State Report Says L.A. County Fiscal Crisis Is Massive : Budget: Legislative analyst’s study was requested by lawmakers skeptical of problem’s dimensions. It confirms major cutbacks probably will be necessary.

A much-awaited state report on Los Angeles County’s financial situation confirmed Wednesday that the county’s fiscal crisis is massive, and probably will require unprecedented layoffs and closures of health clinics, parks, libraries--and perhaps even County-USC Medical Center.

The report from the legislative analyst’s office was requested by state lawmakers who have been openly skeptical of the true nature of the county’s fiscal crisis, citing years of what they said was exaggeration by county officials.

But in 14 pages of detail, the report by the independent and nonpartisan state agency confirmed dire warnings issued last month by Chief Administrative Officer Sally Reed when she released a budget with $1.2 billion in proposed cuts to close the county’s unprecedented deficit.

“There’s no doubt that the problem is significant, and it’s a structural problem,” Legislative Analyst Elizabeth G. Hill said in an interview. “It represents a massive budget problem.”

The state report--which comes at a time when county officials are here lobbying the state for help--says the county’s proposed cuts “would clearly have a major impact on health care services” in the nation’s second-largest public health care system and would dramatically cut services in areas such as the Sheriff’s and Probation departments and the district attorney’s office.

Many factors outside the county’s control were partly at fault for the huge budget gap, including recession-related decreases in tax revenue and decisions by state and federal lawmakers to force the county to pay a larger share of the health and welfare load, the report said. But it also laid blame on decisions by the county, saying the supervisors in the last few years spent more money than they had coming in, gave huge raises to county employees and relied on stopgap funding measures that only put off problems until later.

“Some of these actions aggravate the budget problem,” said the report. It cited the county’s issuance of bonds to cover operating expenses--mortgaging Marina del Rey in the process--as an example of borrowing that helped cause the deficit. “It also depleted reserves, deferred obligations to its workers’ compensation fund and deferred certain employee costs to balance recent budgets.”

Hill and her staff also suggested that the county could be liable for $300 million in one-time costs associated with downsizing and with laying off employees. Although Reed acknowledged that possibility in her budget proposal, it was not included in the overall plan to balance the budget because the county’s chief fiscal officer anticipated that the federal funds would come through, and they may not, the analysts said.

“Their solutions may be $300 million short,” Hill said, “depending on when they put those solutions in place.”

The report by the well-respected analyst is sure to add another important voice to the growing chorus of calls for an immediate and wholesale restructuring of the nation’s largest county government, state lawmakers and county supervisors said.

“The current budget shortfall is reflective of a major structural imbalance between program costs and revenues,” the report said. “Based on the current economic outlook for the state and county, it is extremely unlikely that revenue growth from existing sources will be sufficient to cover the gap in the foreseeable future.”

What that means, many state and county lawmakers said Wednesday, is that the long-dreaded cuts in jobs and services that Reed proposed in her budget are all but inevitable in the very near future.

“The problem is real, it is substantial, and we need to deal with it,” said Reed, who was widely accused of exaggerating the county’s fiscal problems, initially even by Board of Supervisors Chairwoman Gloria Molina. “I think it is important in finally putting to rest the county’s credibility problems.”

State Sen. Tom Hayden (D-Santa Monica), one of several “skeptical” state lawmakers who ordered the report, agreed.

“The way the report is seen around here,” he said, “is that the chickens have come home to roost after several years of Band-Aid fixes” by the county.

Hayden said the independent confirmation of the “billion-dollar-plus hole” will add even more urgency to efforts by the Los Angeles-area lawmakers in Sacramento to get help for the county, either through financial aid or the freedom for county officials to impose countywide taxes to raise revenue themselves.

So concerned are state and local lawmakers that they are drafting an emergency letter to President Clinton, asking him to intervene and create a task force to look at ways to avert disastrous cuts and layoffs if the budget cuts go through, Hayden said. Already, the county has cut $257 million in jobs and services, but another $1 billion in cuts must be made to balance the budget at $11.1 billion.

Meanwhile, state lawmakers eager to balance their budget are considering forcing the county to pay even more--including a potential $123 million for welfare-related services and as much as $30 million for juvenile justice programs--county officials said Wednesday.

“We now have an obligation and a responsibility to respond, and very quickly,” said Democratic Sen. Richard G. Polanco, whose Downtown Los Angeles district includes County-USC Medical Center, a major health care resource for the poor, which Reed has proposed eliminating.

County officials said they planned to use the report to press state lawmakers for aid, citing it as an independent confirmation of their claims that the county is quickly edging toward a fiscal precipice that could lead to bankruptcy.

Democratic and Republican lawmakers, however, characterized prospects for a state rescue Wednesday as dim, despite the frantic efforts of the five county supervisors and myriad department heads and lobbyists, all of whom have spent the week canvassing the state Capitol and trying to wring promises of aid out of state lawmakers.

Although its impact on state lawmakers remains to be seen, the report is expected to have a significant effect on the acrimonious debate over the county budget under way in Los Angeles.

Union leaders have accused the county of exaggerating its fiscal problems as a way of getting employees to stomach layoffs, and of persuading the public to accept reductions in law enforcement and closures of parks, libraries and health clinics.

On Wednesday, union leaders--also in Sacramento lobbying for state aid for the county--said they will use the report to turn up the heat on state lawmakers.

By late Wednesday, some conservative members of the Legislature said they were willing to heed some of Los Angeles County’s pleas, including one for a change in state law that would allow the supervisors to raise revenue in the county--including a tax on alcoholic drinks that could bring in $250 million a year.

But such an agreement would come, said Assemblyman Steven T. Kuykendall (R-Rancho Palos Verdes) and other Republicans, only if Democrats agree to allow the county to cut health care and other services to levels previously required by the state.