City Budget Spells Trouble, Analysts Say

Local economists who have analyzed Mayor Tom Bradley’s proposed $3.6-billion budget warned Monday that the city is spending more money than it is raising and is headed for serious financial trouble.

The grim reports are the latest in a series of bad financial news for Los Angeles that has emerged in recent weeks.

Last month, Bradley announced a hiring freeze for nearly all city departments and last week he proposed a new city parking tax and a 10% increase in the city’s business tax.

Despite the drastic measures, Lynn Reaser, senior economist for First Interstate Bancorp, said Monday that Bradley’s 1990-91 budget will result in a deficit of at least $17.5 million next fiscal year.

“The city is attempting to spend well beyond its means,” Reaser said. An unfavorable ruling in litigation brought by the savings and loan industry against the city could boost the deficit to $60 million, she added.

Bradley has said he expects the city to win the litigation, but Reaser said that she is skeptical and concerned that the city will somehow have to find the money.

In his budget proposal, Bradley depleted the reserves set aside for potential litigation losses and allocated the money for other services, Reaser pointed out.

City officials say that the current budgetary problems are the result of a number of factors, including a softening of the local economy, a 25% increase in health care costs for city employees and the unanticipated loss of a $32-million lawsuit filed against the city by retired firefighters and police officers. The city also has been hit by changes in worker compensation laws that will cost the city an unanticipated $13 million.

Under Bradley’s proposed budget, the police and fire departments would get large increases to hire new officers and paramedics, but most other departments got only modest increases under the proposal.

Councilman Zev Yaroslavsky, chairman of the council’s Budget and Finance Committee, said Monday that 5% to 6% across-the-board budget cuts in all city departments, including police and fire, may be necessary to balance the budget. He said he could not rule out the tax increases.

Reaser and Adrian Sanchez, an economist for Security Pacific Bank, spent the weekend analyzing the budget for Yaroslavsky’s committee, which began hearings on Bradley’s proposal Monday.

Sanchez forecast a somewhat lower deficit, but both said a sluggish local and regional economy as well as cuts in defense spending and slowed population growth are bringing Southern California’s boom years to an end.

Bradley’s proposed business and parking taxes will help the city budget in the short term, but may actually cause problems in the future, Reaser said.

She said that some businesses may decide against locating in Los Angeles or may decide to move out of the city to avoid the taxes.

“I’m very concerned about the tax increases for their impact on the longer-term growth of the city,” Reaser said. “Businesses have the ability to vote with their feet, and I think that they could take this as an opportunity to do so.”

The proposed parking tax could encounter “a very large political firestorm and may not end up being enacted (by the City Council),” she said.

Yaroslavsky said Monday that he agreed with Reaser’s assessment but was surprised that she had been so blunt.

Bradley’s budget takes “every conceivable source of revenue that we have socked away for a rainy day and the weatherman is still saying that rainy days are on the horizon,” Yaroslavsky said.

Yaroslavsky said he had heard no outcry from his constituents about the proposed new taxes, but added that he could not predict whether the council would enact them.

The proposed 10% parking tax--which would bring in $22.5 million--would affect virtually all who pay to park their cars in the city, including people who pay to park in lots and garages owned by their employers. The 10% hike in the business tax would be applied to the gross receipts of all those who operate businesses in the city.

Bradley also proposed a hike in fees for sanitation trucks that would bring in $9.8 million and would be added to Department of Water and Power bills. The fee, now $1.50 a month per household, would jump to $3. Apartment renters who do not have private garbage services would pay $2 a month instead of $1.

The overall budget picture could become even bleaker if voters on June 5 reject Proposition 111, which would raise the legal limit on the amount of money that the city is allowed to spend under state law, Bradley has said.

In the proposed budget, tree-trimming services would be reduced, fewer traffic signals installed, fewer library books purchased and a swimming program eliminated.

In addition, golfers may face higher greens fees on city courses and the cost of admission to the Los Angeles Zoo and Griffith Observatory could go up.

Budget hearings before the City Council committee continue today.