Boom Hides Threat to L.A. County, Study Says

The demands of providing health care to the growing number of uninsured, plus limited tax revenues, may drive Los Angeles County into bankruptcy in the event of another recession, an expert on local government predicts in a new study.

The current economic boom is masking deep problems with the way county government is run, and when the expansion ends--as it inevitably will--the issues that almost sent the county into bankruptcy in 1995 will return with greater force, said Mark Baldassare, the study’s principal author. He has written a book on the 1994 Orange County bankruptcy.

Baldassare said the situation in Los Angeles County may be worse than in Orange County, especially because Los Angeles’ population is growing faster and its residents are more dependent on county services.

The bankruptcy in Orange County was triggered by risky investments by the county treasurer, while Los Angeles’ problems stem more from its reliance on money from Sacramento and Washington, D.C., for services such as health care, child support and jails.

When the money from Sacramento and Washington dried up during the last recession, Los Angeles County was unable to balance its books and contemplated shutting down hospitals and declaring bankruptcy.

A 1995 federal bailout of nearly $1 billion over five years staved off disaster, but “very little progress has been made,” Baldassare said. “The county is in a very vulnerable position.”

There are “too many poor people demanding services while the county [has] no ability to generate revenue,” said county Chief Administrative Officer David Janssen. He added that “it confirms again, as every task force has done, that state-local relations are totally dysfunctional.”

Among the problems the Public Policy Institute study found:

* No one at the local, state or federal level has figured out how to fund health care for Los Angeles’ rising uninsured population. Los Angeles County government is required by law to provide this $2.4-billion service.

* Because of Proposition 13 and moves by the Legislature, the county cannot generate any new money to fund programs, yet it will have to care for the about 2 million new Los Angeles residents expected in the next 20 years.

Proposition 13, approved by voters in 1978, limited the property tax, which had been the main financial base of California counties. That left them heavily reliant on state aid, which has fluctuated wildly, depending on the political and financial picture in Sacramento.

* Going beyond basic financial problems, the study said there is no true regional government in Los Angeles County, with county supervisors primarily interested in their own districts, leaving local development fragmented among the 88 cities and special agencies like the Metropolitan Transportation Authority. This stands in the way of considering regional solutions to financial troubles.

The booming economy, combined with the bailout, put the county on a sound financial basis, as of now, with supervisors able to make modest spending increases.

County officials say that they have improved their stewardship of the budget.

But, in the long run, they acknowledge that they are unable to solve the key financial problem that sparked the near bankruptcy: the lingering deficit in the health department. They say that federal and state policies make this difficult.

“There isn’t a plan,” Baldassare said. “There’s a bailout and that’s the only thing keeping this system afloat.”

The study, titled “Risky Business: Providing Local Public Services in Los Angeles County,” grew out of an invitation by county officials to Baldassare and his fellow researchers to look into the county’s finances after his book on Orange County’s bankruptcy.

Baldassare said the county’s chief administrative office helped him gather and interpret data, but the conclusions in the study are his own and those of his team. The group interviewed 31 people, ranging from city officials to civic leaders to county supervisors, and studied the county’s budget along with those of 24 area cities.

According to the report, many of the problems stem from the unusual nature of county government in California.

The county is a mass of agencies that provide social services to the county’s residents, as well as law enforcement through the Sheriff’s Department and the district attorney’s office.

But because of Proposition 13, the Board of Supervisors that runs the county cannot raise revenue through property tax increases.

And in the early 1990s, the Legislature took part of the pool of remaining property tax revenue from counties to balance the state budget during the recession.

Baldassare was pessimistic that this relationship would change, as are county officials, who doubt that state lawmakers will want to relinquish hundreds of millions of dollars in tax revenue.

Baldassare added, “I don’t see there’s the political will of the supervisors as a group to craft a solution that they can present to the state.”

At some point, the study concluded, the bailout will end, and it quotes one regional official as saying that “it’s probably five years until the next crisis.”

An elected county official is quoted in the study as admitting that “I’m not sure anybody knows what to do about it.”

One solution that the study recommended is to greatly increase the county’s partnerships with nonprofits, cities and the private sector to provide health care.

As part of its rescue deal with the federal government, the county opened dozens of medical clinics in partnerships with the private sector, but Baldassare said the partnerships need to be massively expanded.

Another suggestion was for the county to drop responsibility for providing municipal services to the 1 million people living in unincorporated areas. Because those regions have not incorporated, the Board of Supervisors decides zoning for the areas and provides services, such as fire protection and street lighting.

The responsibility drains precious property tax dollars and attention from the county’s core social service obligations, the study concluded.

The report recommended creation of one or more municipal service districts to provide law enforcement, firefighting and other services.

But it acknowledged that this idea faces political obstacles because the districts would require property tax increases and financial assistance from other levels of government.

Conversely, the study recommends that the county take on responsibility for regional housing and economic development, noting that no agency in Los Angeles County is in charge of these issues.

Since the approval of Proposition 13, many cities have favored business development over housing to bring in sales tax revenue to replace lost property taxes.

This too is a politically unlikely recommendation, because the 88 cities in the county have fought to retain control of housing and economic development.

Baldassare said the board does not seem interested in this subject.

“I’m very concerned about a lack of regional focus among the five supervisors,” he said, adding that, in contrast, Orange County supervisors are meeting with cities to work on regional issues.

Janssen said the board has not delved into regional issues because of the thicket of other agencies handling such matters.

The study also cited a survey saying that Los Angeles County residents had a dimmer view of their county government than residents of other counties.