Busting City Hall’s Big Budget Myth: Declining Revenues

Mayor Antonio Villaraigosa and the Los Angeles City Council have gone to great lengths to blame the City’s financial woes on the substantial decline in the General Fund’s tax and fee revenues. This has resulted in substantial operating deficits that have been overcome year after year by the “bold and creative leadership” of the Mayor and the City Council.

These “solutions” have resulted in a substantially lower level of service to Angelenos as 5,000 civilian employees have been removed from the General Fund payroll, resulting in a level of civilian employees not seen since the Mayor Bradley era (1973 to 1993).

The “solutions” have also been very costly.

Under the Early Retirement Incentive Program (the E-RIP), 2,400 senior employees were offered $355 million of increased retirement benefits. This amounts to $150,000 for each early retiree and does not include cash payments averaging $15,000 for unused vacation and sick days.

The E-RIP will require the General Fund to fork over $600 million over the next 15 years, about 40% to 45% of which will be financed by City employees through a voluntary 1% contribution of their wages.

Another 1,600 employees, along with their unfunded pension liabilities of almost $200 million, were dumped on our Department of Water and Power, while additional surplus workers were transferred to the other two proprietary departments, the Port of Los Angeles and Los Angeles World Airports, and to other special revenue departments.

Overall, there have been less than 500 layoffs.

However, there is a minor problem with the tale of declining revenues that City Hall is spinning: the facts.

This year’s General Fund revenues are budgeted to be almost $850 million higher than 2005, the year Antonio Villaraigosa was elected mayor.  This 23% increase has resulted in record revenues of almost $4.5 billion, exceeding the previous high in 2009 by almost $125 million.

Furthermore, there has been only one year when revenues declined, in 2009 when they dipped by $132 million, or 3%.

Rather, the City’s financial crisis has been caused by the massive increase in salaries, benefits, and pension contributions of at least $1.3 billion since 2005, outstripping the increase in revenues by over $450 million.

During this period, the average salary of a civilian worker increased by almost 24% to over $72,000 a year and is scheduled to go up another 11.5% by July 1, 2014.  In addition, the total cost of benefits rose 50% and the City’s pension contributions exploded by 150%.

A major contributor to this increase in personnel expense was the execution of the 2007 labor agreement where the City, led down the garden path by the politically ambitious members of the closed door Executive Employee Relations Committee, agreed to increase the salaries of civilian workers by an mind boggling 25% over a five year period.

(Note: The Executive Employee Relations Committee in 2007 consisted not only of the Mayor, but wannabe mayors Eric Garcetti and Wendy Greuel and wannabe Controller Dennis Zine, all of whom are running for cover these days, blaming the recession and the unpredictability of revenues. Gene Maddaus of LA Weekly offers an interesting insight into the disastrous 2007 contract in his recent article, The Villaraigosa Hangover.)

The escalation in personnel costs is also the underlying reason that the City is projecting a budget deficit of $216 million next year as the $300 million bump in personnel costs dwarfs the $70 million increase in revenues.

After the November elections, the City will be putting the full court press on us, the voters of Los Angeles, to approve $150 million of “revenue enhancements” (the politically correct term for new “taxes”), consisting of a doubling of the Documentary Transfer Fee (already the highest in the County) and a 50% increase in the Parking Occupancy Tax.

But what do we get in return, other than a lot of hot air?

The Mayor’s attempt at pension reform is nothing but a public relations stunt that does not address the pension liabilities associated with current City employees.  The City’s projected 2017 pension contribution of almost $1.3 billion, up over 50% from the current level, is lowered by only $15 million, or a little more than 1%.

In the past, the City has touted its “structural” solutions.

But for the most part, they have been “kick the can down the road” solutions, relying on one time revenue fixes and the deferral of expenses to “balance” the General Fund.  The City has also deferred the repair and maintenance of our streets, sidewalks, parks, and the rest of our infrastructure and decimated various departments and their programs.

City Hall does not have a revenue problem.

Rather, it has a credibility issue as Angelenos do trust our the Mayor, the City Council, the Controller, the City Attorney, and their cronies, including the leadership of the public sector labor unions, to handle their money in a prudent and responsible manner.

If the City wants voters to approve $150 million in new taxes (excuse me, “revenue enhancements”), the City must endorse structural reform of its financial affairs by placing on the ballot a measure that requires the City to “Live Within Its Means.”

This common sense amendment would require the City to develop and adhere to a Five Year Financial Plan, approve two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next ten years, provide adequate funding for the elimination of the City’s unfunded $10 billion pension liability and the repair and maintenance of our streets, parks, sidewalks, and the rest of our crumbling infrastructure.

While the myth of declining revenues is just another fairy tale emanating from the spinmeisters who occupy City Hall, one fact remains: Angelenos will not approve any new taxes or fees unless there is meaning financial reform.

It is very simple: No reform.  No revenues.

(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: lajack@gmail.com. Originally posted on CityWatch LA.)