City Council Orders Audit of Treasurer After Error : Budget: Investment income was overestimated by $21 million. Shortfall could lead to more cuts in police and fire services.

A day after learning that the city’s deficit will grow by $21 million because of an accounting error by the treasurer’s office, the Los Angeles City Council on Wednesday ordered an audit of the treasurer’s bookkeeping procedures.

The investigation will focus on the question of how the treasurer grossly overestimated income from the city’s $2-billion investment portfolio--predicting $39.4 million in income this fiscal year, when the city will net just $18 million.

City Councilman Zev Yaroslavsky, who proposed the audit, said that the Budget and Finance Committee he chairs will conduct a wider review of the treasurer’s office and the performance of Treasurer J. Paul Brownridge.

The loss in funding, which drives the city’s budget deficit to $92 million, could lead to a further decrease in the size of the police and fire forces that have already been subject to a hiring freeze.

Yaroslavsky said he was “not prepared yet” to call for Brownridge to be fired. But the lawmaker called the bungled estimate of income from banks, savings and loans, and bonds “gross incompetence and negligence.”

“If (Brownridge) can’t do what he’s paid to do, then maybe he doesn’t belong here,” Yaroslavsky added.

Mayor Tom Bradley, who appointed Brownridge and has sole power to fire him, said through a spokeswoman that he is more interested in resolving the deepening budget crisis than in assessing blame.

Brownridge was visiting relatives in Mississippi and could not be reached for comment. His absence further agitated city officials, who said he should not have left for the Thanksgiving holiday without explaining the $21-million shortfall.

The treasurer was unable to get a flight to Los Angeles on Wednesday but was expected to return by Friday, said Assistant Treasurer Gerald Capodieci.

Capodieci said the department welcomes the audit and called it “an excellent idea.”

“It could be helpful to us,” Capodieci said. “It would be an important review of our needs and problems.”

The assistant treasurer said in an interview that a shortage of employees--a decline from 57 to 44 workers in recent years because of a city hiring freeze--had led to the miscalculation.

For “five months or so” the treasurer’s office did not fill the position responsible for tracking the city’s investment income, Capodieci said. He said that it was Brownridge’s decision to “leave that function unattended.”

Brownridge reported in his memorandum last week to City Controller Rick Tuttle that investment income had declined because of lower interest rates and a $100-million drop in the amount of money the city had available for investment.

About $8.1 million of the overestimate was made in the 1991-92 fiscal year and another $13.3 million this year, Brownridge reported.

The shortfall became apparent in September, but the treasurer’s office had not determined its magnitude until last week, Capodieci said.

Yaroslavsky said he did not “buy the explanation that staffing cuts caused this,” saying that accounting for the city’s income should have been the treasurer’s top priority.

Capodieci warned Wednesday that the treasurer’s office has fallen behind in other work because of the hiring freeze--including the payment of interest to bondholders and deferred compensation to city employees.

The $21-million error, meanwhile, led to increased concern about how the city will pay for services.

A $71-million deficit was already looming because of state budget cuts and declines in tax receipts--even after taking into account one-time transfers and other bookkeeping maneuvers.

City Controller Tuttle asked city department heads Tuesday to curtail all but the most necessary purchases and contracts.

Yaroslavsky has called for an increase in business taxes and layoffs of planners and building inspectors to restore the Police Department from 7,800 officers to its previously authorized level of 7,900.

And City Councilwoman Ruth Galanter proposed a new fee Wednesday for inspection of Building and Safety complaints in order to save 61 employees in that department from layoffs.

Those and other proposals will be on the table Dec. 4 when the City Council takes up the budget shortfall