finances, and how to fund the Black Hole and its component parts.

Rather, it is business as usual, once again “kicking the can down the road,” where extensive public comment involves begging for scarce resources for our parks, the fire department, the police, the City workers, and other services that are the responsibility of the financially strapped General Fund.

Interestingly, the City Administrative Officer, recognizing the precarious state of the Mayor’s Proposed Budget and its complete lack of financial flexibility, prudently recommended that the City prepare a list of mid-year reductions and related triggering mechanisms that would implement the identified reductions to ensure that the budget remains balanced throughout the year.  

The Mayor has also instructed the City Administrative Officer to report back on potential ballot measures to provide additional funding for public safety that will be placed on the March 2013 Citywide General Elections.

But will Angelenos approve a $100 million, 100% increase in the Documentary Transfer Tax and a $40 million, 50% bump in the Hotel Tax without meaningful charter reform of the City’s finances and budgetary process?

Will Angelenos reward the fiscally irresponsible behavior by the Mayor, the Wesson led City Council, and the asleep at the switch Controller Greuel?

Doubtful, very doubtful, even if this Pig in Lipstick is designed to finance public safety.  

We must demand that any reasonable increase in our taxes be contingent upon the APPROVAL by voters of a Charter Amendment that forces our City to “Live Within Its Means.”

This charter amendment would require that the City develop and adhere to a Five Year Financial Plan; prepare multiyear balanced budgets based on Generally Accepted Accounting Principles; fund the repair and maintenance of our failing infrastructure over the next ten years; implement comprehensive pension reform; rein in the spiraling increases in salaries and benefits; and provide designated funding to cover any increases in spending.

So will the Budget and Finance Committee chaired by Paul Krekorian tackle the City’s billion dollar deficit?  And will his committee and the City Council endorse a ballot measure mandating comprehensive budget reform?

It is very simple.  No reform confirms the status quo, resulting in no increase in revenues and no extension in Measure R.

(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 -- He can be reached at: –cw

Tags: Jack Humphreville, LA Watchdog, Mayor’s Budget, Budget Deficit, City Council, Wendy Greuel

Vol 10 Issue 35
Pub: May 1, 2012