Hahn Freezes Hiring by City

Projecting drastic revenue losses caused by the Sept. 11 terrorist attacks and their effects on the local economy, Los Angeles Mayor James K. Hahn on Thursday ordered a freeze on city hiring and asked department managers to find ways to scale back their operations.

In a letter to department heads and the City Council, Hahn predicted a $71-million shortfall if the city does not take immediate steps to curtail spending.

“The city’s economic downturn over the last six months was accelerated by the Sept. 11 terrorist attacks,” said Hahn, who oversees the city’s $3-billion budget. “Consequently, the city must exercise strong prudence at this time.”

Hahn’s order specifically exempted public safety and sanitation departments from the freeze.

Like governments across California, Los Angeles is experiencing the combined effects of falling tax revenue--the result of a slowing economy and recent drops in tourism since the terrorist acts--as well as new expenses for security and safety measures.

Hahn, who was in Washington, D.C., on city business when the freeze was announced, also said he is postponing all pay increases for management until next year. He has directed city officials to consider security issues as their top priority when formulating next year’s spending plan.

“The terrorist attacks of Sept. 11, 2001, have changed how our city conducts business and provides services to its residents,” Hahn said. “In order to improve our neighborhoods, we need to provide these in a safe and secure manner. As the city’s revenue base may be significantly reduced next year, departments must focus their requests for new resources . . . on security.”

The mayor’s announcement came just one day after City Administrative Officer Bill Fujioka told council members that the city had severely drained its reserves in recent weeks.

“Our reserves are much lower than projected in the current year’s budget, and the consequence will have a serious impact,” said Fujioka, who is expected to release details on his budget projections today.

In a report to the council earlier this week, Fujioka said the city had drained more than $103 million from reserve accounts--which top $236 million.

Fujioka blames contingency spending on a combination of factors, including lower-than-anticipated growth, sharp drops in sales and hotel taxes, and a $21-million business tax refund.

Even before the terrorist attacks, Fujioka’s office found that income from hotel taxes had fallen 10% below expectations--a decline that officials have attributed to the generally sluggish local and national economies. Also, sales tax receipts were 5% lower than anticipated. Further complicating matters, the city will be refunding $21 million in overcharged business taxes to MCI Worldcom.

That payment was ordered by a judge who said in 1995 that Los Angeles had discriminated against some manufacturers by taxing them twice. This year’s payment is one of several that the city is being forced to make to repay them.

“I expect this to basically eliminate the contingency reserve, and all we’ll have left is the emergency reserve,” Fujioka told the council. The city has $60 million in that emergency fund.

As a result of all the money woes, Fujioka has trimmed his projections from 3.5% growth in city revenue this year to zero. Because public employees are guaranteed annual pay increases, other areas will need to be cut if there is no growth in the city’s budget.

“This is startling news in light of the fact that we were told that we would have a surplus just two or three months ago,” Councilman Mark Ridley-Thomas said.

Councilman Eric Garcetti said he was dismayed, but not surprised, by the budget projections.

“I think a lot of us knew we’re headed toward this,” he said.

Though Hahn said the city must act “aggressively” to keep spending under control, he tried to calm fears that the city was in financial danger.

“I wanted [the hiring freeze] to be just a precaution,” Hahn said in an interview. “It’s still early, but clearly there has been a slowdown. I don’t want to wait for us to have more severe problems down the road in which we would all have to take more drastic action.”

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Times staff writer Matea Gold contributed to this report.