Real Fiscal Reform Trumps New Taxes

LA WATCHDOG - The City Council and the Mayor are not interested in reforming the City’s budget and finances. This is even after the development of this year’s $8.2 billion budget that had to cover a self-induced billion-dollar shortfall that resulted in the layoff of over 600 employees and the cutback on public safety and the maintenance and repair of our infrastructure.  So, what if we have another fiscal crisis. 

Over the next four years, the City is looking at a $600 million cumulative shortfall when adjusting the Four-Year Budget Outlook for future budget busting labor agreements. Nor is the City addressing its deferred maintenance backlog of over $10 billion or its unfunded pension liability of over $7 billion.  

The Charter Reform Commission is off to a slow start. In June of 2024, the City passed an ordinance establishing the Commission. But due to Mayor Bass slow walking her appointments, the first meeting was not held until June of this year.  And even then, budget and financial reform are not on the agenda even though the City’s fiscal mess is the most serious issue facing the City. 

In March, Councilwomen Katy Yaroslavsky introduced a motion to “establish an Advisory Group on the City's Finances and Budget to assess the city's financial status and advise the Budget and Finance Committee on steps to secure the long-term fiscal health of the City.”  But after almost five months, none of the five members have been appointed by Councilmembers Yaroslavsky, Harris-Dawson, and Blumenfeld.  

Instead of reform, the City is now considering seven tax increases according to a report from the Office of Finance, including three on existing taxes and four new taxes. All would benefit the General Fund and be subject to voter approval.

• An increase in the hotel tax to 16% from 14% is expected to raise an additional $55 million. 

• An increase in the parking occupancy tax to 15% from 10% is expected to raise an additional $70 million a year. 

• Taxing unpermitted cannabis businesses would raise an estimated $60-80 million a year. 

• A new one-time 6% tax on Olympic ticket sales within the City would raise around $100 million. 

• A new vacancy tax on unoccupied residential and commercial properties would raise an estimated $45 million every year but could be as high as $128 million depending on definition of vacant properties.   

• A new annual tax on transportation for hire and shared rides would raise an underdetermined amount and needs to be determined by the Department of Transportation and the Office of Finance. Chicago’s Ground Transportation Tax generates an estimated $200 million a year. 

• A new retail delivery tax could generate between $150 and $200 million annually.  

Overall, these taxes would raise around $600 million per year plus a one-time infusion of $100 million. 

Approving these new taxes is a reward for bad behavior.  Instead, the City should engage in comprehensive budget and finance reform, starting with the establishment, staffing and funding of Yaroslavsky’s Advisory Group and a thorough review of the City’s finances by the Charter Reform Commission with the help of the Advisory Group, experienced financial experts from the private sector, and representatives from the Neighborhood Council Budget Advocates who have made numerous recommendations over the years.  

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The Neighborhood Council Budget Advocates seven recommended reforms are an excellent beginning.   

1. The Four-Year General Fund Budget Outlook needs to be updated to reflect anticipated raises for City employees. 
2. Develop a two-year budget as recommended by the City Controller.
3. Conduct open and transparent labor negotiations that require significant outreach to Angelenos before, during, and after the negotiations.
4. Place a measure on the ballot that would prohibit the City from entering into any labor agreement that would create a current or future deficit. In the short term, pass an ordinance. 
5. Develop a long-term infrastructure plan to address deferred maintenance and future capital expenditures.
6. Create a robust Reserve Fund that can only be used in declared emergencies, not to balance the budget as is the current procedure.
7. Establish an Office of Transparency and Accountability to oversee the City’s budget and finances in real time as recommended by the LA 2020 Commission. 

(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)