Miguel Santana

LOS ANGELES — Los Angeles Chief Administrative Officer Miguel Santana told the mayor and city council that they need to continue to rein in expenses, including labor costs, and seek voter-approved tax increases for infrastructure repairs if they want to eliminate the city's structural deficit.

In a 37-page report that comes a month before Mayor Eric Garcetti releases his budget, Santana challenged city leaders to set a goal of eliminating the structural deficit by 2018.

"For the last decade, the city's structural deficit has been an albatross around the neck of the city, impeding critical investments in services, infrastructure, and technology," Santana said.

A $242 million deficit is projected for fiscal 2014-15 even with economic improvements that are resulting in an anticipated 4.4% increase in revenues, according to the report.

Steadily diminishing deficits are anticipated for the next three years if the city "stays the course," according to Santana's report.

Santana told city leaders they should put a measure to voters to raise taxes to fix the city's 6,500 miles of streets and 11,000 miles of sidewalks. He recommended a half-cent sales tax be placed on the ballot two years ago to fund street and sidewalk repairs. The City Council didn't adopt the recommendation.

The council budgeted $132.8 million for repairs last year on 800 miles of streets. The city grades about 25% of its streets as failed but only has funding to fix 10 to 15 miles of failed streets each year, he said.

He also said that increased contributions to retirement plans, adopted last year, need to be maintained; and employee contributions to pay for health insurance should be increased to 10%.

"Given the significant obligations from salaries and benefits, potential liabilities and deferred expenditures, the city is not in a position to initiate new services or restore services that were reduced during the fiscal crisis," Santana said in the report.

Santana told city leaders they need "to seek dedicated funding for new programs, where possible, and to enhance our general fund receipts to pay for other expenditures that cannot generate a dedicated funding stream."

The city's pension costs in this fiscal year are $942 million. Those costs are expected to peak at $1.1 billion in fiscal 2016-17 before declining in fiscal 2017-18 to $1.05 billion, according to the report.

Santana warns that the volatility combined with high contribution amounts poses serious challenges, particularly since years of reduced costs could "give an exaggerated sense of the city's fiscal health" and lead to unsustainable spending decisions.

The city's two pension systems are considering leveling the recognition of deferred losses, which would lead to a more consistent contribution payment by the city. But, the boards are also reviewing the rate of return, which could result in higher contribution rates.

A coalition of city employee unions has filed a challenge against the lower benefit pension tier for future employees adopted by the council last year, Santana said. If the new pension tier is withdrawn, city pension contributions will increase.

Santana said in the report that the decline in costs anticipated in fiscal 2017-18 is a result of reductions made to future employee pensions last year.

In the report, Santana compared the city to others like Chicago and San Jose that have faced structural deficits in their budgets caused by the growing cost of labor.

"In Los Angeles, city leaders have taken these challenges head-on making difficult and at times unpopular decisions to ensure the city's solvency," Santana said. "We look forward to working with the mayor, council, labor and the city's stakeholders to eliminate the structural deficit by 2018

He warned the mayor and city council that more streets are going to hit the list of failed streets if they don't identify another method of funding repairs.

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