Newton: How L.A.’s shortfall adds up

As Los Angeles Mayor Antonio Villaraigosa works to bring the city’s finances under control, he’s made some laudable moves, but his actions today are constrained by two decisions from earlier in his tenure that limit his options.

The first came in late 2007, when the mayor and other city leaders approved a five-year package with the coalition of unions representing most civilian city workers that promised 5% raises each year.

The second was in response to the economic downturn that blew up the assumption that the city could afford those raises. When revenues suddenly declined, the city had to cut labor costs, and Villaraigosa and other city leaders tried to minimize the impact of cutbacks by shifting city workers from jobs paid for by the general fund into those that are supported by their own revenue streams — sanitation, for instance.

Today, the combined effect of the raises and the shifting of employees out of general fund jobs hamstrings the city’s attempt to close its staggering budget shortfall, a $220-million to $250-million hole that Paul Krekorian, the council’s Budget and Finance chairman, calls “maybe the most daunting budget challenge since the Great Depression.”

The two decisions at first glance seem unrelated. One was a simple benefits package of the type routinely negotiated by the mayor and leaders of the City Council. Those negotiations invariably are shaped by politics. City unions help elect the mayor and council members and expect to be repaid when it’s time to cut the deal on salaries. In 2007, for instance, the raises — and the city’s willingness to commit to a five-year deal — suggest that the elected officials were catering to organized labor.

That might have been fine, if the city’s revenue projections had held true. A year later, however, the bottom fell out of the tax base as the national economy took its 2008 nose-dive in the waning months of the Bush administration. As a result, while the city’s salary expenditure line continued to rise, the revenue line that once accompanied it veered sharply downward. To this day, the city suffers from its largesse in 2007.

Which brings us to the second of the fateful decisions. This one was equally defensible on its own terms. As they confronted the increasingly strained budget brought on by the recession, city officials looked for ways to lighten the burden on the general fund without simply casting employees aside — creating hardship for them and their families and contributing to an economy awash in unemployed workers. One way to do that was to move workers into vacant positions at the city proprietary departments or specially funded operations.

As a result, the workforce in those operations has grown or held steady while the general fund workforce has been sharply reduced. As of today, more city employees work in special fund units than are paid by the general fund.

And that, in turn, creates a new political problem. One way out of the current morass would be to persuade city workers to give up the raises promised them in 2007. Employees might well be willing to do so to save their jobs. The trouble is that only general fund employees are under any threat of layoffs because the special fund workers are paid for by the money their operations generate — sanitation fees, for example. Because fees collected by the city for specific services must be used to pay for those services, the city can’t simply grab sanitation fees and put them in the general fund. And because the bulk of city employees now work in such “safe” jobs, it’s hard to imagine that the city can persuade a majority of its workers to give up their raises.

As Miguel Santana, the city’s chief administrative officer, ruefully acknowledged last week, “The politics don’t add up.”

It’s possible that the unions could bail out the city, that workers in one department would give up raises to protect workers in another. But city workers are understandably tired of being vilified for Los Angeles’ troubles, and they justifiably feel entitled to the raises they were promised. If they refuse to shoulder the burden of this shortfall, layoffs will come, as they have before, but they won’t be felt equally across departments.

Villaraigosa has a talented team assigned to the budget, and in the past he has proved willing to make difficult choices and alienate old friends in order to respond to a crisis. He’s to be commended for that, but no one should forget that though the mayor is not to blame for the national economy, his decisions helped create this problem for Los Angeles.

Jim Newton’s column appears Mondays. His latest book is “Eisenhower: The White House Years.” Reach him at jim.newton@latimes.com or follow him on Twitter: @newton_jim.