THE REGIONAL ECONOMY UNDER PRESSURE : Despite Budget Woes, L.A. Is Still-Emerging and Strong

By JAMES FLANIGAN

June 21, 1995 12 AM PT

In looking for solutions to Los Angeles County’s budget crisis, it’s essential that we harbor no illusions. County government and the services it provides are going to be downsized.

But neither should we lose heart because a strong and still-emerging metropolis has run into a cash crisis.

That’s right, strong and still-emerging. The underlying Los Angeles economy, with total output of $238 billion, is stronger than the financial condition of its government--as is the case in Orange County, which declared bankruptcy last fall.

But Los Angeles is larger and more significant than Orange County in national and even historic terms. “Los Angeles today is like New York at the turn of the century, a bubbling center of industry and world trade and the focus of immigration,” says Robert Poole, a director of the Reason Foundation. That’s a very hopeful assessment: New York at the turn of the century was on the verge of becoming the financial and cultural capital of the world.

However, Los Angeles is also like New York in that financial markets see it as large, inefficient and over-generous. The essential problem in both cities is to provide services for working people who don’t make enough to afford health insurance or other services.

Los Angeles County’s health system, the nation’s second largest, provides 1 million hospital days and 4 million out-patient visits to residents who are either uninsured or receiving Medi-Cal benefits. The health service has an annual budget of more than $4 billion, which is projected to run $655 million short in the coming fiscal year.

Thus health care for the indigent makes up more than half of the county’s $1.2-billion total budget deficit.

But keep in mind that indigent doesn’t mean homeless or shiftless. On the contrary. Such people are essential to the economy so often boasted about in Los Angeles (as it used to be boasted of in New York): the maker of garments and furniture, the economy of small manufacturers and the center of global trade.

Cities traditionally have provided health services for lower-paid workers and the poor and paid for them through combinations of federal, state and local funds--Washington and Sacramento pay 75% of Los Angeles County’s health bills. Poor families have gone to “the clinic” while better off families went to private physicians.

But lately state and federal governments have been pulling back from that bargain.

Sacramento has taken property tax revenues for its own purposes, reducing Los Angeles County’s use of its own property taxes from $2.1 billion in 1991 to $1.06 billion in the coming fiscal year. As County Supervisor Zev Yaroslavsky noted, if the state had not withheld $1 billion, there would be no county crisis.

The federal government is no better. Washington has been disputing $640 million in Medi-Cal administration payments to Los Angeles. The money stays in Washington but the people don’t stop coming to the clinics in Los Angeles.

Even earthquake relief funds to help repair County-USC Hospital have become mired in budget arguments and vetoes between House Speaker Newt Gingrich and President Clinton.

Despite all the rhetoric about returning power to local communities, it’s still the same old story: Political footballs get kicked in Washington, poor people go lame in Los Angeles.

“Years ago, cities paid the taxes that financed roads and suburbs and rural electrification,” recalls Harrison Goldin, who was controller of New York City when it filed for bankruptcy in 1975. “But now that demographics have changed, other political entities, with ill grace, have turned on the cities,” he says.

However, moaning about such things gets us nowhere, Goldin adds, “so we must reduce the structure of city government.”

In Los Angeles County, leaders differ only on the manner of downsizing. Sally Reed, the county’s chief administrative officer, proposes cutting 18,000 county jobs and closing County-USC to eliminate the $1.2-billion deficit.

County Board of Supervisors Chairwoman Gloria Molina would make economies by changing work patterns, introducing unpaid holidays and cutting an unspecified number of jobs. She proposed $200 million in immediate budget cuts Tuesday.

Others propose additional taxes on alcoholic drinks, even taxes on movies and ballgames. However, such taxes wouldn’t make a big contribution to solving the problem, and taxes can quickly become counterproductive.

Imagination and ingenuity can also offer solutions in this time of changing urban finance, says Poole, whose foundation counsels cities on privatization of public services. In Louisville, Ky., Poole notes, the city contracted with Humana Inc. for health services and a new hospital was built, with finances from a charitable health trust set up for that purpose.

In Ventura County, he goes on, public clinics were converted by local doctors to profit-making centers for treating the same Medi-Cal patients.

Undoubtedly, Los Angeles County will try fresh approaches also--but then it already has. A couple of years ago, it tried to reduce expenses by putting some health services on managed care. But the county was sued and the State Court of Appeals has recently ruled against it in a decision that, if upheld by the State Supreme Court, could throw the county budget a further $225 million into the red.

So change will often be difficult and frustrating. But an important aspect of this budget crisis, says David Abel, publisher of the Metro Investment Report newsletter, “is that it opens an important debate about the role of government.”

In the economy of cities, as in so many other ways, Los Angeles symbolizes a new era. But pioneering has never been easy.

* BUDGET WOES

Supervisors approve outlines of new budget but delay hard choices. A1

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County’s Vital Signs

Despite Los Angeles County’s budgetary woes, its economic base is generally rebounding from the recent recession.

TAXABLE RETAIL SALES

In billions of dollars: 1995: $52.0**

NON-RESIDENTIAL BUILDINGS

In billions of dollars: 1995: $2.1*

EMPLOYMENT

Non-agricultural, average annual number, in millions: 1995: 3.74*