Los Angeles city budget structure and police pension fund shortfalls

Los Angeles Budget Assessment

L.A. Budget Assessment

The author of this report has been asked to offer a budget assessment for a city of the author's preference and the author has selected the city of Los Angeles. The author will scrutinize and assess, the current budget structure, the service area, funds in operation, and an overall financial analysis will conclude the report. All APA sources used for this report will emanate from the city of Los Angeles or associated entities.

Budget Structure

On paper, at least, the budget seems pretty basic and there seems to be a generally good form and function to the budget. There is a bit of mismatch between the Mayor and the City Council on a number of budget sections, but the differences are mostly not entirely stark or out of whack. There is absolutely a demarcated capital budget program, as noted on page 433 of the 2012/2013 budget.

The total capital budget is $340 million which is a very stark rise from the adopted 2011/2012 budget, which was $291 million, or the actual estimated expenditures for that same year, which was about a quarter million. The vast majority of the capital budget is allocated to construction and capital improvements, with that tally being $285 million of the $340 million total. Most of the rest, nearly $47 million, comes from capitalized expenditures (City of Los Angeles, 2013).

Funds in Operation

The 2012/2013 Los Angeles budget document stipulates that there are six major sources of funds for the Building and Safety Budget, with two of those six taking up the lion's share of the overall funds. In total, the funds add up to a total of $71 million. Of that, a little over $6 million is the general fund and nearly $65 million is from the Building and Safety Enterprise Fund. Modest amounts, about $140,000 to $300,000, come from Long-Range Planning, Off-Site Sign Period Fee Trust Fund and Repair & Demolition. There is a scant $21,000 that comes from the Sunshine Cyn Comm Amentities fund, at least according to the City Council. This latter amount was excluded from the mayor's figures (City of Los Angeles, 2013).

For the city's clerk office, a total of $25 million is spent with nearly all of that coming from the general fund. For community development, a total of $25 million is spent with most of the money coming from the Community Development Trust Fund and the Workforce Investment Act Fund. The City Council dumped about $320,000 in general fund money into this section while the mayor account for no general fund money. Emergency management accounts for $1.7 million or so with most of that coming from the general fund. The City Council again accounts for more general fund money going into this program, with the different being more than $100,000. Much the same pattern is seen with the ethics commission, with the City Council showing $250,000 more in spending than the mayor, again with the general fund being the main source (City of Los Angeles, 2013).

The pattern above is broken by the Finance portion of the bill, with the City Council and Mayor both allocating about $36.3 million but with the Council being slightly lower. Both parties show the general fund as being the primary source by far. The same holds true for general services, with both parties pegging the needed amount and revenue at about $215 million. It infrastructure is also the same with both parties at about $81 million but neighborhood empowerment shows as being nearly $2.3 million from the council and under $2.1 million for the mayor. Personnel, police, engineering, and many other programs are in sync between the two parties. General city purposes is very different between the two parties with the Council actually showing $6 million less than the mayor (City of Los Angeles, 2013).

Each different department/section in the budget largely derives its funds from the general fund but each section also has a number of trust funds and other sources of revenue that directly supplement the line items as well. Examples of this in action include parking tickets, property seizures by law enforcement, road tolls, admission fees for city attractions and amenities, administration fees collected whilst administering certain city programs and so forth. That being said, investments and the general fund are the major source of funds for most, but not all, of the different programs in the Los Angeles city government (City of Los Angeles, 2013).

The balances of the general fund as well as the balance of the other major funds that supplement or majorly fund the different sections of the city government seem to be collecting at a good clip but there are several sections that are drains on the general fund (or on particular other funds) based on the fact that outlays are outstripping receipts in different sections of the budget with pensions being the most glaring example of this. Also concerning is that the city council and Mayor do not seem to have a lot of synergy and agreement on where exactly all the money should go, which is a bit odd given that pretty much everyone involved in the equation is a Democrat. It is no secret that Republicans are quite uncommon in California and in much of the greater Los Angeles area (City of Los Angeles, 2013).

Even with the outliers as mentioned above, revenue does not seem to be at issue. Instead, it is more an issue of spending. The fact that police spending is much more than many other departments in the budget combined is also concerning. Capital fund and revenue growth seem to be growing at quite a good clip, so that is not the issue. Instead, it would seem that expenditures, at least with some programs, are growing faster (if not much faster) than the revenue that is meant to fund it with police and pensions overall being the major genesis of this mismatch. This is not to say that Los Angeles should slash their police or pensions amounts, but it is clear that the proverbial golden goose that is the Los Angeles budget is in peril of getting out of control and the rate of spending increases need to be more spread out and deliberate if at all possible (City of Los Angeles, 2013).

Financial Analysis

As noted already throughout this report, Los Angeles is in a precarious position due to its commitments, both in writing and via societal/ethical expectations, regarding police/fire spending and pensions in general. Not unlike Social Security at the federal level and the general animosity directed towards any reductions in police/fire spending, it is very difficult to make sweeping reforms and/or changes to spending on these expenditures when the social and worker sensitivity to doing so is very high (City of Los Angeles, 2013).

The Balanced Budget Challenge website says much the same thing on their website. They note that the total Los Angeles city budget for 2013/2014 comes to about $4.84 billion. This is a problem because the estimated revenue for that same time horizon are expected to come to $4.62 billion. This would be a total of $216 million if it turns out to be accurate (L.A. Budget Challenge, 2013).

