Deficits May Force Cuts in Services : Government: City faces a $57-million shortfall. County transit agency expects a $133-million revenue gap.

With the local economy plummeting and government revenues tumbling, the city of Los Angeles and county transit agencies are facing unexpected budget deficits totaling almost $200 million and the possibility of service cuts, officials reported Tuesday.

A recessionary slump in retail sales has cut deeply into sales tax revenues that are major sources of funds for the city and the Los Angeles County Transportation Commission.

Just over four months into the new fiscal year, city officials were stunned to learn Tuesday that they are now facing a projected $57.1-million deficit and may have to begin cutting essential city services, officials said.

“This is exceedingly bad news for the city,” said Councilman Zev Yaroslavsky, chairman of the budget and finance committee. “It will require the most far-reaching belt-tightening in city history” and could lead to a freeze on Police Department hiring, he said.

The LACTC expects a $133-million shortfall this year for the county’s various mass transit programs, which are funded in large part by a half-cent sales-tax surcharge.

Transit officials said $73 million of the projected shortfall had been targeted for operating subsidies for Southern California Rapid Transit District buses and municipal lines around the county.

Officials say the shortage could lead to fare increases or service cuts at the RTD, which already is facing a $12-million deficit.

The projections appear to plunge the city back into the fiscal crisis it had escaped earlier this year.

Officials cut more than $100 million in expenses and added more than $60 million in new taxes to balance the budget. Since June, more than 2,000 positions have been eliminated in a partial hiring freeze.

“We were able to do that without affecting services to the public,” said Yaroslavsky. “We are now going to cross that line.”

City Administrative Officer Keith Comrie, who prepared the budget update, said the city must immediately impose a “hard hiring freeze” and extend it to the Police Department, which had been exempt.

Comrie recommended that the mayor and City Council draw down virtually all funds in the city’s $16.5-million reserve account, tap more than $18 million earmarked for capital improvements and reinstate the controversial program of “rolling brownouts” in which the Fire Department reduces staffing in stations around the city on a revolving basis.

Comrie also recommended that the council and mayor borrow funds from special accounts, such as the Special Parking Revenue Account, which is supposed to used only for certain traffic programs.

“The implications for next year are even more severe,” said Yaroslavsky.

He and Comrie said they hope to avoid layoffs. “If there’s no other way to balance the budget, it’s something we would have to consider,” said Yaroslavsky. “But it would be a last resort.”

Both Comrie and Yaroslavsky stopped short of calling for new taxes.

Still, the councilman warned that city employees should prepare themselves for some tough negotiations when their contract expires in June. Last July 1, all city employees received a 5% wage increase in the second year of a two-year contract.

Mayor Tom Bradley was briefed by Comrie early Tuesday, but an aide said Bradley “will withhold comment at this time.”

Leading to the projected deficit was $49.1-million drop in revenues and $8 million jump in expected liability claims. The city has already spent $13.5 million to settle lawsuits, mostly against the Police Department for excessive force and other misconduct. The balance of the reserves set aside for such payments will be exhausted by March.

Among the biggest decreases in income are a projected $18-million drop in business taxes, $15 million in sales taxes, $6 million in property transfer taxes and a $4 million in the hotel tax.

“The recession, at least as it applies to Southern California, is now in its 17th month,” wrote Comrie in his report. “Although Los Angeles County has less than one-third of the statewide employment, it suffered one-half of the job loss for the year.”

California has lost 280,000 jobs since the recession began, while Los Angeles has lost 144,000 jobs, he said.

Les Porter, deputy executive director of the Los Angeles County Transportation Commission, said $113 million of his agency’s shortfall is the direct result of a 7.3% drop in sales in the county this year. The remaining $20 million results from a recent court ruling requiring rebates to aerospace companies incorrectly taxed for overhead costs on defense contracts.

The new projections would leave the RTD, the county’s largest transit agency, with a deficit as high as $42 million this year.

Porter told a group of bond traders at a meeting Tuesday in Los Angeles that “it’s clearly going to be a little harder for the RTD to fill that gap” than other bus operators. He added, however, that there is a “strong commitment” to maintain current levels of RTD service.

News of the transit funding shortfall leaked out at that bond-traders meeting, where the LACTC, which collects and dispenses most of the money for transit in the county, was trying to entice investors to let the commission refinance $471 million of its debt.

Porter said the refinancing would save the LACTC $24 million in interest this year, which would be applied to making up the shortfall. Other economies include a hiring freeze, leaner administrative budgets and postponement of some construction projects, including electrification of bus lines and development of a countywide electronic fare system.

Even with all of these measures, Porter said the LACTC still will have to cut $38 million from its operating subsidies to local bus operators, including the $30-million cut for the RTD.