“If Pigs Could Fly” and Other LA City Hall Financial Strategies

PERSPECTIVE - The Daily News and the Los Angeles Times have been awash with articles dealing with municipal bankruptcy lately.

The top budget expert at Los Angeles City Hall said Friday that the municipal government is climbing out of its fiscal sinkhole –- and would be foolish to file for bankruptcy as a way of solving its problems.

Appearing before the council, Santana said the city already has taken steps to cut the size of the work force by laying off 100 workers, closing small departments and letting 2,400 workers retire with full pension benefits up to five years early. Another 761 job cuts are planned in coming weeks -– a move that is controversial among some council members.

“We are on our way to financial stability,” Santana said. “So bankruptcy is further away now than it  was possibly a year ago.”

That was from a Los Angeles Times article from May 7, 2010 - not 2012. 

So what happened to the financial stability our CAO was crowing about?

From the Times, June 27, 2012:  Miguel Santana, Los Angeles’ chief administrative officer, sees Stockton as a lesson in what can happen if the city doesn’t continue making adjustments to match declining revenue. In a budget outlook prepared in April, Santana alluded to Stockton’s financial meltdown in urging the Mayor and City Council to push for higher taxes and spending reductions over the next four years.

That hardly sounds like an advertisement for financial stability. Was Santana whistling in the dark back in 2010?

Were the mayor and the City Council blowing smoke all these years as they kept deferring expenses, such as banked LAPD overtime and early retirement buyouts, to future periods?

Was anyone at City Hall taking the financial crisis facing the city seriously?

Santana, the Council and the mayor are relying on the if-if strategy of survival.

If we can raise taxes and if the unions make meaningful concessions, then we can avoid bankruptcy.
Yup, we can bank on that just as we can with ”if pigs could fly.”

Los Angeles is not in as deep a hole as Stockton or San Bernardino, the latter not able to make the upcoming August payroll. But both of those cities share a common predicament with Los Angeles: high labor costs and benefits, along with a dwindling tax base.

In San Bernardino, there are accusations of budget falsification.

According to the San Bernardino Sun:  Councilman Fred Shorett blasted city staffers for what he said was evidence of at least incompetency.

“We haven’t had good, solid information over the last 16 years,” he said. “Why? That’s up for determination. I don’t believe they’re falsified. I believe there’s maybe some incompetency or ineptness or trying to stretch the truth, trying to make things look better.”

Sounds like the City of Los Angeles budget assumptions since Villaraigosa has been the mayor.

Our city’s first line of defense is virtual bankruptcy, or Detroitomics.  I’ve written about that before. Allow services to erode through layoffs and furloughs to the point where residents become accustomed to a low standard.

That strategy has its limits.  Eventually Los Angeles will resemble Detroit, but with beaches and good weather. Businesses and people of even moderate means will move out, finally realizing that there is little value in the taxes they pay.  A day at the beach under sunny skies does not pay the bills or make the payroll (we only wish it could).

About 450 miles to the north of Los Angeles, the City of Reno offered Apple $89 million in tax breaks.  In return, Apple agreed to build a data and purchasing center in and near the city. It will amount to a $1 billion investment in the region over the next ten years, not to mention quality permanent employment opportunities and long-term construction jobs.

Always thinking big, Mayor Villaraigosa and the City Council settled for waiving gross receipts taxes to bring car dealerships back to Los Angeles. The city hopes to increase sales tax revenue from $3.6 million per year to $5.4 million.

Reno will be flying with Apple while LA will still be trying to figure out how to make pigs fly.

(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village.  He blogs at Village to Village, contributes to CityWatch and can be reached at:  phinnoho@aol.com) –cw

Tags: Paul Hatfield, If Pigs Could Fly, City Hall, City Council, Mayor Villaraigosa, CAO, Miguel Santana

Vol 10 Issue 57
Pub: July 17, 2012