Eric Garcetti: Panicking won’t fix the city budget

Los Angeles City Council President Eric Garcetti stopped by The Times Monday to discuss with editors and reporters his perspectives on closing the city’s $485 million budget deficit. Below are most of Garcetti’s opening remarks to Times staffers.

Eric Garcetti: I would say that there are four driving facts that got us to where we are today. And excuse me, I’m sure you all know this, but I’ll try to do it in just a little bit of detail and sketch it out for you.

One is that we saw growth in the number of employees that we’ve had since the very end of the Riordan administration. There were some good economic times, and actually in his last year in office we saw expansion by, I think, a couple thousand workers in our general-funded positions, at the end of the Riordan administration, beginning of the Hahn administration.

Robert Greene, L.A. Times: Concentrated in any one particular area?

Garcetti: No, they were actually pretty nicely spread. It was kind of Christmas time: Everybody who had ideas or programs ... we saw them happen in a lot of areas that weren’t necessarily thought of as core mission areas, but certainly have had a good effect. We saw economic catalyst programs for our main streets and a lot of our neighborhoods. We saw growth in libraries. A lot of facilities that we passed bonds for throughout California were great at saying yes to building things, but not very good at saying yes to the money to staff them. But we had some money to do the staffing for the growth of our fire department, the growth of our police department, the growth of our libraries and some of the other civic municipality buildings that we put up.

The second driver has been that we’ve seen the salaries and benefits rise at a higher rate than the cost of inflation. Not as dramatically as some would have you believe, but because we have such little flexibility on the downside given our union contracts, we aren’t a very nimble enterprise, being able to adjust naturally with when there’s deflation or if there is a loss of revenue. We aren’t obviously able to go down on people’s salaries and benefits in a very nimble way.

Jon Healey, L.A. Times: You would not rule out the possibility of going down between contracts, would you?

Garcetti: Absolutely not, and I’ll get to that. Yeah, that’s where we’re going, but we saw that rise a little bit faster than the rate of inflation.

The third driver has been obviously the economic situation, our revenues being down dramatically. Everybody’s facing that. We saw them -- double-digit drops for four quarters in a row; the last time that happened was the Great Depression. We literally -- we’ve seen two or three quarters at a time, of double-digit drops, and it hasn’t been in every revenue, but our overall revenue, a double-digit drop four quarters running. And we have about a year echo for the economy, so our delay because of the way revenues are collected is a little bit, even though some people are talking about brighter spots in the economy, we won’t feel that for about 12 months to 18 months afterwards.

And then I would say that the fourth driver is related to that: the pension costs, which have more than doubled because of the way -- both the impact of the drop in the stock market and how we spread the risk on our pensions, our smoothing corridor, which is relatively tight compared to the state and other places that smooth that out. So we ride like the state of California with personal income on our pensions, we ride our revenues in a much more volatile way.

So those are the four things that kind of drove us to where we are today. Why were we able to even in some recessions survive? Every economic analyst that I’ve talked to, those who advise us and those who work in some academic institutions around here, say it was a growing economy. We have done well because Los Angeles has been a growing economy, so the things we are able to add to government were a combination of us having low debt; we had some very good policies around debt and continue to. We’ve had a good bond rating; even with our downgrade we still -- we went from kind of “very good” to “good,” though obviously on a negative watch, and that has made our borrowing relatively cheap. And we’ve also looked at, I think, trying to live in a post-Prop. 13 environment. Prop. 13, I think as Tom LaBonge points out, maybe one or two painters lost their jobs, but the sense of how that hit civic government was not instantaneous, and it was much less than what we’re dealing with now....

So, where are we at right now? I like to look not at this year. A lot of people have asked, “Well, let’s solve this year’s problem and let’s turn to next year’s budget.” We can’t afford to do that. We are facing a four-month, $685 million problem, not a this year, 200 million, plus next year, 485. It is a four-month enterprise we are in right now, for $685 million to be in place to be saved or to be found by July 1. And last year’s budget was pushed too late. The way it was written, and I think both the mayor and certainly our City Council with no permanent CAO in place would say that it was written more on aspirations than incarnations of money. It had things like 10% cuts but never described how departments would do that. It was depending on some labor negotiations that went nowhere or that went back and forth. And so when we started this fiscal year, July 1, we found ourselves with a $400 million shortfall, even above what had been projected.

I got directly involved in our negotiations with our labor unions in late August, early September, specifically looking at the idea of early retirement, but also drawing a hard line that the last thing we wanted to do with the pension cost going up would be to either for now or pushing off for future years expand our pension costs. And what’s interesting looking at the context now is that took about six weeks to resolve -- $80 million in concessions from ... the coalition of unions that represent most of the civilians. And in exchange for that they were able to open early retirement, and that paid for the extra two years credit of 2,400 people that would do that. In doing that, we got more people and are in the process of getting more people off of the payroll than we ever could have with layoffs in the beginning of this year....

Sue Horton, L.A. Times: 2,400 people since when?

Garcetti: 2,400 people starting in December that will be off by the end of this year, this fiscal year, not calendar year.... If we had done layoffs, it was estimated it would have taken at the time, our CAO told us, about nine months to do that. Each one can be challenged. And if you remember when the county, I think, got rid of about 800 people a few years ago, it resulted in 6,000 people changing their jobs, because of the complexity of the cascading rules. So you don’t eliminate -- those people don’t lose jobs, whose jobs are eliminated, they cascade down to some place they might have been 10 years ago, and that pushes somebody else out until it kind of squeezes out like a Play-Doh barbershop those folks at the very bottom [who] lose their jobs or lose a job; their positions are kept.

