The city of Los Angeles is facing a deep budget deficit for the seventh consecutive year, and City Administrative Officer Miguel Santana says there is no end in sight. The cost of city services, particularly labor costs, is expected to grow faster than revenue, even as the economy recovers from the 2008-09 recession. The solution, according to Santana and City Council President Herb Wesson, is Proposition A, which would raise the city’s sales tax by half a percent. But with voters about to install a new mayor, controller and up to eight new council members, now is not the time to take that step. The Times urges a no vote on Proposition A.
The recession hit Los Angeles hard, causing unemployment to skyrocket and property and sales tax revenue to drop. And it couldn’t have come at a worse time for city finances — just a few months earlier, in late 2007, Mayor Antonio Villaraigosa and the council had agreed to contracts that promised to raise thousands of city workers’ pay by 25% over five years. The recession also hammered the city’s pension fund, forcing the city to increase its annual contributions to start making up for investment losses.
By 2009, city officials were projecting a persistent deficit that would grow to $1 billion by fiscal year 2011-12. Although they had to scramble repeatedly, Villaraigosa and the council found ways to close the budget gap without borrowing money or raising taxes. Most notably, they persuaded the city’s unions to let their members cover significantly more of the cost of their pensions and retiree health plans. They also persuaded the unions to defer — but not cancel — the pay hikes promised in their contracts.
Santana now projects that city revenue will fall $216 million short of the $7.2 billion needed to maintain the current level of services, with similar shortfalls expected in the next several years. Almost half of the city’s revenue is dedicated to particular uses, such as roads or sewers; well more than half of the rest is spent on public safety. For that reason, Santana and Wesson say, any budget cuts this time will have to hit the police and fire departments — hard. Santana estimates that the LAPD would lose about 5% of its force through attrition and layoffs; he has offered no specifics on cuts to the Fire Department.
Police Chief Charlie Beck contends that the cuts he faces could lead to a dramatic increase in crime, reversing the gains the city has made over a decade of falling crime rates. The reduced ranks would be a blow to the department’s community policing efforts, Beck says, because patrol officers would have little time to do anything but respond to 911 calls.
The chief has been a powerful advocate for the tax hike, helping persuade the Los Angeles Chamber of Commerce, among others, to sign on. And his warnings cannot be taken lightly, even if his numbers may overstate the effects of a reduction in force. Public safety should be the council’s top priority because of its importance to the local economy and quality of life.
The issue for voters, though, is whether to accept the outgoing administration and council’s judgment on how to solve the city’s enduring budget problems, or to give the incoming leaders a chance to set their own priorities. All five of the top candidates for mayor have argued against the tax proposal. It may be just political posturing, but each one asserts that he or she can close the budget gap in the coming year without resorting to a levy that could hurt vulnerable consumers, deter businesses from locating in the city and slow the commerce that fuels the economy.
A related problem with the timing of Proposition A is that the generous 2007 contracts with public employee unions expire next year, setting up a crucial round of negotiations. As Santana’s budget projections show, the city’s labor costs — particularly its obligations on pensions and retiree healthcare — are likely to cause deficits even if voters raise the sales tax; the shortfalls two, three and four years from now are expected to be up to 50% larger than the one in the coming year. By filling the short-term hole in the city budget, a tax hike now would dim the prospects of city leaders seeking, let alone winning, the concessions from unions on pay and benefits that the city badly needs for the long term.
The idea for a sales tax increase came seemingly out of nowhere in November, supplanting a proposal Santana had floated to raise taxes on real estate sales, parking lots and hotel rooms. City officials quickly took to the half-penny hike, encouraged by polls — including one by a lobbyist for the real estate industry — showing solid public support for an increase. They also noted that voters in two dozen other California cities and counties had voted to raise their sales taxes in November, while only five rejected an increase, although most of the successful proposals were for just temporary hikes.
After rushing the proposition onto the ballot, Wesson sought to assuage business groups by promising to create a commission to study how best to make the city’s finances sustainable over the long term. A commission could bring a credible new voice to the debate over such heated topics as how to further curb pension costs, whether to privatize more non-core city services and how to boost economic growth. But it would be better to wait for the commission’s findings before making a permanent change in the city’s tax levies, rather than hearing them after the fact.
Santana and Wesson argue that the city has already made all the significant cuts it can make to the budget without harming public safety. Putting off a tax increase will not only force the council to take an ax to the police and fire departments, they say, but also delay repairs and maintenance that are already overdue.
They may be right that defeating Proposition A would lead to short-term pain. Indeed, the new city leadership may ultimately find that higher sales taxes are a necessary part of the long-term budget fix. But they should have the chance to make that call — after getting through the coming contract negotiations — because the city’s structural budget problems will soon be theirs to solve.