County Chief Delivers Dire Budget Proposal : Finance: Reed’s plan calls for deep cuts, including elimination of 18,255 jobs. She assails past borrowing.

In a stark budget proposal to be released Monday, Los Angeles County’s top administrator warns that the nation’s largest county government has used a series of one-time financial moves and extensive borrowing to mask the fact that it has been spending far more than it receives.

If the practice continues, Chief Administrative Officer Sally Reed bluntly states, the county is marching down the same road to fiscal insolvency taken by New York City two decades ago and most recently by Orange County.

To avert a similar fate, Reed’s financial blueprint details a wholesale restructuring of county government, including deep cuts in a vast array of services, especially health, and the elimination of 18,255 jobs--one in five of the county’s 88,810 employees.

“The accumulation of one-time budget actions . . . to finance ongoing operations has masked a structural budget deficit in county finances,” Reed wrote in a lengthy letter to the Board of Supervisors delivered late Friday along with her voluminous budget proposal.

“The structural budget deficit has grown so large that any attempt to solve it with anything less than permanent adjustments is extremely risky,” Reed said in the letter, a copy of which was obtained by The Times. “This is particularly true in light of the Orange County bankruptcy.”

As officials await word on what rating has been assigned to the county’s plan to borrow $1.3 billion this week to pay short-term bills, Reed said Wall Street rating agencies and the investment community are concerned with “a county budget that does not address the imbalance between revenues and expenditures in a meaningful way.”

Some fear a downgrade in the county’s credit rating, and believe that Wall Street will require additional insurance for the notes--in the form of a letter of credit--and may demand that supervisors adopt an interim budget Tuesday. (The deadline for adoption of such a budget is July 1, the beginning of the fiscal year.) The interim spending plan would be dramatically revised by the supervisors after extensive public hearings in July.

Reed said the county, facing a deficit of $1.2 billion, must reduce spending to match its income.

“If we are able to do so, we will retain the flexibility and authority to manage our services. If we are unable to realistically bring our costs into line, we will be forced into a desperate search for liquidity that has characterized unstable jurisdictions like New York City . . . and most recently Orange County.”

Her plan to cut virtually all of county government by 20%, with far deeper cuts in health services, is certain to spark strong protests from county employee unions and those most dependent on county services.

If adopted by the Board of Supervisors, the proposed $11.1-billion budget would result in closure of more than a dozen county libraries, 30 local or regional parks, and sharp staff cutbacks. The job losses would be greatest in the largest departments: health and social services, probation, sheriff, children and family services, assessor, public defender, Superior and Municipal courts, district attorney, library, and parks and recreation.

Gloria Molina, chairwoman of the Board of Supervisors, reacted strongly to the proposed reductions even before the ink was dry on Reed’s budget plan.

“Before we run off and cut people irresponsibly, we should start weighing all the options,” said Molina, whose staff was working through the weekend in a search for alternatives to Reed’s plan.

Molina is particularly incensed at Reed’s proposal to close one of the nation’s largest hospitals, County-USC Medical Center--a move she said would destroy the county’s fragile network of hospital trauma centers, particularly from Downtown Los Angeles east to the San Bernardino County line. “If you need that trauma system, it will not be there to respond to you or your children,” she said. “There will be no place to go.”

Service Employees International Union, Local 660--which represents approximately 43,000 county workers, about half the county’s work force--plans a demonstration Monday at the hospital.

“This kind of cutting is going to drive business away, it’s going to drive people away,” said Steve P. Weingarten, spokesman for the local.

Molina, a former assemblywoman, is looking for help from Sacramento to deal with the county’s crisis. She is pushing for legislation to give the county authority to impose a 25-cent tax on every alcoholic drink sold within its borders. But she has yet to find a legislator to sponsor the tax.

While supporting the idea, Reed, a tough administrator with a reputation for bringing a fiscally conservative approach to government, refused to include proceeds from such a tax or any other uncertain or speculative revenue sources in constructing her budget proposal.

But Molina and Supervisor Yvonne Brathwaite Burke are pressing for consideration of stop-gap borrowing to raise enough money to avoid deep, painful cuts.

“The reality of how you run a business is if your cash flow is low, you borrow,” Burke said last week. “I have no problem looking at one-time revenues before I see this county go bankrupt.”

Reed, like the newest county supervisor, Zev Yaroslavsky, is sharply critical of the county’s penchant for borrowing from the future to pay for today’s programs.

“It has . . . been suggested that we use a variety of techniques to pledge future revenues to borrow funds for ongoing operating costs,” Reed wrote. “These techniques further mortgage the county’s future in order to delay the inevitable reconciliation between our spending and our means.

“The techniques are no solution. They are purely and simply a method of delay financed by further endangering [the county’s] future fiscal viability.”

Reed said the “precarious nature of our budget” is dramatically illustrated by the fact that the county’s general fund, which supports most programs, has had to borrow increasing amounts from county trust funds to cover cash deficits during the last six months.

She said deferring budget cuts in hopes of increased funding from the federal or state governments is unwise and unrealistic: “Reductions rather than bailouts must be expected.” With the largest number of legal and illegal immigrants and a disproportionately large number of poor people, the county is particularly vulnerable to any changes in state and federal support for health and welfare programs, she said.

Reed said the county’s credibility is damaged in Sacramento and Washington when it comes up with budget “miracles” that merely mask borrowing.

Molina readily acknowledges that the county has a habit of crying wolf at budget time.

“What happens in crying wolf is eventually the wolf comes, and no one pays attention,” she said. “I think the wolf is here.”

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Total County Requirements: $11.1 Billion Social Services: 36% Justice: 21% Special Districts Funds: 20% Health: 16% Other: 7% Source: Proposed budget of L.A. County CAO Sally Reed