In State of the City speech, Villaraigosa admits errors, vows swift action on financial crisis

Los Angeles Mayor Antonio Villaraigosa, delivering the most solemn State of the City speech in his five years in office, sought to strike a serious yet upbeat tone Tuesday to counter weeks of City Hall hysteria over a budget crisis that briefly raised the prospect of insolvency.

Villaraigosa acknowledged that he had "stepped on a few rakes" in his public fracas with the City Council over increasing utility rates, saying the fight diminished the public's confidence in their ability to address the city's financial troubles. He vowed to win back that trust with swift action and a break from the city's decadelong addiction to overspending.

"This is the new economic reality, pitting the cruel irony of the growing needs of Angelenos against the declining capacity of their own government to answer their needs," said Villaraigosa, who delivered his speech against a backdrop of five United States flags at the new police administration building downtown.

To close an expected $485-million shortfall, Villaraigosa's proposed $6.7-billion budget for 2010-2011 depends on increased cash flowing in from property taxes, permits, fees and profits at the Department of Water and Power — expectations greeted with skepticism by several council members. He plans to cover more than a third of the shortfall with as many as 750 layoffs, departmental trims and savings from early retirements approved last October, leading Councilman Greig Smith to question whether he was "double-counting."

"All lot of this frankly is smoke and mirrors again and not hard numbers," said Smith. "That's very scary for me."

Angelenos would see some immediate effects of Villaraigosa's budget plan: branch libraries would close one additional day each week, there would be fewer crews to trim trees and fill potholes, licensed childcare services would be virtually phased out, and firefighters who leave the city workforce would not be replaced.

But the mayor's plan maintains street repaving at the same level as the last two years and protects one of his top priorities — maintaining a police force of 9,963 by replacing officers who leave or retire.

Villaraigosa, a former union organizer who has enjoyed the strong support of labor throughout his political career, nevertheless made clear that a significant portion of the budget savings must be extracted from unionized city workers. So far, 105 employs have received pink slips.

The mayor called on workers to take up to 26 furlough days next year, saying the $63 million in savings would allow the city, in part, to reduce the need for layoffs to fewer than 1,000 rather than the 3,000 job cuts he warned might be necessary two months ago.

Union leaders immediately said that the mayor lacks the legal authority to furlough workers — a point disputed by mayoral aides. Police officers, most firefighters and city employees at the convention center, libraries, parks and zoo would be exempt from furloughs.

The mood and challenges facing Los Angeles are far different from the year Villaraigosa swept into office. In 2005, property-tax revenues — the primary sustenance of the city's $4.3-billon general fund budget — flowed at the height of the housing boom and the region's unemployment rate hovered around 5%. Now, the number of people out of work has more than doubled and declining revenues and increasing pension costs could leave L.A. with a $1-billion budget shortfall within three years.

Solving L.A.'s budget crisis has become Villaraigosa's greatest challenge as mayor. Any hopes he may harbor for higher office could be dashed if he fails.

Public confidence took a hit last month when City Hall was consumed by a feud between the mayor and council over a Villaraigosa-backed proposal to increase electricity rates. Before a truce was reached, the political scrum was laced with threats by the Department of Water and Power to withhold $73 million from the city treasury, dire warnings that L.A. teetered on insolvency and the resulting downgrade of the city's credit rating — all of which garnered national news coverage.

"His immediate legacy is at stake here," said Jaime A. Regalado, executive director of the Edmund G. "Pat" Brown Institute of Public Affairs at Cal State Los Angeles. "It's hard to gain the confidence of Angelenos when you see a circus on parade with what's been going on with the DWP and layoffs. It doesn't look like anyone is in charge."

The mayor's speech also included an ode to his accomplishments, including expanding the Los Angeles Police Department into the largest force in city history. The resulting drop in crime, he said, has made L.A. neighborhoods "the safest they have been since the Eisenhower administration."

Several council members noted that Villaraigosa's revenue predictions are far more optimistic than the dire forecast just a few months ago.

Edward E. Leamer, director of the UCLA Anderson Forecast, said all signs indicate that the recession ended last summer. He added, however, that the economic recovery for municipal governments usually lags behind other financial sectors.

"He should be conservative as far as his spending plan and be happy when revenue turns out better than he expected," Leamer said.

During the political debate over raising utility rates, Villaraigosa insisted that he could not force his appointees on the DWP board to transfer money to the depleted city treasury. Yet his proposed budget relies in part on a $257-million infusion from the utility. At least a portion of that money was made possible by the mayor and council's decision to boost electricity rates 4.8% starting July 1, a move that has angered some residents and businesses.

A few council members were also skeptical about Villaraigosa's plan to replenish the city's reserve fund, which was drained this year to make payroll, by leasing parking garages and borrowing against future revenue from parking meters. If those plans advance, the mayor said the reserve could increase from $40 million in July to $284 million by the summer of 2011.

"Those issues have not been vetted, they have not even been approved by the council," Parks said. "You won't know what the real dollar is until the deal is cut."

But mayoral aides noted that they earmarked just a quarter of the $200 million they hope to generate from their parking meters and garage plans to cover the budget shortfall, with the rest going to reserves. The city's top budget official, Miguel Santana, said the city has already received 15 bids for the garage leases.

phil.willon@latimes.com

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