LA Budget Crisis: "Worst I've Ever Seen"

As California goes, so goes its cities.

Los Angeles city government is at risk of running out of money within 30 days and has reached a level of desperation not seen since the Great Depression.

L.A. City Controller Wendy Greuel told Mayor Antonio Villaraigosa this week that unless he borrows $90 million from the city's emergency fund, the city will be broke by May 5. On Tuesday Villaraigosa called for a two-day-a-week shutdown of government agencies that do not generate revenue, like parks and libraries.

Meanwhile, the City Council and the Department of Water and Power are locked in a "clash of the titans" political battle.

I spoke to Cal State L.A. political analyst and Pat Brown Institute of Public Affairs director Jaime Regalado about what the crisis is really about, how it ranks historically and what the options are going forward.

Does this look like the beginning of a more substantial shutdown of city government?

What it is is a war going on between the mayor and the Department of Water and Power on the one side and the City Council [on the other]. So I think this is all part of the warfare about whether the council's going to give the [utility rate] increase that ostensibly would trigger a $73 million dollar grant, so to speak, from the Department of Water and Power. So to me, it's all about mayoral and councilmanic wars over the city budget, over the best way for the city to, if not move ahead, just limit the damage.

City Controller Wendy Greuel has asked the mayor to transfer $90 million from the city's reserve fund to the general fund. What implications does that have?

It's always a bad idea. In other words, any kind of reserve, even in a household if you start taking from your reserve and you bottom out there's nothing for an emergency, nothing for a rainy day fund. And lord knows when you're going to be able to replenish it. So it's a draw down on all revenues in the city's possession, including those that are being saved for emergency days and perhaps months ahead.

This is an emergency, I realize, but it's a poor image and poor thing to do to one's bank account whether you're city or a family. Additionally, what it also threatens to do is worsen the city's credit rating, because as long as there is an amount set aside that's not touched, but it's there and no matter what amount is in there, creditors always see that as being a good. Not that the city is in good standing financially, but it would be worse off if it rated or had no rainy day fund at all. And that's really the additional danger here. It would cost more for the city to borrow money.

The city is mirroring where the state is. That's a calamity. If the city goes where the state has gone, including the credit ratings bottoming out, we're looking much like the California budget and fiscal climate.

City Controller has said the city could run out of money by May 5. What does it mean for a city like Los Angeles to run out of money?

It means I.O.U's. It means what the state was doing. It means that those people that are working for the city, especially the vendors are going to have to wait for their paychecks. They may get I.O.U's. What it does is prove not only to be a huge psychological black point for the city in and around the nation and with potential creditors, but also make the city look very bad in the whole league of cities across the United States. In other words, it appears L.A. would be next door to bankruptcy.

Put this in historical context for us. When's the last time the city has reached this level of gridlock over a city budget and the potential of shutting down?

Well in my lifetime, I haven't seen it. If I go back to my father's lifetime, he saw it during the Great Depression. So we've had ups and downs in the city budget before. We've had layoffs before. We've had pink slips. We have had draw-downs on budgets and cutbacks on services. But in my memory, I never remember it being this bad, where we're talking about laying off 4,000 or 6,000 city workers, drastically eliminating departments and/or cutting back on services and hours of existing departments. It's about as bad as I've ever seen it, and actually it's worse than I've ever seen it.

It feels like it's getting worse as the rest of the country starts to improve.

If we live in a larger comparative kind of world and keep stock of the United States, other cities are going through their meltdowns too. Other states like New York and Arizona are going through their fiscal meltdowns as well. But we live in California. We live in Los Angeles and given how young or old we are, we just don't remember it being this bad. But we can say that as a state as well. I don't remember California being this badly off, in terms of the fiscal and budgetary climates and also cutbacks at basic services to those who need it most. It's just historic. There's no question about that.

What more can the mayor and the city do?

Taxes. They can try to float propositions, especially on the November ballot that would be revenue enhancers, as they call them instead of taxes. They could try and generate taxes from an angry electorate. What that means is that the politicians are going to be very wary about doing that. But nevertheless it is one way they can try and raise extra revenue. The mayor is trying to do it through DWP rate hikes, but if you floated a general interest bond, or another type of proposition that would raise additional taxes. I'm not sure where. I'm not sure how. But that's the only source that I see.

Selling city property is not going to do it. Laying off people will help in the short run. Cutting back on city services will probably save a nickel and dime here. But it's not going to close the multimillion dollar deficit that we have. It's just tough to see how this is all going to fold out. I know the unions led by local 721, the coalition of unions that have a pretty large share of the workforces, are trying to get the city better rates and better draws from the banks they've been doing business with for years. That'll probably take years if that ever happens. But it's something else to think about for the future.

It has to be difficult to get better rates when the city's credit rating is going in the opposite direction.

It's a real contradiction. No question.


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