The reason for this shortfall, as noted by the Balance Budget website, emanates from pension costs, previously agreed to cost of living pay increases, rising health care costs overall and a general weakness in the overall economic recovery that has ensued, albeit very slowly, since the end of the so-called "Great Recession" period that ended in approximately 2009 for the nation as a whole. The balance budget website notes that the shortfall in question is equivalent to 20% of the total police officer salary budget, 60% of the total firefighter budget and over 100% of the city's expenses for their libraries and parks (L.A. Budget Challenge, 2013).

Los Angeles Mayor Antonio Villaraigosa, in this budget summary document, notes that budget shortfalls will be addressed through expenditure cuts and increase efficiency. He makes mention of "painful" layoffs but not addressing the real problem of employee-level costs per person being the issue will lead to less headcount with each person on the payroll being more expensive. This is a lose-lose proposition for everyone involved. Even if it this tactic perpetually kept the budget balanced (and it will not), it's going to end up hurting the city in the long run. Even if the headcount cut is truly not needed (by no means impossible), the real problems are not being addressed (City of Los Angeles, 2013).

To his credit, the Mayor does mention pension reforms as being a priority to him and he suggests raising the retirement age to 67 (which would align it with Social Security) and prevention of pension spiking. Unfortunately, the Mayor cannot unilaterally enact such changes and he probably faces a rather tough road to get such changes completed as he would have to have cooperation of the City Council. This may be a tall order because the resistance to such a plan would be stifling and white-hot (City of Los Angeles, 2013).

Another major thing that the Mayor is suggesting is rewriting the zoning code, which is apparently nearly four generations old, and centralized HR functions for the city into a single location. Again, not bad ideas but health care costs, pensions and overall salary expenditures are the problem. Reductions in hiring or even headcount should not be a way to balance the budget in the sense that either a person's hire is financially and procedurally required or it is not. If it is not, then the person should not be hired and it matters not what the personal and political preferences involved happen to be (City of Los Angeles, 2013).

Also, the mayor makes mention of job creation and revenue generation. That all sounds well and good but when the city of Los Angeles (and most of the other tax jurisdiction in the county and state) are running huge deficits and the solution of many is to simply raise taxes (especially at the state level) is not going to encourage businesses to hire, let alone come to a state that ostensibly treats private enterprise as a piggy bank and not a partner (City of Los Angeles, 2013).

Even so, the Mayor is at least honest and is seemingly cognizant of the major issues at hand because he points to the fact that the shortfalls in the budget (which he notes as $238 million in total) come from employee compensation and retirement costs ($122 million), capital programs ($39 million), health benefits ($40 million) and unanticipated fire and police costs ($37 million) (City of Los Angeles, 2013). These sources of budget shortfalls dovetail nearly exactly with the details of the budget itself (City of Los Angeles, 2013).

The Mayor is addressing the overage employee costs through layoffs and is trying to adjust the pension outlays via a changed retirement age. There does not seem to be any head-on dealing with the health benefits unless one counts layoffs. However, the cost arc of health benefits is largely not in the control of the Mayor or even the City Council. The fire/police costs come from overtime costs, apparently. Staffing the department with enough people should be a priority unless the cost of benefits for these new heads would cause the overall budget to rise. If they would, then the overtime has to be accepted or, preferably, managed some other way. Obviously, if there are major events like the bombings that just happened in Boston, all bets are off. However, most events and expenditures are foreseeable and preventable and the people crafting the budget for the police and fire departments need to be diligent and honest about what is needed, why it is needed and how best to address what is needed (City of Los Angeles, 2013).

The budget deficit reduction amount for reductions/inefficiencies and other changes comes to $80 million. In a city with the budget and wanton waste through bureaucracy and out of line benefits/pay, that is probably the tip of the iceberg. The aforementioned typist salary of $35-45k a year is simply bordering on insanity. If a private industry person can't expect to make that much being a typist, than neither should a government position that is funded by taxpayer money (City of Los Angeles, 2013).

One thing the city of Los Angeles may wish to explore is the influence of unions and collective bargaining. May forward the idea that collective bargaining in a public employee environment is simply wrong on its face because of who the employees in question are effective bargaining against, that being the duly elected officials of the government. Those officials are elected by the people, so the logic is that the collective bargaining is against the people. These collective bargaining sessions are unnecessary and no doubt have a lot to do with why pension benefits, health benefits and salaries are so high.

Again, just because a person works in public service does not mean they should receive a salary or benefits package that is exorbitant. Cost of living increases, salary increases, pension amounts and what not should be based on industry averages for equivalent positions in the private sector and not based on what the union tries to coerce out of the city. A lot that can be said for a union in a private sector context cannot be said for a public union.

Public employees are working for, and their activities/benefits funded by, the people. As such, there should never be a clear demarcation between what a public employee gets in terms of pay/benefits and what a private employee gets and this is especially true when speaking of a situation where a job a public person is largely (if nto completely) equivalent to a private sector employer's tasks and pay.

Conclusion

In short, the current budget framework in place for the city of Los Angeles, as well as the county of Los Angeles and the state of California, are presented in a no-nonsense and basic fashion but they budgets of all three entities are no doubt under strain and there are legitimate questions about the long-term viability of the budgets in question. In particular, outlays for social safety net benefits and public pensions are of major concern and those concerns will grow over time. Many of the concerns are borne of the fact that Los Angeles is not a cheap area to live in, but the facts exist as they are nonetheless.