This budget plan draws fire
Los Angeles Mayor Antonio Villaraigosa’s plan to balance the city’s $7-billion budget is filled with ideas that are starting to draw heat from the public: cuts in Sunday library hours, mandatory employee furloughs and a 38% hike in trash fees, to name a few.
But within City Hall, one proposal generating fierce debate is a little-known plan to delay an $81-million payment to the city’s employee pension fund until next year -- a move criticized by some as an accounting gimmick.
Delaying that payment would cost taxpayers more than $15 million in penalties, according to a document issued Friday by the city’s top budget analyst. By 2013 -- which could be Villaraigosa’s eighth and final year as mayor, should he win a second term -- the rearranged payment schedule would have cost the city $85 million, a sum larger than the payment being delayed this year.
The City Council’s Budget and Finance Committee is scheduled to discuss the plan today, the first day of budget hearings. But some council members are raising doubts about the payment proposal.
“The fundamental question at the end of the day is, are we being penny-wise and pound-foolish?” asked Councilman Richard Alarcon.
The plan works like this: Instead of continuing to make one payment of about $300 million at the start of each fiscal year, the mayor would send smaller installments to the pension fund every three months.
Because the pension fund would lose some of the interest it would have earned from a larger, lump-sum payment, the city would be charged more for paying quarterly. But because that fourth quarterly payment wouldn’t come due until fall 2009 -- three months after the end of the upcoming fiscal year -- Villaraigosa will be able to take an $81-million expense off this year’s books.
The mayor’s budget aides defended the payment plan, saying that they have few other palatable choices. Faced with a $406-million shortfall, Villaraigosa already is raising fees by $90 million and eliminating 767 jobs.
The council and the mayor probably will have to find more service cuts if they don’t shift the pension fund to quarterly payments, said Deputy Mayor Sally Choi, Villaraigosa’s in-house budget advisor.
“It is going to cost the city more in the long run,” Choi said. “But in difficult times like this, this is something we had to consider.”
The city paid the pension fund on a quarterly basis until 10 years ago, when -- during a strong economy -- it found that it could save millions of dollars by sending a single, upfront payment. Switching back to the old system would help the city weather the current economic downturn, said City Administrative Officer Karen Sisson, the city’s top financial advisor.
Sisson also compared the change to paying more frequently for car insurance.
“You can pay your entire bill at once, or you have the option of quarterly or semiannual payments, and depending on which one you pick, you pay a little bit extra,” she said.
Still, Sisson acknowledged that the pension proposal was a symbol of a larger issue: a budget in which a third of the solutions are one-time fixes.
To continue his plan to hire 1,000 more police officers, Villaraigosa is calling for the city to sell surplus property, force workers to take unpaid days off and raid a fund earmarked to build parking garages.
The heavy reliance on one-time solutions worries Councilwoman Wendy Greuel, who is on the budget committee.
“In some instances, a one-time fix can get you through a crisis,” she said. “But we have to look long term, past next year, because the [downturn] is going to go beyond this year.”
Choi, who crafted Villaraigosa’s proposed budget, will leave the mayor’s office this summer to become head of the Los Angeles City Employee Retirement System, the pension agency that has agreed to accept quarterly payments.
That system provides retirement benefits to any worker who is not a police officer, firefighter or Department of Water and Power employee.
Choi said the pension board -- not the mayor -- proposed quarterly payments as a way to help the city through difficult times and voted in favor of it three weeks ago. Four of its seven members are appointed by Villaraigosa.
“They are aware of the budget crisis,” she said. “And part of the board’s responsibility is not only to protect the assets and benefits of the system, but also look at the impact” on the entire city government.