$70 Million City Reserve Suggested : Budget: L.A. should prepare for the possibility of continued economic hardship, an economist advises.

Los Angeles officials, entering a battle over the city’s leanest budget in memory, should prepare for the possibility of continued economic hardship by more than doubling the amount of money they put in reserve, an economist advised Wednesday.

Lynn Reaser, chief economist with First Interstate Bancorp, told a City Council committee that it would be wiser to keep a reserve of more than $70 million, rather than the $30 million proposed by Mayor Tom Bradley in his $3.8-billion budget.

“There is a great uncertainty in forecasting,” Reaser said. “So it’s critical to have that cushion as soon as possible.”

Reaser’s comments opened Budget and Finance Committee hearings that will continue today with testimony by Police Chief Daryl F. Gates and his designated replacement, Willie L. Williams. The two will assess the effect of a budget proposal that could lead to a nearly 700-officer drop in the police force over two years.

Reaser said the city has good reason to be cautious, given the inaccuracy of financial forecasts a year ago that projected an end to the recession. When that failed to occur, it left Los Angeles with about $125 million less than expected in tax revenue.

The shortfall has led to budget cuts, including a strict hiring freeze that by the end of this fiscal year is expected to leave the Police Department 358 officers short of its prior staffing of about 8,300.

During the current deliberations, Reaser agreed with city analysts in projecting a modest economic upturn in the fiscal year beginning July 1.

But the bank economist said the bigger reserve would help protect the city against continued hard times. If sales taxes turn down another 7%, as they did this year, instead of the projected 1% increase, the city would lose $22 million, she said.

Council members said they doubt that, facing severe cuts, they will be able to set aside a much larger reserve than the $30 million that has been the norm for several years.

Councilman Joel Wachs said he was worried that a larger reserve fund would simply be raided during the year by council members to support pet projects.

Added Councilman Zev Yaroslavsky: “I think we can consider increasing the reserve, but I don’t think we can get to her ($70 million) level.”

Yaroslavsky continued to press his campaign to get the Community Redevelopment Agency to help make up some of the city”s projected $183-million shortfall.