L.A.’s fiscal forecast looks dismal

Los Angeles Mayor Antonio Villaraigosa offered a bleak financial forecast for city government over the next two years on Saturday, warning that deep cuts to services and other belt-tightening measures would be unavoidable because of the worsening economic downturn.

Villaraigosa said the city’s budget shortfall could exceed $400 million next year, far worse than expected. That could lead to workforce reductions and have a significant effect when the city negotiates new labor contracts with police and firefighters.

The mayor’s call for fiscal restraint came at his annual Community Budget Day with the city’s neighborhood councils at City Hall. Only six months before, he had made a similar commitment to make “deep and painful cuts” when the city faced a $406-million budget shortfall. At that time, Villaraigosa proposed eliminating 767 city jobs and requiring mandatory work furloughs to close the gap and still fulfill his pledge to hire more police officers.

However, the city’s financial picture remains as precarious as ever as Villaraigosa’s first four-year term draws to a close, with the mayor and the City Council continuing to rely on short-term fixes to help address the city’s knack for spending more than it collects in taxes and fees.

In spring, the city closed a budget gap on its $7-billion spending plan by increasing taxpayer fees by $90 million and unearthing one-time pots of money. Among other things, the city sold surplus property and tapped $18.25 million in unused healthcare funds offered up by city employee unions.

But those fixes will do little to help next fiscal year. City general fund revenues are expected to drop by at least $41 million, while expenses are to rise by $240 million -- driven primarily by increases in employee pay and benefits as well as police hires, according to city budget experts.

Villaraigosa says he has taken major steps to reform the budget process and has found ways to responsibly pay for his spending priorities and the city’s core missions, No. 1 of which is hiring 1,000 police officers.

“Public safety is our top priority, and growing that Police Department is critical to it,” Villaraigosa said. “The city is safer. . . . There are more tourists in the city, more businesses in the city; we see more construction in the city. If this was a city plagued by crime, you wouldn’t see that.”

Along with eliminating hundreds of jobs -- some filled, some not -- for which money had been set aside, the city has tripled the trash collection fee and preserved its $243-million telephone tax. Villaraigosa said he eliminated the fiscal sleights-of-hand used in previous administrations, including the practice of dipping into the city’s emergency fund.

Those gains have been masked by the shifting winds of the national and world economies, which have led to a precipitous drop in the city’s tax revenue, with those tied to property sales being hit the hardest, the mayor said. Increased fuel prices alone could cost the city an additional $10 million or $20 million this year, he said.

“Nobody knew the extent of this crisis,” Villaraigosa told The Times in an interview Saturday. “Last year, UCLA [economic] forecasters said we’d have a 4% increase in revenues. And this year, revenues are way down.”

Villaraigosa’s critics, however, say the mayor’s spending priorities and concessions to the city’s powerful labor unions have erased many of the added revenues and budget reforms and exacerbated the city’s financial troubles.

Along with Villaraigosa’s program to hire more police officers, the mayor and the City Council in December approved a package of employee pay increases that will cost $255 million by 2012 -- doing so despite warnings of a recession. Villaraigosa said that, at the time, the city expected its overall revenues to increase and that he never would have agreed to the package had he known what was to come.

The mayor’s proposed job cuts led to the elimination of fewer than 600 funded job positions this year. Although those cuts saved millions of dollars, most of those slots were vacant. Ultimately, officials now confirm, only a single employee was laid off.

“The unions have done an incredibly great job in exercising political power in the city and, because they’ve got so much power, they are in effect sitting on both sides of the bargaining table,” said David Fleming, chairman of the Los Angeles County Business Federation and former head of the Los Angeles Area Chamber of Commerce.

A report by interim City Administrative Officer Raymond P. Ciranna estimates that the pay increases, when combined with expected raises for police and firefighters next year, will cost Los Angeles an extra $120.5 million in 2008-09.

Union officials defended the pay boost, saying that the labor contract approved in June came after years of subpar increases that failed to keep pace with the cost of living.

The agreement also represented a progressive new relationship in which city employees agreed to sit down with city leaders if a budget crisis forces cutbacks.

The fruits of that became apparent in spring, they said, after the mayor proposed work furloughs to save the city $23 million.

To avoid that, the unions agreed to make up for some of the shortfall by applying $18.25 million in unused healthcare funds toward the city budget. They also agreed to make up the remainder with voluntary furloughs and by paying more for their prescription drug benefits.

“What the City Council and mayor know is that, when they lay off a librarian, it means the city won’t have anyone to read a child a book in an after-school program,” said Barbara Maynard, spokeswoman for the Coalition of L.A. City Unions. “I could go down the line. . . . I think we’re reaching a point where the public realizes that you can’t get things for free.”

Councilman Bernard C. Parks, chairman of the council’s Budget and Finance Committee, said the savings accrued by layoffs, while tempting, must be balanced by the public’s need for government services. It’s during the toughest of economic times that many of those services are needed most, he said.

“What we’ve seen in the mayor’s budget for four years, and with prior mayors, is that the bulk of the budget is driven by community needs,” Parks said. “So you have to take it in that context. . . . I just don’t think you can take a meat clever to anything and say we’re going to whack this or that.”

Parks said the mayor and council’s recent use of one-time cost-savings and sources of revenues, such as hiring freezes or the selling of surplus city property, is sometimes a necessary tool to bridge budget gaps until the economy rebounds: “Rarely do revenues flat-line or go under all at the same time . . . like they have now.”

But Controller Laura Chick said those one-time fixes are addictive, and for more than a decade have been used by mayors and city councils wary of cutting programs or asking voters to pay higher taxes.

“Every tight budget year, and they’ve been tight a lot lately, people start trolling for money. . . . But boy is that a lousy way to budget ongoing services and ongoing payroll,” said Chick, who served on the council for eight years before being elected controller in 2001. “It’s like wishful thinking in La-La Land.”

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phil.willon@latimes.com