Sun, Apr

Eric’s ‘State of the City’: Rhetoric v. Budget Realities


LA WATCHDOG--On Thursday, Mayor Eric Garcetti delivered his State of the City address (photo above) to an enthusiastic City Hall centric audience at the headquarters of Norabachi Corporation, a growing Harbor City manufacturer of LED lighting for industrial and commercial applications.  On Wednesday, April 20, he will present his proposed budget for the year beginning July 1, 2016. 


And, as was the case last year, the optimism of his speech will have to face the harsh realities of our cash strapped City’s budget.

In his 50 minute, 7,000 word address, Garcetti touted the progress of the City, its economy, and his administration, ranging from being the local infrastructure capital of America (LAX, the Port, Metro); cutting red tape and taxes; supporting workers, including the increase in the minimum wage; and targeting key industries (Hollywood, aerospace, high tech, green tech) for the development and preservation of middle class jobs.

He promised to address affordable housing by updating the City’s 35 Community Plans and “putting an end to the era of special perks for special projects;” to improve traffic by accelerating the build-out of our mass transit system through Metro’s $120 billion tax increase in our sales tax; and to tackle the homeless crisis by implementing a linkage fee on new development and another increase in our taxes in the near future. 

While Garcetti promised us a fully balanced budget that would restore services and increase the Reserve Fund to record levels, he did not give us any specifics on how the City intended to close the $90 million budget deficit that was projected in July of 2015.

Nor did he give us any indication of how the City will finance its $138 million homeless initiative, its $31 million sidewalk repair program, its affordable housing plan, the increase in police overtime and the reduction of the LAPD accumulated overtime bank, the long overdue increase in it Clean Streets program, and his promise to reduce punitive parking fines to more reasonable levels.

Garcetti also did not address the City’s new contract with its civilian employees.  While this contract will “only” cost the City about $40 to $50 million in the upcoming year compared to its July projections, it will result in a $125 million hit to the budget by the end of the four year contract.  This does not include the goal of hiring thousands of additional employees.

But these dollars are chump change compared to the games being played by the City in its failure to develop a plan to repair and maintain our 6,500 miles of streets and 800 miles of alleys and to properly fund its two seriously underfunded pension plans.

In the past, the City has indicated that the cost to repair and maintain our lunar cratered streets and alleys was in the range of $4 billion. Over a 20 year period, this amounts to $200 million a year, an amount considerably more than required to fund the City’s pothole brigade. 

The City is also short changing its pension plans by at least $400 million a year by relying on an overly optimistic investment rate assumption of 7½% as opposed to a more realistic, but still optimistic rate of 6½% as suggested by Warren Buffett and other knowledgeable investors and advisors.  The pension contribution would be even greater if the City were held to the standards of corporate America where the investment rate assumption is in the range of 4% and any changes are amortized over 5 years, not 15 years as is the case with the City.

The City’s financial situation has improved since the Villaraigosa era as tax revenues increased by 25% over the last 5 years as a result of the improving economy. But record revenue does not mean that the City is out of the woods as major financial issues and uncertainties still persist that must be addressed by the Mayor and the Herb Wesson-led City Council.

The $600 million chasm between Garcetti’s SOTC speech and budget realities will only fuel Angelenos lack of trust and confidence in City Hall, making it very difficult to pass any new taxes, including the proposed half cent increase in our sales tax to fund additional mass transit projects that will be on the ballot in November.  

Now is the time for the City to begin its efforts to court the City’s skeptical voters by placing on the ballot a ‘Live Within Its Means’** Charter amendment for either our approval or rejection. 

Otherwise, without real reform, it will be too little too late to gain our trust and confidence. And, our votes.

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**The “Live Within Its Means” charter amendment, if approved by the voters, will require the City to develop and adhere to a Five Year Financial Plan; to pass two year balanced budgets based on Generally Accepted Accounting Principles; to benchmark the efficiency of its operations; to fully fund its pension plans within twenty years; to implement a twenty year plan to repair and maintain our streets, sidewalks, and the rest of our infrastructure; and to establish a fully funded Office of Transparency and Accountability to oversee the City’s finances and operations.

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council.  Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at:  [email protected].)



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