NEWS ANALYSIS : Long Slump Poses New Political Risks in L.A. : Recession: A robust economy once eased the impact of rising taxes. Now, a fiscal crisis looms for city officials.

The longest recession since World War II and the sharpest dip in tax revenue since Proposition 13 have propelled Los Angeles into an era of political uncertainty, presenting risks and challenges for a generation of leaders with little recent experience handling a financial crisis.

For more than a decade, a booming economy covered rising government costs without placing a heavy burden on the average taxpayer. Many local businesses were assessed substantially higher fees, but, again, prosperity softened the impact.

It was also a palmy time for incumbent politicians. The mayor of Los Angeles, for example, was able to beef up the Police Department and make significant improvements to the local environment without sparking a voter revolt over higher taxes.

But many of the things that matter most to voters--public safety, transportation, the environment and decent neighborhoods--depend on a revenue stream that has been growing steadily weaker. Although there may be a few untapped sources of funds around, most officials say there is not enough to cover the city’s anticipated $150-million shortfall.

“The ‘80s paid for political agendas that the ‘90s won’t be able to afford as easily,” said a longtime financial consultant to the mayor’s office.

Tempted to raise taxes or fees, politicians must figure out how to do it without alienating voters or accelerating the flight of small businesses that began with the recession. The other option--deep cuts in municipal services--runs the risk of sparking labor unrest and aggravating social tensions that would further weaken the city’s image as a magnet for immigration and tourism.

With at least three council members considering entering the 1993 mayor’s race and Mayor Tom Bradley still officially undecided about running again, the city’s unprecedented financial problems are posing an unnerving political challenge.

“This is one of those crises that can make or break you,” said City Councilman Zev Yaroslavsky, who is seen as a possible candidate for mayor. “Those who face it in a statesmanlike manner will be remembered, as will those who blow it.”

Said City Councilman Michael Woo, who is among the possible mayoral candidates: “The voters will neither lower their expectations of what they want nor agree to pay more for them. It is a recipe for an ungovernable city.”

Initially, city officials responded to the recession by looking for ways to cut costs where the public would least notice it. A hiring freeze that eliminated 2,000 jobs--or about 5% of the city’s work force--had a marginal impact on public services, according to officials.

Now, however, 17 months into the recession, harsh measures are on the drawing board. Bradley has raised the possibility of spending cuts for all city departments, including police and fire, by up to 10%.

“This will be the most difficult budget in the 27 years I have been here,” said William McCarley, the city’s chief legislative analyst.

The coming year could find political candidates running in a city where a quarter of the libraries and inner city parks have been closed; where police, fire and ambulance response times are painfully slower; where graffiti is allowed to proliferate, and where literacy programs and other services for immigrants and the homeless are sharply curtailed.

“We’ll be like a body starting to die,” said Patrick Howard, director of street maintenance for the city.

The situation could be especially tough on incumbent officeholders if a decline in municipal services feeds the public’s growing hostility toward elected officials.

Last year, such ill will helped sweep the mayors of a dozen major cities around the country out of office. The political climate will become even stormier in Los Angeles if municipal cutbacks inflame tensions between rich and poor. There is nothing like a recession to accent the differences between the affluent and the impoverished when one group, for example, can afford to pay for its own security patrols, ambulance service and recreation programs and the other can’t.

“The reality is that when cutbacks are made, they are made across the board,” Woo said. “But the perception is very different. L. A. lacks the kind of generosity of spirit which calmly accepts service cuts. Certain neighborhoods would feel particularly shortchanged and that would add to their feelings of anger and frustration.”

Los Angeles has confronted larger deficits. After Proposition 13 put a ceiling on property taxes in 1978, the city faced a $237-million shortfall--about $90 million more than the worst estimates for the coming year. But at the time, the city had more options for replacing the lost revenue. Those options may be running out.

