L.A. Can Squeeze $1 Billion in Cuts, Income, Panel Says : Finance: Business leaders assembled by Mayor Riordan suggest reducing some pension contributions, other changes over five years. Unions voice objections.

Painting a broad portrait of waste and inefficiency in city government, a committee of business leaders assembled by Los Angeles Mayor Richard Riordan concluded Thursday that $1 billion in new revenues and cost savings can be squeezed from city operations over the next five years to fund more police and other programs.

Rejecting predictions by some that Riordan’s ambitious police buildup will require tax increases, the panel offered a sweeping menu of more than 40 recommendations--some of them highly controversial--to finance a 40% expansion of the Los Angeles Police Department, as well as repair badly damaged roads and buildings, replace dilapidated city vehicles and purchase new computer technologies.

“There are real opportunities to save hundreds of millions of dollars each year,” committee member Dick Poladian, managing partner of Arthur Andersen & Co., told a City Hall news conference. “Los Angeles has the money to turn this city around.”

The report, which drew a mixture of praise, skepticism and swift criticism from lawmakers, neighborhood groups and powerful employees unions, marks a jumping-off point for Republican businessman Riordan’s effort to bring corporate management strategies to bear on the city’s troubled fiscal affairs. The recommendations will be reviewed and refined by the mayor’s office and forwarded to the City Council for possible enactment.

Investment banker Michael Tennenbaum, who chaired the four-month study, said in a statement given to reporters that “hundreds of businesses are abandoning Los Angeles because key city services have deteriorated after years of neglect caused by grossly inefficient financial practices and excessive costs.”

He and other committee members urged residents to rally behind the panel’s recommendations, some of which have run into strong political opposition and legal obstacles before.

Councilman Zev Yaroslavsky, the influential chairman of the city budget committee, said the study was a useful “talking paper” that will help frame a re-examination of City Hall financial practices. But he noted that many of the recommendations are not fully detailed, and it remains to be seen how viable some of the proposals will be.

“They’ve identified a pot of gold at the end of the rainbow, but they haven’t exactly told us how to get there,” Yaroslavsky said. “They’re going to leave that to us mortal politicians.”

Among the key revenue-generating elements of the strategy:

* Reduce by tens of millions of dollars in city contributions to some employee pension funds.

* Immediately seek bids for a long-term private lease of Los Angeles International Airport.

* Push for federal and state law changes to shift tens of millions of dollars in airport and harbor revenues to the general operating budget.

* Extend a hiring freeze for five years, reducing the 44,000-employee work force by 5,000.

* Trim Department of Water and Power operating expenses to levels more comparable to investor-owned utilities.

* Streamline management and contract out services for up to 4% savings in all departments. Launch a trash collection pilot program, similar to a model used in Phoenix. City rubbish bureau would be prodded to increase efficiency and worker productivity by having to compete with private firms for parts of the service.

* Step up and modernize efforts to collect unpaid parking tickets, paramedic ambulance bills and business license fees.

The report’s findings are an “important blueprint to make city government function more efficiently and effectively,” Riordan said in a statement issued by his office.

“We need to use the skills, tools and management of the 1990s, not the 1950s,” he said. “This report points us in that direction.” After a review of the report, aides said, the mayor will offer specific proposals to begin implementing the recommendations, possibly when he makes a State of the City address to the City Council on March 7.

The types of proposals included in the Tennenbaum report reflect a far larger, often controversial struggle to balance budgets and find new efficiencies in cities across the nation, particularly as more fiscally conservative mayors take office. Newly elected New York Mayor Rudolph Guiliani, faced with his own budget woes, has proposed similar measures of private contracting of services and maximizing income from city assets, such as a city-owned radio station.

“They are following the same overall practice you’re finding in all big cities in the country and private corporations--finding better ways to do things with less resources and big return,” said City Administrative Officer Keith Comrie, the city’s top budget expert.

But what may seem like simple cost-cutting solutions from a corporate perspective often become tangled in arcane laws, Civil Service rules and political considerations in the complex decision-making atmosphere of local government.

Tennenbaum, for example, said that tens of millions of dollars in reductions in annual city pension fund contributions can be made “at the stroke of a pen,” without jeopardizing benefits to employees.

