Riordan Digging Deep to Craft New Budget Proposal : Spending: Mayor omits controversial initiatives. He will call for selling surpluses, consolidating social services.

Nine months after coming to office, Los Angeles Mayor Richard Riordan has delved into every nook of city government to come up with often novel austerity measures, in an attempt to balance a $3.8-billion budget, pay for more police officers and keep a lid on taxes.

His long-anticipated spending plan is as striking for what it omits as for what it includes.

Gone, for now, are Riordan’s most ideologically and emotionally charged initiatives--such as the lease or sale of Los Angeles International Airport, massive reductions in city pension contributions and the hiring of private companies to collect trash, City Hall sources said.

As alternatives, Riordan will propose less dramatic tactics to ferret out about $300 million in cuts and new revenues when he presents his budget to the City Council on April 20, according to city budget analysts, department heads, mayoral advisers and legislative aides interviewed by The Times.

He wants to sell up to 2 million barrels of surplus Department of Water and Power fuel oil. He plans to consolidate seven social service programs into a single new Community Services Department. In an accounting maneuver, he would have the financially flush Airport and Harbor departments subsidize more city services. And he is likely to push to expand the city’s hiring of private “bounty hunters” to collect unpaid business taxes.

By cobbling together such innovations and reducing most city programs slightly, Riordan apparently will be able to plug a $200-million deficit and move ahead with his central pledge--to beef up the Police Department.

Two dozen budget analysts are rushing to make the mayor’s numbers balance. Half a dozen clerks have been working up to 14 hours a day, seven days a week to pump the information into computers.

The result will be a five-volume, 1,500-page tome that Riordan will present in a formal address to the City Council. The lawmakers will hold a series of hearings before passing judgment on the proposal to meet a June 1 City Charter deadline.

The Riordan Administration has declined to tip its hand publicly, but those familiar with the mayor’s plan say it will have political legs because it does not ask the city’s 3.5 million residents to pay higher taxes or put up with substantial reductions in basic services.

Riordan is even expected to propose a tax cut to show his support for business people--discontinuing a 7 1/2% business license surcharge that can cost firms thousands of dollars a year. The levy had been due to expire June 30 but was widely expected to be extended because of the city’s flagging tax revenues.

“There is so much money buried in different places in this city,” one Riordan adviser said. “No one has had the incentive to dig before. But by pushing on the department heads a little bit, there are results.”

There are also potential pitfalls. The plan rests on two possibly shaky assumptions--that the economy is about to rise out of a three-year recession and that the state government will continue its current level of financial support. If either premise collapses, more stringent actions may be required.

City Council members, meanwhile, will raise questions about the use of onetime money to keep the city functioning. They have said that they would prefer permanent sources of revenue to gambits such as the DWP oil and inventory sales.

Big business and city unions will also be represented in the opposition camp.

Airline and shipping executives, for example, have said that a plan to shift money to the city treasury and away from the airport and the Port of Los Angeles will endanger the profitability of two of the city’s most successful concerns. Department of Water and Power workers will argue that any DWP savings should be returned to utility customers, not dumped into the city treasury. Other city workers may object to a proposed reduction in contributions to their pension system.

But Riordan’s supporters said they believe those objections will pale in comparison to the public’s appreciation that the mayor has found the $90 million he needs to move forward with the first full year of his “Project Safety Los Angeles.”

The police plan is designed to increase the LAPD from 7,600 officers to 10,455 over five years and to put hundreds more police on the street immediately by increasing police overtime and moving uniformed officers out of desk jobs. The force would increase by 450 officers in the coming fiscal year.

The Riordan adviser put the choices in the budget in simple terms: “You can have your pet projects or you can have more police.”

Riordan’s allies reject suggestions that many of his budget proposals are gimmicks that do not solve the city government’s long-standing cash shortage. They cite, for example, a report from a panel of corporate leaders that said the city can save $118 million a year by operating the DWP more efficiently.

But the mayor’s application of the corporate efficiency grinder to municipal affairs is expected to begin more modestly. To get a head start on the reorganization plans, the mayor has already:

* Asked for the resignations, effective July 1, of the five members of the board that oversees the Department of Public Works. Riordan believes that a single executive can better manage sewers, streets and trash collection. The expected $1.5-million saving is relatively paltry, but the action fulfills a campaign promise and is symbolically important as the one of the few contractions of the city’s management in recent memory, a mayoral aide said.

* Presented council members with his proposal to consolidate seven social service programs into a new Community Services Department. Riordan aides believe many jobs can be cut and about $3 million a year could be saved by eliminating separate offices for the Community Development Department, the Department of Aging, the Social Service Department, the Commission on the Status of Women, the Human Relations Commission, the AIDS coordinator and the child-care coordinator.

