L.A. Budget Deficit is Not Temporary

by Gary Toebben

Filling a $222 million budget deficit is a daunting task and there are many objectors to the 2012-13 budget proposal that Mayor Antonio Villaraigosa presented to the L.A. City Council last Friday. Immediately after the budget was presented, members of the public objected to more cuts in city services and additional fee increases. City employees said they had already sacrificed enough and responded with a “no” to reopening negotiations on wages, benefits and pensions. And regular City Hall budget critics said that once again the mayor was kicking the can down the road to the new mayor and City Council that will be elected in 2013 and 2015.  

The budget critics were right to a certain degree, but none of them have the ability to solve the budget deficit on their own without the collaboration of other city stakeholders. As a starting point, each stakeholder group must have a clear understanding of the long-term fiscal challenges facing the City of Los Angeles.

The City’s Chief Administrative Officer Miguel Santana was straightforward in his assessment of the City’s long-term fiscal challenge three weeks ago. He said that the City’s revenue is growing by 2.3 percent per year and expenses are growing 4.7 percent per year. Every household and business in Los Angeles knows that this ratio is unsustainable over the long term.

It would be easy to blame the recession for this gap between revenue and expenses, but as Santana pointed out, the differential between revenue and expenses was in place long before the recession hit and during times when revenue was growing at a much faster rate. As a result, every budget discussion in recent years has begun with a preliminary budget deficit in excess of $200 million. 

For years, City Hall has treated this 2-3 percent differential between revenue and expenses as a temporary situation that would go away in a year or two. That logic was easy to justify and politically expedient, but it was faulty and dangerous.

No problem can be solved if the public and those in decision making positions deny its very existence.  The City of Los Angeles has been in denial about its budget deficit for too long. Mayor Villaraigosa took some important steps forward in his budget proposal last Friday, but many more steps need to be taken in the weeks ahead. The $222 million dollar deficit that the City of Los Angeles faces in 2012-13 is not a temporary problem. And it cannot be solved with short-term solutions. 

And that's The Business Perspective.