But powerful unions have strongly disputed the underlying assertion that the accounts are substantially over-funded. A spokesman for the DWP employees union, which went on strike last year to win higher wages, said they would file a lawsuit in an effort to halt reduction in pension contributions.

Brian D’Arcy, business manager of the International Brotherhood of Electrical Workers Local 18, said the DWP pension fund has been managed conservatively because it was underfunded in the past.

“You don’t go from conservative to radical and risk people’s retirements,” D’Arcy said. “It’s mortgaging the future in order to accomplish a political goal now.”

Likewise, federal and state restrictions, if not relaxed, could preclude much of the anticipated $80 million to $170 million in revenue proposed to be drawn form the city’s airport and harbor.

Yaroslavsky noted the projected $237 million a year that could be saved in the fifth year of the proposed hiring freeze would, as a practical matter, amount to a radical reduction in workers in departments such as parks and libraries because major front-line departments, such as police and fire, would not be cut back.

Yaroslavsky also questioned whether the projected $10-million to $30-million savings from contracting out trash collection services was worth the potential risks of disrupting service.

Despite the criticisms, some homeowner group representatives said the report may strike a responsive chord with taxpayers hungry for more police protection and generally convinced that City Hall wastes large sums of money.

“I think the question is whether the public prevails or public employee unions prevail,” said Richard Close, head of the Sherman Oaks Homeowners Assn. Close said there is “no question (Riordan) he has ability to rally the public based on (getting) more cops on street.”

Bill Christopher, founder of PLAN/LA, a citywide consortium of neighborhood and community groups, added: “We all are aware of the problems out there in terms of deferred maintenance . . . the parks, the libraries, streets don’t get swept, sidewalks don’t get maintained. They may hit some nerves out there.”

That was clearly the committee’s intent.

“We can stem the tide of neglect,” said panel member Eli Broad, a prominent builder and investment specialist.

He acknowledged that the proposals were open to vigorous debate, particularly those directly affecting public employee jobs and benefits.

But he said avoiding more taxes and beginning to invest heavily again in road repairs, building upkeep and higher efficiency in paperwork-handling technology is essential to attract new business investment. The city for too long has balanced its budget by deferring tough decisions and necessary improvements, Broad said.

“It’s now high noon,” he said. “Tomorrow has arrived. Los Angeles is truly in financial jeopardy.”

The committee report takes only a long-term view and does not offer specific recommendations for closing a projected $197-million deficit in the 1994-95 spending plan now being worked up by the mayor’s office. Nonetheless, Tennenbaum said the committee believes hundreds of millions of dollars could be realized quickly if the mayor and city council move ahead on pension fund changes and leasing Los Angeles airport.

The committee members, including corporate executives, lawyers and entrepreneurs, said they would monitor the response to the proposals and lobby for the recommendations.

Revamping L.A.’s Finances

A task force of business leaders appointed by Mayor Richard Riordan has concluded that huge potential savings and new revenues can be garnered from city operations for police and other needs without a tax increase. Here are the proposed savings in fiscal year 1998-99, and how those funds should be spent.

WHERE THE MONEY WOULD COME FROM

FUNDING SOURCE SAVINGS/NEW REVENUE (IN MILLIONS) Projected normal growth $373 Better revenue collections $75 Leasing LAX $60-$130 Port of Los Angeles $20-$40 DWP management improvement $118 Reorganization, competitive contracts $48-$96 Pension--DWP, city retirement $70 Attrition (hiring freeze) $237 Selling surplus real estate $3 Renewing expired leases $1 Cash management $6.5 Accounts receivable $3 Total About $1 billion

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HOW THE MONEY WOULD BE SPENT

FUNDING USE IN MILLIONS Projected shortfall $131.6 Expected cost increases $116.1 Police expansion $364 Information technology $13.5 Municipal facilities $28.3 Replacing general services fleet $49 Replacing Fire Department fleet $13.3 Street maintenance $80 Economic development $5.7 Reserve fund $47.2 Total $848.7

Source: Mayor’s Special Advisory Committee on Fiscal Administration