“It was then that we began to raise fees and charges,” said former deputy mayor Ray Remy, who heads the Los Angeles Area Chamber of Commerce. “We moved so aggressively on that front, that raising fees is no longer an option.”

Sewer service charges quadrupled for businesses during the 1980s. Fees assessed the 13,000 companies that store hazardous chemicals--ranging from bakeries to swimming pool suppliers--rose 600% to 1,200%, causing some bills to go from $300 to more than $3,000.

Such fees went a long way toward paying for the city’s most significant environmental accomplishment of the decade--the $600-million cleanup of the Santa Monica Bay and overhaul of the sewer system.

But the increase in fees has contributed to the growing migration of small businesses out of the city, a trend reflected in the city’s declining revenue base. The most recent projections show business tax revenues off $40 million, providing 13% less than what the current budget anticipated.

Tax revenues from virtually all sources are down.

“Until now, we’ve never had two years running when sales tax was down,” said Keith Comrie, the city’s chief administrative officer.

The downturn follows 10 years when the city was able to meet general fund obligations that grew by $1.1 billion, or more than 100%. Thanks to a robust economy, the city, among other things, was able to expand the size of the Police Department by about 20% and cope with the soaring cost of employee health insurance and workers’ compensation that rose by 160%--all without substantial tax increases.

Except for increasing taxes, the city has few places to go for additional revenue. The state is out of money and two Republican administrations have cut way back on aid to cities. Nevertheless, tax increases remain an unpopular option.

Recently, the council voted 8 to 7 to raise water rates by 3.6% for one year. But most city officials doubt that a council majority could be found to approve many more increases--not with a mayor’s election on the horizon and at least three members of the council--Woo, Yaroslavsky and Nate Holden--thinking about running.

“This could be one of those years when you see a lot of political posturing about government waste and inefficiency,” said a senior City Council aide who asked not to be named.

City Controller Rick Tuttle contends that a portion of the deficit could be made up through more efficient government practices.

Slipshod collection procedures at City Hall, he said, are depriving the city of up to $10 million a year. Tuttle also estimated that the city is losing another $12 million annually because many new building permits are issued to contractors who have not paid their business license taxes.

But most city officials say, at least in private, that any effective antidote to the deficit will require some pain.

Yaroslavsky, chairman of the council’s Budget and Finance Committee, has raised the specter of wage freezes and unpaid furloughs at City Hall. It is a proposal that does not sit well with all of his colleagues.

“The proposal has sent chills down the spine of city employees,” said Councilman Mark Ridley-Thomas. “To speak the language of layoffs during a recession is not a particularly desirable alternative.”

Ridley-Thomas, who sponsored the yearlong water rate increase and who will not face reelection until 1995, said he thought the council’s response to the deficit would involve “a mixture of elements,” possibly including tax increases and service reductions.

Many business leaders, including a few prospective mayoral candidates, say that a deficit reduction package will not have a lasting effect unless something is done to revive economic development.

Nick Patsaouras, a board member of the Southern California Rapid Transit District who has expressed interest in running for mayor, said City Hall could spark a massive building program and at the same time boost city revenues by relaxing height and density limitations on land around future Metro Rail stations.

And lawyer Richard Riordan, who also might run for mayor, said businesses might not fight a sales tax increase if the city agreed to ease enforcement of some of its environmental regulations.

“Don’t wipe the laws off the books,” Riordan said. “Just make compliance a little easier.”

But others question whether City Hall has the clout to make a critical difference in the life of the local economy.

“There is such a multitude of government agencies passing laws that affect the business climate, the mayor or the City Council can’t do a whole lot more than make a plea for cooperation,” said a City hall consultant who asked to remain anonymous.

“These days the mayor of Los Angeles is like an ambassador of a rather poor country, having to rely on diplomacy rather than power to get the job done,” the consultant said.

The limitations of the mayor’s job are not lost on Woo as he talked recently about his own potential candidacy:

“The point is to pick your targets carefully and show the public that it is possible to have some results. You have to be careful not to promise too much.”