Mayor Antonio Villaraigosa's proposed budget for the coming fiscal year is imbued with his trademark optimism, but it also carries an implicit threat. The optimism is seen in the mayor's determination not to lay off workers or scale back the reach of city government in spite of a projected shortfall of almost $458 million, or 10% of the city's expected general fund revenue. The threat is that if city workers don't agree to cover more of the cost of their retirement benefits, many will be hit with furloughs that make a significantly deeper cut in their take-home pay.
About 19,000 members of six city unions are voting now on a proposed contract amendment that would raise their retirement contributions instead of imposing furloughs, and they should endorse it. But even if they do, that probably won't be enough to spare the city more budget heartache down the road.
The $458-million shortfall is just the latest in an ongoing series. And as large as it seems, City Administrative Officer Miguel Santana predicted in March that the gaps in the three subsequent years would be even larger. The biggest factors in the growth are pension and health benefits, which account for half of the increase in city expenses in 2011-12. Those expenses will grow $100 million to $200 million a year after that, Santana predicted.
The increases further squeeze a budget that's already strained. More than half of the city's general fund is spent on mandatory items, such as pension, benefit and debt payments. An additional 30% is dedicated to the city's top priority, public safety. The budget for everything else isn't all that much bigger than the projected shortfall.
The solution offered by Villaraigosa combines a few much-needed long-term fixes with several one-time solutions that do nothing to improve the city's long-term health. The long-term elements include a smarter approach to fire stations that replaces underused and expensive ladder trucks with more badly needed paramedic teams; the elimination of the duplicative city treasurer's office; and the termination of 680 vacant non-public-safety positions. The most important, though, is the pension savings that would be achieved through the deal struck with leaders of the six unions.
One of the fiscal challenges posed by pensions is that, according to California courts, future benefits to current employees can't be reduced without their consent. The city can order that new hires be offered less generous benefits — a change already made in the Police Department and expected soon for civilian workers — but such reductions won't save money anytime soon.
By contrast, the agreement negotiated with the Coalition of L.A. City Unions would save more than $300 million over the next three fiscal years by having workers contribute 4% more of their pay into the fund for retiree benefits. The added contribution would cover the projected cost of health benefits for retirees and their spouses, at least for the time being.
If union members reject the deal, the budget calls for workers paid out of the general fund to spend 26 to 36 days on furlough. That translates into an average pay cut of 10% — more than twice the cost of the higher pension fund contributions. This should be a "yes" vote, even for the coalition members not facing furloughs (about half of them hold positions paid for by special funds that don't have shortfalls). The city should also seek the same level of cost-sharing from the rest of its workforce, including police and firefighters.
Nevertheless, some workers have grumbled publicly that the mayor wants to increase spending on some services, including street repairs, while asking union members to reduce their take-home pay. That's an understandable concern, but the reality is that city leaders need to be free to shift priorities regardless of whether revenues are shrinking or growing. To simply apply reductions across the board would be a thoughtless approach to budgeting.
A more apt criticism is that Villaraigosa's budget doesn't do enough to pull the city back from low-priority services and to turn its focus to the most critical ones. It tries instead to continue doing what the city has been doing, just with fewer dollars.
It also would narrow the funding shortfall in several questionable ways. Rather than solving the problem of excessive police overtime costs, it would continue the practice of compensating officers with time off instead of cash. It would hire more traffic cops in a bid to jack up ticket revenue. And it would borrow $43 million to cover a mortgage payment on the convention center and the residual costs of the city's last effort to induce employees to retire early.
Most ominously, the proposal is based on revenue estimates that are about $130 million higher than City Controller Wendy Greuel's latest projection. If the mayor proves to be too optimistic on that front, the city will be forced to make more cuts as the fiscal year unfolds.
The best way to shore up the budget outlook is for members of the Coalition of L.A. City Unions to vote in favor of the deal that their negotiators struck with top city officials last month. The savings from that deal are real and will continue through the rest of the contract, which expires in June 2014. The votes will be tallied Tuesday evening; here's hoping they set an example for the rest of the city workforce to follow.