* Embraced a plan, conceived by the City Council, to combine economic development programs now diffused among several departments. The new Economic Development Department would combine the Community Redevelopment Agency, the Housing Department and business functions of the Community Development Department and the mayor’s office in an effort to make it easier for business people to find assistance at City Hall. Riordan’s deputies have suggested that the entire operation might later be turned into a private, nonprofit corporation.

Riordan’s budget is expected to stop short of a more dramatic reconfiguration of city services--one that would have put operations ranging from trash collection to data processing out to bid with private contractors. Although those ideas are expected to resurface, they have been hampered in the short run by adamant employee opposition.

One administration official concedes: “The simplistic answer of turning it all over to the private sector is not right. But there are areas where it would be right, and it’s a matter of finding them and building a political consensus.”

Without such private sector intervention, Riordan’s first budget will bank heavily on three semi-independent departments that have remained financially robust during the recession--the Department of Water and Power, the Airport Department and the Harbor Department. Taking money from those departments, or shifting charges there, frees funds in the anemic general fund, from which police salaries and most other city expenses are paid.

The burden will fall most heavily on the DWP, whose administrators have told the mayor’s office that they can increase their anticipated contribution to the general fund this coming fiscal year by $75 million.

Most of the increase would come through a massive sale of assets, beginning with the fuel oil. Stored at several electric plants to maintain power in emergencies, the 2.5 million barrels of oil are no longer needed because the utility’s power plants have emergency supplies of cleaner natural gas. The sale of 2 million barrels could earn the city as much as $30 million, department officials said.

In addition, there is enough surplus pipe, cable, insulation and other materials in DWP warehouses to bring in up to $40 million more if sold to other utilities or contractors, said Ken Miyoshi, general manager of the city utility. Excess land sales might produce additional millions.

The oil and supply sales have never been tried and DWP officials said they are concerned that they might not be as lucrative as they hope. But they are relieved that Riordan has temporarily put on hold a proposal to reduce contributions to the DWP pension system.

“The next drop they get from us is blood. We can’t give anymore,” said Miyoshi, who added that he feels so strongly that he would quit if the mayor’s office continues pushing the pension reduction plan.

The use of Airport Department and Harbor Department money will also be contested. Shipping and airline executives could go to court in an attempt to prevent a diversion to the city treasury--citing state and federal laws that restrict the use of airport and harbor fees to improvements at the facilities.

But the mayor’s office says the city has too narrowly defined the expenses that it incurs to support operations at the airport and the Port of Los Angeles. Riordan aides say, for example, that the airport treasury should pay to maintain the Police Department’s substation at LAX. Maintenance of streets in the harbor, by the same reasoning, might be charged to the Harbor Department.

Using this tactic, Riordan may try to charge as much as $10 million to the airport and $40 million to the harbor, several sources said.

Most of the mayor’s other anticipated initiatives take on less powerful opponents than the airlines and shippers, but they are not without controversy:

* The mayor would like to improve collections of business taxes and has expressed interest in expanding a pilot program to send private firms after tax scofflaws. A report by City Controller Rick Tuttle suggests that $60 million can be recovered by cross-checking state income tax records. The results of increased collection efforts, however, are untested.

* About $21 million will flow into the city treasury if, as expected, Riordan extends a 2-year-old increase in a fee paid by residents to maintain garbage trucks. The increase amounts to $36 a year for homeowners. The mayor will argue that the extension of the increase does not violate his pledge against new taxes.

* Nearly $20 million more can be had if the city reduces its annual contribution to a pension fund for half of its 44,000 employees. The reduction is supported by Riordan and is smaller than previously discussed for other city retirement funds. The move is possible without threatening retirement benefits because salaries on which pensions are based have been increasing less rapidly than previously calculated, said Oscar Peters, manager of the $4-billion City Employee Retirement System. The proposal has already won preliminary approval from an independent actuary and the board that administers the City Employee Retirement System.

* A hiring freeze that has been in place for all but the Police and Fire departments for three years has already reduced the city work force by 3,000, to 44,000. Riordan is expected to continue to reduce payroll through attrition, cutting up to 500 workers and saving as much as $19 million. Riordan has hinted that libraries and parks, which have already had to reduce hours, might be excluded from the staff reductions.

* Finally, Riordan is expected to tap two sources that the city has used for the last two years to balance the budget--the Community Redevelopment Agency and a parking meter revenue fund. He would like to get at least $25 million from the CRA and $20 million from the parking meter fund.

But social service and housing agencies are expected to object to the CRA diversion, saying it will leave less money for programs for the needy. And the parking fund has its constituency, too--the small-business people who agreed to have parking meters in their neighborhoods only because they were told the money would be used to build a parking lot one day.