Politicians Must Plan for Days of No Surplus

Although Los Angeles County officials anxiously are awaiting an extension of the five-year federal rescue plan for their troubled health care system, it is a foregone conclusion that, sometime before the current bailout expires June 30, presidential election-year politics will prevail.

A financial settlement will be reached to avoid embarrassing moments at the Democratic convention this summer and, in the end, Washington and Sacramento will apply some of their vast budget surpluses--and pressure the county to ante up its extra cash from tobacco lawsuits--to cover the health care costs of the county’s nearly 3 million uninsured residents.

Yet this latest rescue plan is not the solution to a much larger systemic problem plaguing the county. In reality, it will only postpone inevitable decisions about how to provide health care for the needy during hard times, when outside funds are less plentiful. The real solution will require fundamental, politically risky reforms in the way the state and county go about providing services to county residents.

I recently led a two-year Public Policy Institute of California study of how Los Angeles County gets and spends its money. The study paints a grim picture of a county government whose fiscal circumstances remain cloudy, even in these sunny economic times. The conclusion that we reached is that little has changed since the county government teetered on the edge of a fiscal meltdown in 1995, only to be saved by the $1-billion federal bailout that is now set to expire.

The biggest difficulty faced by Los Angeles County, and shared by every county in this state, is that it has too little control over its revenues and expenditures. About $2 out of every $3 the county receives come from federal and state sources; the county must spend that same amount to provide services, such as health care, as an “agent of the federal and state government.” The problem is that health services provided by the county in its agent role sometimes cost more than the county receives to deliver those services; other funding must make up the difference. Yet local tax dollars are hard to come by: The state has taken control of local property taxes, and voters would balk at new taxes to pay for services for the indigent. So the county must plead with state and federal agencies for help. As a consequence of this dependence, the next fiscal crisis will occur whenever state and federal surplus dollars dry up.

Moreover, the county cannot simply turn its back on sick, uninsured people. There is a moral obligation that goes along with being the provider of last resort for the truly needy. Besides, the contractual obligations that accompany taking state and federal funds rule out the more severe cost-cutting options.

There is a better way for the county to avoid fiscal calamities than relying on federal bailouts, but it requires major work at all levels of government. Specifically, county and state officials must collaborate to advance four key goals:

* More fiscal control. The county needs a steady, dependable flow of money into its coffers and more assurance that state money will cover state-mandated costs. This issue may soon move to the front burner in Sacramento, where a number of proposals aimed at increasing local fiscal control are pending, including returning control of the property tax to counties and providing a more equitable distribution of the sales tax.

* Expanded partnerships. The county lacks the wherewithal to meet the service demands it faces now and in the future. It should require cities and local agencies to accept responsibility and expand public-private partnerships drawing upon corporate wealth, efficiency and expertise.

* Increased regional focus. The county is expected to deliver local services that are typically provided by city government to the almost 1 million county residents living outside city boundaries in unincorporated communities. The county cannot afford this distraction and should encourage the incorporation and annexation of unincorporated areas.

* Greater responsiveness. To most residents, L.A. County’s inner workings are a mystery. As one county insider said: “The feeling of the general public is that the [county] government is wasteful and inefficient, and that is why voters are reluctant to give money to provide services.” It is a political necessity for county officials to convince the public that they are responsive and engaged so that voters will not deny a tax increase in the next fiscal emergency.

There is no shortage of ideas for fiscal reform among civic and government leaders. The challenge is for policymakers in California to engage in a serious dialogue about how to improve the county’s ability to finance and provide public services and to find the political will to do so at a time when federal and state surpluses offer the easy way out.