After almost eight years of the City being on a financial roller coaster, City Council President Herb Wesson has recruited Mickey Kantor, a former Secretary of Commerce in the Clinton Administration, and Austin Beutner, a financially astute former deputy mayor, to head a high level commission to review and analyze the City’s shaky finances and to recommend solutions to rescue us from this financial quagmire created by our globetrotting 11% Mayor and the fiscally challenged City Council who have been unwilling to even address the out of control $1.4 billion escalation of personnel expenditures.
It is about time. The City’s finances are an absolute mess.
Today, the Mayor and the City Council are focused on eliminating next year’s projected deficit of $216 million, the result of a $300 million increase in salaries, benefits, and pension contributions.
But this is chump change compared to the cumulative $1.1 billion deficit over the next four years as the $770 million increase in labor costs dwarfs the growth in revenues by almost $300 million.
These deficits are seriously understated as the City refuses to address its $11.5 billion unfunded pension liability that has increased by more than $1 billion a year during the Villaraigosa administration.
Nor is the City focusing on the more than $10 billion that is needed over the next ten years to repair and maintain our lunar cratered streets, our Himalaya like sidewalks, our crumbling curbs, and the rest of our deteriorating infrastructure.
The establishment of this commission led by two respected Angelenos is an excellent idea.
However, this blue ribbon panel needs to be totally independent: no elected officials, no City employees, and no leaders of the unions that represent City workers covered by the City’s $7 billion budget.
To establish its credibility, the dozen or so members of the commission will need to represent a cross section of the City, not just the politically well connected. This would include members of the Neighborhood Councils, homeowners, Valley residents, union leaders (including IBEW 18 business manager Brian d’Arcy who has made some very astute observations about the City’s finances), and members of the business community throughout the City.
The commission must have access to any and all information, including labor agreements and the status of any labor negotiations, as well as the complete cooperation of all City personnel.
The commission must be open and transparent so that the public has access to its information, its reports, and findings. However, it may be expedient to have closed door meetings where members can speak openly and candidly without fear of retaliation.
The commission also needs to have the financial wherewithal to hire independent third parties if necessary to analyze, for example, the efficiency of the City’s operations, its seriously underfunded pension plans, or the status of its infrastructure.
The commission’s analysis must not only address the causes of the City’s financial woes, but develop a credible set of projections for the budget over the next ten to twenty years, the time it will take to repair our infrastructure and fully fund our pension plans that are only 68% funded.
The commission will need to investigate alternatives to the City’s two pension systems which rely on overly optimistic investment rate assumptions. This may include significantly higher employee contributions by active employees, the sharing of the investment risk, and the establishment of hybrid plans or defined contribution plans, analyzed using the same assumptions underlying the recent creation of the tier for newly hired civilian employees.
The commission will also need to analyze the wages and benefits of City workers, whether City workers need to share in the cost of their generous benefits, and whether it makes sense to privatize more non-core City services such as the Zoo, the Convention Center, the operation (not the sale) of our parking facilities, the golf courses, selected animal service facilities, fleet maintenance, and the maintenance of our parks, buildings, and other facilities.
Of course no analysis would be complete without the discussion of increasing taxes and fees as the even an optimistic growth in City revenues will not overcome the projected budget deficits. But this must be done not only in the context of increasing the City’s revenues, funding various programs, and eliminating budget deficits, but determining the impact on the City’s economy, job creation, and its already business unfriendly reputation.
The finding and recommendations of the commission will not be pretty. Nor will they be well received by many. But with the increased transparency, at least we will have a better understanding of the City’s financial situation and a set of realistic alternatives for the new mayor and the reconstituted City Council to consider.
But the big question is whether the City Council and our new mayor will have the guts to take the necessary steps to reform the City’s finances, pension plans, and employment practices, or whether they will continue to “kick the can down the road” to insolvency.
Crossposted on City Watch