LOS ANGELES — Los Angeles city officials say Mayor Eric Garcetti's 2015-16 budget proposal takes another large step forward toward resolving the city's structural deficit by 2018.
Garcetti said his budget targets violent crime, up this year, by spending $6 million to bolster a gang reduction program and hire 100 police officers to target problem areas in the city. It also contains the down payment on $1.3 billion the city will spend on sidewalks as part of the settlement of an Americans With Disabilities Act lawsuit it settled in March.
"I am extremely proud of this budget," Garcetti said in a press conference Monday at City Hall. "For the first time, it meets or exceeds each of our crystal budget benchmarks."
Every single dollar of one-time revenue is being spent on one-time expenditures, Garcetti said.
City Administrative Officer Miguel Santana continues his role as the city's budget hawk — lauding the city for strides taken, but asking the city to maintain the fiscal conservatism that helped erode the $1 billion deficit the city faced the year after the 2008 recession.
The new budget proposal had to make up for a $165 million structural shortfall at which the city is chipping away. It assumes no new raises or pension concessions will be given in talks now underway with the city's civilian employees.
The estimate for the city's projected surplus in fiscal 2019, which would be its first after years of deficits, has also been scaled back. Instead of the $23 million projected last year, Santana said he now expects the city would have a $2.6 million surplus. The worsened forecast stems in part from a cumulative 8.2% raise the city agreed to give police officers in negotiations with their union last month.
The mayor attributed progress so far to decisions that policymakers made and the sacrifices made by its labor unions.
The year before Garcetti ascended from council president to mayor in 2013, the city adopted a new retirement tier for civilian employees hired after July 1, 2013 that lowered maximum pension benefits to 75% from 100% of final compensation. It also limits retiree healthcare to the employee, excluding dependents. Projected savings over a 30-year period are expected to be $4 billion, with the majority of savings in out years.
Strides made by the city include significant progress toward reducing fixed cost burdens for pension and other post-employment benefits such as retiree healthcare, according to a Moody's Investors Service report in December.
The rating agency affirmed the city's Aa2 general obligation bond rating in November and upgraded the city's outstanding real property and lease-backed debt ratings to A1 and A2 from A2 and A3, respectively.
This move came two years after Moody's upgraded the city's general obligation bonds, but downgraded lease-backed bonds when it drew a distinction in its rating criteria between GOs and other bonds in the state of California.
The city is well-positioned to strengthen its strong credit profile given a resilient and growing tax base, a highly diverse economy, and gradually growing reserves, Moody's analysts Kristina Alagar Cordero, Eric Hoffmann and Naomi Richman said in the report.
The report also lauded the city for "strong financial management" that curtailed expense growth, positioned the city to grow reserves with an expanding economy, and ultimately reversed the four-year budget outlook from increasing deficits to a declining trend.
By 2020, the city's pension funds will be 92% funded for police and fire and 80% for civilian employees, according to Santana, although he added that city government doesn't have control over the city's pension funds.
"That is a lot better than most major cities, including Chicago," Santana said.
Garcetti acknowledged Monday that an increase in revenues has bolstered the city's efforts.
City revenues from property, business and sales taxes grew by 4.9% from last year, Garcetti said.
Santana said in an interview following the mayor's press conference that the city's long-range plans take into account economic cycles, which is why city officials have built up general fund reserves to 8% — beyond the 5% required by the city's charter.
In a presentation made by the CAO's office a week before the budget was released, Santana recommended that the reserve fund should grow to 10%.
During the press conference, Santana described this year's budget as the strongest he has worked on and said the city remains on track to wipe out the structural deficit.
For the first time in history, the mayor's proposed budget meets all of the city's responsible financial policies and sets aside reserves to address mid-year and potential legal liabilities, Santana said.
"The mayor's budget also strengthens the city's reinvestment of "back-to-basics" core services, while strategically and responsibly restoring staffing capacity," Santana wrote in an April 20 letter to the council. "The mayor's budget continues to ensure that the city is gaining full cost recovery for services," he wrote.
"In this budget we're strengthening the basic services that mean the most: crime prevention, intervention and enforcement," Garcetti said Monday.
While major cuts were made to other city budgets — with some departments merged in the wake of the recession — police and fire were immune, at least initially.
In response to a question about further police hires in a city now known for its crumbling streets and leaky water pipes, Garcetti said his budget does both.
"I think we are doing both," Garcetti said. "You don't pit the two against each other."
He pointed out that the sidewalks are being repaired — and the money for police will eliminate expenditures spent on overtime in favor of spending money on police activities that make the city a safer place to live.
"Our core philosophy is to spend more money on programs that reduce crime and tackle recidivism," Garcetti said.
The Los Angeles Police Department reported a 27% rise in violent crimes in March and a 12% rise in property crimes compared with the same period last year.
As for roads, Santana responded that the City Council shot down the proposal to place a sales tax increase on the ballot to speed up road repairs. The budget has $50 million designated for road repairs in a city billions of dollars behind on maintenance.
The next phase of the budget process begins on April 28 with two-and-a-half weeks of hearings before the City Council's Budget and Finance Committee.
"Los Angeles had some extremely challenging years during the economic recession," said Los Angeles City Councilman Paul Krekorian, chair of the Budget and Finance Committee. "Our budget deficit ballooned and we were even threatened with bankruptcy — but we are no longer on that precipice. Through years of hard work and tough choices, we have eliminated 80% of our structural deficit and built up the strongest reserve fund in the city's history."
Krekorian added he looks forward to working with the mayor to achieve another balanced budget and continuing on a path of taking modest steps to restore the city's infrastructure.
