Harbor Cityhood Found Unfeasible

In an apparent setback to secessionists, a study concluded Wednesday that a breakaway city in the harbor area of Los Angeles would generate $35.4 million less in revenue than is needed to pay for existing city services.

Leaders who oppose a breakup of Los Angeles said the study proves that independence for Wilmington and San Pedro would cost residents dearly. But secessionists said they believe they can eliminate the deficit in the projected $159-million budget through savings from contracting for police, fire and other services.

“We are very confident,” said Andrew Mardesich, executive director of the Harbor Study Foundation, which hopes for a November 2002 vote on cityhood. “We are going to put together an efficient form of government.”

Mardesich said preliminary talks with the Los Angeles County Sheriff’s Department about policing the harbor area have convinced him that just that portion of the budget can be cut by up to $15 million while providing better services.

But City Councilman Rudy Svorinich Jr. of San Pedro, a self-described “longtime gut secessionist,” called the report “disappointing but not surprising,” and predicted that it would put a damper on breakaway sentiment in the area.

“Harbor area voters vote their pocket, and I don’t know whether they are going to be willing to pay more for the same level of service,” he said.

For opponents of secession, including Councilwoman Ruth Galanter, the report confirmed what they had claimed about the potential harm to services in proposed breakaway cities.

“Some of the people throughout the city who have been promoting secession are very optimistic about having lots of money,” she said. “I have doubts about the accuracy of that.”

Mardesich’s group now has 45 days to respond to the report and provide a revised plan for the new city to address potential budget gaps. The Local Agency Formation Commission, or LAFCO, which is studying the plan, can place the secession proposal on the ballot only if the panel finds that cityhood will not be financially harmful to the area splitting apart or the area of Los Angeles left behind.

The preliminary financial analysis found that current revenue that would accrue to the new city totals $123.4 million, while the new city receives city expenditures of $155 million, for a deficit of $31.6 million. The report projects that, during the first three years of the new city’s life, when start-up costs would be included, the annual deficit would be $35.4 million.

County Supervisor Zev Yaroslavsky, a LAFCO member, said he wants to see what proponents of a 179,000-person harbor area city can do in the next 45 days to eliminate any potential budget deficits in the first three years.

“Anything can be overcome. It depends on what sacrifice the people of the harbor area are willing to make, or whether they feel they are better off leaving it the way it is,” Yaroslavsky said.

Last month, a similar study found that the San Fernando Valley could become a self-sufficient city operating at a surplus. But that report suggested that state law would require a $68-million yearly “alimony” payment to the rest of the city to make the remainder of Los Angeles financially whole.

The head of the commission considering Valley, harbor and Hollywood cityhood proposals said Wednesday that perhaps the city of Los Angeles should pay alimony to a new harbor city, but that key question was left unanswered as county lawyers were asked to research it.

“If the Valley has to pay alimony, why doesn’t the city have to pay alimony?” asked LAFCO Chairman Henri Pellissier at the meeting at which the report was released. “That’s going to be a stickler, because it’s going to make or break it.”

Richard Close, head of the Valley cityhood group, said that if the harbor secessionists could close the budget gap, it would be a strong selling point to voters. The argument would be that letting the harbor area go its own way would produce a net gain in resources for the rest of the city.

“They now have an argument to the rest of Los Angeles that by having the harbor leave, the rest of Los Angeles will save $31 million a year,” Close said. “The challenge is to prove to residents that they can operate a better city government using that $123 million.”

The initial financial analysis released Wednesday was conducted by Public Financial Management Inc., based on a preliminary proposal by harbor area secessionists.

“One of the primary factors in driving this deficit appears to be that the revenues generated by the harbor area are not in proportion to its population,” said Craig Hoshijima, a private consultant for the firm.

He said the proposed harbor area city represents 4.12% of Los Angeles’ population, but generates only 3.67% of the revenue from property taxes, 2.31% from business taxes and 2.57% from the sales tax.

Weak Retail Base One factor is the lack of a strong retail base, he said. In contrast, the Valley generates a surplus because of a strong tax base.

“In order to close the budgetary gap, the level of service may need to be substantially reduced,” Hoshijima warned.

To convey the scope of the gap, he said the new harbor area city could eliminate the deficit by giving up 324 employees, or 24% of the total positions allocated to the harbor by Los Angeles under the proposal.

The study concluded that the new city would inherit 1,367 employees from Los Angeles, or about 4% of the city’s work force.

The new city would contract with Los Angeles for many services that cannot be easily broken up, including water, power, police forensics, pension systems, emergency communications and computer systems, the study concluded.

Mardesich both embraced the 350-page fiscal analysis, saying it validates harbor area complaints of inefficiency, and criticized the accuracy of the deficit projection.

“Shame on you, city of Los Angeles,” Mardesich told LAFCO commissioners in an angry speech in which he verged on tears.

He also said the proposed harbor area city includes the Port of Los Angeles and has long been seen as a major economic plus for the whole region.

“What happened to that great economic engine that gives jobs and vitality to the port? And yet you have this deficit. Something is wrong here,” he said.

Told that Mardesich hoped that contracting for services could improve their quality and avoid new taxes, Svorinich said he would need proof of that before he could vote to have San Pedro and Wilmington break away.

Mayor Richard Riordan has long warned that breakaway cities would not have the same level of services and funding, because a united Los Angeles has more clout with the state and federal governments, according to Peter Hidalgo, a spokesman for the mayor.

“Breaking up the city is like a divorce. No one wins,” Hidalgo said.

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Budget Concerns

A study of the proposed split of the harbor area from the city of Los Angeles concluded that a newly formed city would have a revenue deficit. A look at the projected budget:

Revenue and expenditures for a harbor-area city, in millions

Source: Local Agency Formation Commission for Los Angeles County