Mayor Sees Bleak Budget Scenario

Los Angeles Mayor Antonio Villaraigosa, laying the political groundwork for his inaugural budget, painted a bleak picture of city finances Wednesday -- warning of a deficit that could reach $271 million even as he pledged to hire more police.

That amount is much higher than previous estimates and could grow significantly as the city negotiates new labor contracts with public safety workers and others.

Although Villaraigosa’s full budget won’t be unveiled until next month, the popular mayor’s deficit pronouncement signaled the start of what could be a contentious period in which he faces his first real challenge from organized labor -- his traditional power base -- while wrestling with economic forces beyond his control.

Indeed, union officials were quick to accuse the mayor of overstating the city’s financial woes.

Blaming his predecessors for creating much of the deficit, Villaraigosa said that he did not envision layoffs but that some services covered by his nearly $4-billion general fund budget could be reduced to make City Hall more efficient. He offered no specifics.

Sounding like a fiscal conservative, he promised to end what he described as quick-fix solutions used by past administrations to fill budget holes and vowed to eliminate within five years the shortfall he inherited.

But putting Los Angeles back on sound financial footing could be tricky as economists forecast a softening in several key revenue sources, including property taxes. The mayor has said in the past that he would not rule out proposing a tax increase -- although he said nothing of that Wednesday.

“We’re committed to putting L.A. on a new path, one that will lead to true fiscal accountability and truth in budgeting,” he told a City Hall news conference. “I’m committing today [that] the budget-busting practices of the past will be history.”

Villaraigosa’s full budget will afford him an opportunity to articulate his priorities, some of which he signaled Wednesday.

He said he would make good on a campaign pledge to hire more police officers. And he said the Fire Department, street services and efforts to reduce traffic congestion would figure prominently in his plans. Again he offered no specifics.

The budget poses political risks for Villaraigosa, who must walk a delicate line between championing his traditional base and demonstrating that, in the name of fiscal austerity, he can fend off union demands for pay increases.

The budget season arrives just as Los Angeles faces difficult contract negotiations with police, firefighters and city engineers, all eager to secure large raises.

By highlighting the mounting fiscal pressures, the mayor is seeking to strengthen his hand in those talks, some of which have already turned combative.

The head of one union accused Villaraigosa on Wednesday of distorting the budget numbers to gain the upper hand in the contract negotiations.

Robert Aquino, executive director of the Engineers and Architects Assn., said the city would have a surplus if it factored in its semi-independent departments overseeing the airports, harbor, and water and power. But the mayor’s staff said state and federal laws bar the use of airport and harbor money for other purposes.

“I believe what the mayor is doing is politically trying to create a specter of a budget deficit to help argue against raises for [his] own employees,” said Aquino, who represents about 9,000 city workers, some of whom have dogged Villaraigosa at recent public appearances. The city employs 36,156 people in departments financed by the general fund.

The head of the police union, meanwhile, applauded Villaraigosa for trying to bolster the force but said the city must also compete with other police agencies eager to woo officers with signing bonuses and better pay.

“Certainly we support his intentions of bringing more people on, but we have to treat the people here in a fair manner,” said Bob Baker, president of the Los Angeles Police Protective League.

Villaraigosa said the city’s precarious financial picture stems from several factors, including a decline in city revenue after the Sept. 11, 2001, terrorist attacks, the dot-com bust and the state’s grabbing of municipal funds to balance its own budget.

In addition, he said employees’ pay and their healthcare and pension costs have increased significantly, partly because the city’s workforce has grown in recent years.

Villaraigosa said previous administrations contributed to these problems by relying on financing gimmicks to hide budget gaps.

Among other things, he said, city leaders raided reserves, tapped excess Department of Water and Power money, relied too heavily on investment profits and used one-time funds to pay for continuing costs.

The mayor said the fiscal sleights-of-hand, combined with rising costs, produced a “structural deficit” -- a persistent gap between revenue and spending -- that reached $295 million when he took office in July. After factoring in other expenses and revenue, Villaraigosa projected the actual deficit at $271 million at the start of the next fiscal year.

“We’re looking at a crisis in this city if we continue spending like we have in the past and [do] not make tough decisions,” the mayor said.

Villaraigosa pledged an end to these practices, a message that played well with the chairman of the City Council’s Budget and Finance Committee.

“I believe he’s right on. Hopefully, there is a will to do it,” Councilman Bernard C. Parks said. “It is a very delicate balance to eliminate the structural deficit. We have to rely on the fact that revenues will increase and ensure that we hold the line and not blow the budget out on employee negotiations.”

One economist gave Villaraigosa a thumbs up for tackling the persistent deficit but said the mayor will face an uphill fight because of the union contracts and economic forces beyond his control.

Jack Kyser, chief economist of the nonprofit Los Angeles County Economic Development Corp., said he anticipates a slowing in property tax revenue, the city’s chief source of income, as the housing market cools. He sees a similar slowdown in hotel occupancy taxes because of a lack of rooms.

“The mayor is going to be facing a lot of challenges,” Kyser said. “He’s got his hands full, but he is not ducking out the door. He is confronting this head on, and you have to take your hat off to him.”

Villaraigosa and his staff said the city would save money by reorganizing parts of its workforce to achieve greater efficiencies, and by filling vacant positions from within city ranks rather than hiring new employees.

“We have to create a culture of being more productive,” Villaraigosa said.

The mayor’s staff will spend the next month hashing out the budgets of city departments. Villaraigosa will unveil his budget April 20. That will be followed by hearings before the City Council, which must approve the plan by a majority vote of its 15 members.

Once the council finishes its work, Villaraigosa will get one more opportunity to weigh in through his line-item veto power.

The budget must be adopted by July 1.

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Tracking the gap

Mayor Antonio Villaraigosa projects that by July 1 the city’s nearly $4-billion general fund budget is likely to be $271 million short, although a forecast he presented Wednesday put the gap at $290 million.

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Departmental expenditures

The cost of police and firefighter service makes up the largest chunk of general fund spending in the 2005-06 budget.

Police: 46.6%

Fire: 16.6%

Public works: 15.3%

City officials: 8.1%

Recreation and parks: 6.9%

City attorney: 3.3%

Library: 3.2%

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Source: Mayor’s office