And so when we’re looking at the complexity of warming up and plugging in this machine that we all recognize is a part of what the solution is this year, keep that in mind. And I think what I also learned out of that negotiation was, people at the table together -- not calling people names, not immediately seeing them as the enemy -- really yielded more money and more savings for the city than we probably could’ve if we had done more traditional name-calling across the table of bargaining. And I think that’ll be a part of the solution.

So cut forward a couple more months, we ask the mayor to have weekly meetings with the principals. I set that up with the mayor so that it would be myself and the chair of budget, and the mayor, the CAO and our CLA to have weekly meetings, giving a real sense that I did not want to fall on the trap of last year, where we were given a budget in April. I was actually on Navy duty when the council was first considering it, and I flew back after an 8 p.m. to 8 a.m. shift and landed at about 10:30, and that was when the police hiring proposal, where people had kind of gone both directions on that came back and put that in place, kept the police hiring piece in place to hire for attrition. But the rest of the budget, I mean, it had already bypassed that time, and people were relying on something that had been written was -- to call it a skeleton would have been charitable. It really had no meat on it. And this year we absolutely cannot afford that, a) because our revenues are down, but they’re only down another 200 million, and I say “only” because in past years that would have been huge, but in six weeks we’ve solved three-quarters of a $400 million problem.

This time, if I am asked to take a snapshot, there is a lot of panicking going on. Some of it’s well-placed because people don’t want to see us go toward insolvency. But there seems to be panicking sometimes in the press, panicking sometimes in our bureaucracy, panicking on the council, panicking in other offices on the 3rd floor. To me, when people panic, they make bad decisions. And so it’s been very important as council president for me to put in a process for how we do the work right now, and to not ignore the headlines or kind of the text, but to really get into the subtext piece, of real savings, to move forward, and to build a coalition.

Greene: Could you specify the instances of panic that you’ve seen from your council colleagues, from the mayor’s office, from the media?

Garcetti: Sure. Certainly from our financial monitors, there are people who feel the Moody --

Greene: I mean, you can’t really define that as panic, right? Because they will do what they will do. They’re not really part of --

Garcetti: They will do, and maybe panic is too strong a word. But what I would say is there is definitely a sense of momentum that in my eyes don’t necessarily match what a process is doing and needs to do. For instance, if we’re making decisions that two years from now, five years from now, 10 years from now people are going to ask, “Why is the zoo set up this way? Why is the convention center set up that way? Why don’t we have that department anymore?” We have to have both a sense of urgency and make the right decisions. We can’t just -- I mean, some of these things are being debated for five minutes, and some people are calling people to do it, like, yesterday, instead of giving their argument as to why it should be done.

When Moody for instance put us on negative watch, they had some nice things that were said about our low debt and other things that we’ve done in the past. They then looked at the roadmap, what would be necessary in the Moody report to not get a downgrade now that we’re on negative watch. And their roadmap, which was very encouraging to me, exactly mirrors the roadmap that we’re not only planning on doing, but we’re well into doing: passing the three-year financial status report that when we sat down with the mayor, one of the things that he and I then went to the CAO, because it was very important to me, and asked for was a three-year budget plan. We can’t keep reacting not only once a year, but we’re acting three or four times a year. We need a three-year budget, we need a long-term reform of how we do our compensation policies, our benefits et cetera. They mentioned that.

Moving forward with some of the privatization pieces or the -- they’re not always privatization, they might be non-profit partnerships, like with the zoo. Each one of those has sailed through council. Now, does that mean that thery’re already privatized? That’s what I mean about, maybe not panic but a deeper sense of urgency. They almost want the convention center to have been privatized last week.

Greene: But they could honestly take a look at that and see that discussions about privatizing the convention center have been around for more than a decade, right?

Garcetti: Absolutely, but in the context of when we started meeting, every single day when there’s been a sense of let’s not send things to committee for 60-day studies, but you have a week or two and then they come back to council, that most committees aren’t even meeting anymore because we want the decision-making process to be accelerated, or I certainly did -- that is a sea change. I mean, you’ve watched City Hall for a long time.... When the mayor called for the elimination of, or he said he was beginning to dismantle the environmental affairs department on Friday. That’s great, we voted that a week earlier, and so we’re hand-in-hand about that. We had already said, “Do that,” and we had the power to do that as well, so sometimes there’s things the mayor is suggesting that a day later we’re doing. There’s other times we’ve done things, and the mayor is then ... announcing that he’s implementing them.

So I think there’s been harmony 95%; I mean, it’s a legislative body so if you want to find -- I love after a council meeting we might get a 12-3 vote, and the cameras swarm three people to get their sound bites [from] what is a small minority of council. But that’s obviously an important perspective as well, but it’s not -- to me a council action is not an average mean of all of our opinions, it’s what passes and what doesn’t pass....

I think when people get panicky about the pace, maybe that’s a better way of putting it, that can lead to bad decisions. Now I’m satisfied that the pace we’re taking is both very deliberate and expedited.