Degree of L.A.’s fiscal problems splits mayoral candidates

A virtual unknown straining to make his mark in the race for mayor of Los Angeles offered an alarming assessment of the city’s finances. “We are actually on the brink of bankruptcy,” Emanuel Pleitez, a tech executive and former aide to Mayor Antonio Villaraigosa, said in a recent debate. “This is not a joke.”

City Councilman Eric Garcetti, one of the front-runners to replace Villaraigosa, scoffed. “Every time you hear from folks who say we are about to be bankrupt it reminds me of that minister who said the end of the world is coming,” Garcetti told the audience. “Then when it didn’t come he had to change the date.”

The conflicting sentiments that night early this month on a stage in Beverly Hills reflect an emerging split in the contest to replace Villaraigosa: Top contenders Garcetti and City Controller Wendy Greuel deny that there is an imminent fiscal threat to the city. They prefer to talk about expanding the city economy to bring in more taxes and their experience in previous budget management, saying they have proved they know how to make tough choices.

The candidates from outside City Hall sound the alarm, blame the incumbents and demand more specific reforms to close deficits that have lingered at over $200 million annually. Pleitez and lawyer and former prosecutor Kevin James talk about shifting future city workers from guaranteed-benefit pensions to something more like 401(k)s, not unlike a controversial proposal former Mayor Richard Riordan made last year.

The divide over city finance reflects several verities of politics in general and the L.A. mayor’s race in particular. Top contenders often don’t want to offer specifics until they feel they have to, lest they alienate one voting bloc or another. Greuel and Garcetti particularly don’t warm to talk of future cuts in the workforce, pay or benefits, since some of their most ardent support is expected to come from unions that represent municipal employees.

Lesser-knowns like James and Pleitez feel they have nothing to lose in appearing to tackle truths the current elected officials won’t. But the outsiders also ignore belt-tightening already accomplished within L.A. City Hall, such as hiking the retirement age for future workers. And they don’t dwell on niceties, like employee contracts, that complicate reform.

Although she too has long served in city government, Councilwoman Jan Perry increasingly has adopted the outsiders’ more urgent tone. She told the North Valley Regional Chamber of Commerce at a breakfast meeting last week in Northridge that the city could become “insolvent” if more fixes aren’t made.

At a Sherman Oaks Homeowners Assn. debate this week, Perry said that new hires at the city should be shifted from defined-benefit pensions to less-costly defined-contribution plans. That put her at odds with Greuel and Garcetti, who both said “no” when asked if they would support such a change.

“I want to renegotiate our employee contracts, our pension agreements to sustainable levels,” Perry said, “with every employee paying their fair share of healthcare and pension costs.”

The pension issue has been pushed to the forefront in the last two years, with city budget analysts predicting that retirement costs could consume almost 25% of the city’s general fund budget by 2016, up from 19% in 2012.

The city government’s top budget official, Miguel Santana, warned last April of the potential for bankruptcy, though his report did not put Los Angeles on the “brink,” as candidates James and Pleitez have. Still, City Administrative Officer Santana suggested a range of possible changes, from raising taxes to having private firms or nonprofits take over for city workers at the Los Angeles Zoo, the Convention Center and possibly other locales.

Such suggestions inflame organized labor, which wants to keep the positions on the public payroll, while maintaining pay and benefits as best they can. Santana’s aggressive management has made him an issue in the mayoral campaign. At a labor forum in December, union members wanted to know if the future mayors would keep him on the job. Councilwoman Perry again stood out, suggesting she would keep the administrator, while Garcetti, Greuel and James deferred judgment.

Going forward, Santana has said that the city’s perennial deficits won’t be fixed with any single reform. Because the city has a legal obligation to maintain the pensions of current employees, reforms to the system typically apply to future hires — meaning most pension savings can only be realized years from now.

The need for more immediate savings is likely to make other initiatives, like increasing the amount employees contribute toward their healthcare, more pressing for the next mayor.

Negotiations led to the city’s engineers and architects beginning to pay 5% of their healthcare premiums starting a year ago. But 40% of the city’s police and fire employees and many other civilian workers pay nothing toward their healthcare premiums.

Santana’s office has projected that getting all workers to pay 10% of their health premiums would save the city $51 million a year.

A survey by the Kaiser Family Foundation released in September found that the average American worker pays 27% of the cost for employer-sponsored healthcare, coming to $4,316 a year. Pushing Los Angeles employees to pay 10% of their premium would mean they would have to kick in at least $528 a year for their healthcare, city budget officials said.

But city employees can’t be expected to see their low-cost care go up without a fight. “We have a track record of partnering with the city to help it through hard times,” said Ian Thompson, a spokesman for Service Employees International Union Local 721. “But we’re skeptical when the CAO unilaterally proposes more cuts to city workers’ benefits as the only solution.”

Perry is the only one of the current elected officials to say clearly in recent public appearances that healthcare expenses will have to be on the table. Garcetti told a debate audience earlier this month that he’s capable of making such tough calls, noting that some city workers have already been pushed to bear that expense.

“People are paying out of pocket for their healthcare premiums who were paying $0 before that,” Garcetti said. “You think that was easy? You think it’s easy to go to people and say we are going to take something away? But leadership is about telling people not what they want to hear but what they need to hear.”

Garcetti said Thursday night in Sherman Oaks that the best path to balancing the budget in the future will be “to grow our economy,” through a tax cut and other reforms, thereby building a larger tax base.

Similarly, Greuel said at a debate early in the month at Temple Beth Jacob in Beverly Hills that economic growth — through the expansion of business at the Port of Los Angeles and LAX and other initiatives — would fix the budget best. On pensions, her most specific proposal was for blocking pensions of employees who have committed a crime.

As she often does, Greuel concluded by saying her work as controller —where she claims to have “identified $160 million in potential savings” — proves she has the management chops to root out excess.

james.rainey@latimes.com

Twitter:latimesrainey

Times staff writer Michael Finnegan contributed to this report.