Chief Administrator Halves Estimate of Budget Gap

Pressed by Supervisor Gloria Molina to clarify the depth of Los Angeles County’s financial troubles, Chief Administrative Officer Sally Reed on Monday drastically scaled back her assessment that the county faces a $1-billion budget problem in the coming fiscal year.

After telling a new blue-ribbon budget task force less than two weeks ago that the county’s financial problems are as about deep as they have ever been, Reed released a new projection Monday showing that the county faces a smaller $516.7-million deficit in next fiscal year’s budget.

Even at that level, Reed said, the county still faces painful reductions in services, particularly in its troubled health system and the criminal justice system, which is struggling to deal with the growing impact of the state’s new “three-strikes” law for repeat offenders.

While it is too early to offer specific details about further layoffs or program cuts, Reed told reporters Monday, the new projection assumes there will be a continued effort to privatize some of the county’s health clinics.

In her new forecast, Reed still acknowledges that the county faces $1.1 billion in added costs or lowered revenues. But she now says the county can offset $603 million of that through a series of “temporary” and “ongoing” solutions.

The largest of these--for $280 million--is achieved simply by not funding the costs associated with enforcement of the “three-strikes” law. Much of that expense would have to be absorbed by the already severely backlogged civil court system and other county departments, she said.

The lower estimate also is based on the assumption that there will be no pay raises for most county employees in the fiscal year beginning July 1.

Reed pointedly noted that such a budget would not provide an adequate level of county services to the public. “We are barely hanging on by our fingertips,” she said. “In many areas we are barely doing what is required under law. We’re not doing what is needed.”

Reed said she called the unusual news conference because she felt that it was necessary to correct “a misunderstanding” that had developed after published reports of her earlier remarks suggested that the county still faced a $1-billion deficit for the 1996-97 fiscal year.

“It was taking on a life of its own,” she said.

The county’s top administrator said the bleak assessment of county finances that she gave the blue-ribbon budget task force earlier this month was a description of the county’s structural budget problem: It lacks the resources to provide needed services.

There is great political sensitivity to the size of the projected deficit, particularly after major cuts in the county’s vast health system caused the layoff or demotion of more than 3,200 county workers last fall.

Molina, who sent a strongly worded letter to Reed after The Times published the story on her earlier remarks, said it was crucial that she more fully explain the extent of any projected deficit.

“I don’t think the public or the Legislature should have any feeling whatsoever that this county has a $1-billion problem. It does not. It is not a budget problem,” Molina said in an interview. “Does it have a $1-billion-plus of needs, absolutely. But those are two very different issues.”

In her letter, Molina said she was shocked to read about the $1-billion budget problem and was concerned about Reed’s discussion of the budget with the task force without having first told the Board of Supervisors.

“The consequence of news articles projecting a ‘sky-is-falling’ scenario can be extremely detrimental to our bond rating, public confidence in county government, and our efforts to secure assistance from the state and federal governments,” Molina wrote.

She called on Reed to immediately provide full details of the deficit projections.

It is not the first time that Molina has been critical of Reed.

The chief administrative officer’s proposal to close County-USC Medical Center, located in Molina’s district, to help close last year’s gaping $1.2-billion hole in the county budget earned Molina’s wrath.

Reed would not say if she was pressured to offer a less dire view of the financial problems facing the county. “I don’t want to get into that,” Reed said. “Of course, people expressed concern.”

Since taking the top county job two years ago, Reed has repeatedly warned that the county is spending far more than it takes in and has been relying on one-time financial fixes to mask a deep structural imbalance. Her strong views have largely been confirmed by outside observers, including the state legislative analyst, Elizabeth Hill, and Wall Street bond rating agencies, which have twice downgraded the county’s credit rating.

Although Reed went before reporters and television cameras to spell out the half-billion-dollar deficit, it was clear that deep differences remain with Molina, one of the board’s most outspoken members.

Asked if Reed still enjoys her confidence as the county’s chief administrative officer, Molina replied: “No.”

“Every so often I lose confidence in certain department heads and I say so because I have to rely on them,” she said.

Reed, when asked Monday about Molina’s comments, said: “I think it’s unfortunate. . . . I believe I was straightforward, painfully straightforward, with her.”