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Budget Advocates 2020 White Paper CLICK HERE This book is published by the 2019-20 Neighborhood Council Budget Advocates. 2019-20 BUDGET ADVOCATES Jack Humphreville, Greater Wilshire, Co-Chair Carol L. Newman, Lake Balboa, Co-Chair Barbara Ringuette, Silverlake, Vice-Chair, Development Danielle Sandoval, Harbor City, Vice-Chair, Outreach and Communication Howard Katchen, Sherman Oaks, Treasurer Faalaniga (Nina) Smith, Olympic Park, Secretary Melanie Labrecque, Northwest San Pedro, Administrative Secretary Tony Michaelis, Silverlake, Parliamentarian Connie Acosta, Echo Park Liz Amsden, Historic Highland Park Brian Allen, Granada Hills North Glenn Bailey, Northridge East Tracey Brown, EC West Ernesto Castro, Westlake North Kevin Davis, Foothill Trails District Carol Derby-David, Park Mesa Heights CC John DiGregorio, Panorama City Garry Fordyce, Northridge East Dentis Davis Fowlkes, Herman Elias Garcia, Central Alameda Jennifer Goodie, Mid City Jay Handal, West LA Jeanette Hopp, Van Nuys Jacqueline Le Kennedy, Bel Air-Beverly Crest Jon Liberman, South Robertson Jeffrey Mausner, Tarzana Brian McCain, Glassell Park Brandon Pender, Greater Toluca Lake Patrick Seamans, Mid-City West Dr. Princess Sykes, Harbor Gateway North Charles Taylor, Central Hollywood Evelyn Valdez, CANNDU Joanne Yvanek-Garb, West Hills Budget Representatives and Others Who Made Great Contributions This Year Kay Hartman, Palms NC Josh Nadel, Palms NC Tina Chinakarn, Palms NC 1 January 27, 2020 RADICAL TRANSPARENCY The Neighborhood Council Budget Advocates (as well as many Angelenos) are losing confidence in Mayor Garcetti and the City Council because of the recent disclosure of budget deficits that exceed $1.2 billion and the lack of transparency into the City’s budget process and labor agreements. On July 1, 2019, the City announced that the budget was balanced. The City projected a budget surplus in each of the next four years, topping out at $78 million in 2024. The four year cumulative budget surplus was projected to be $200 million. Now, despite record revenues, the City is projecting deficits. This year’s budget deficit is estimated to be approximately $200 million. The City is also projecting budget deficits ranging from $200 to $400 million for each of the next four years. The four year cumulative deficit is estimated to be $1.2 billion, an average of $300 million a year. These deficits are largely attributable to salary increases for sworn (police and fire) and civilian employees pursuant to new labor agreements that were not included in the Adopted Budget. These agreements were negotiated behind closed doors without any input from the public. Furthermore, the approval of these new labor agreements was ramrodded through the Personnel Committee and the City Council without any meaningful discussion or disclosure. As a result of the Structural Deficit of $1.2 billion over the next four years and the need to balance the budget, Angelenos will experience a lower level of services, or a Service Deficit. At the same time, the City will be dumping on the next generations of Angelenos significant liabilities consisting of unfunded pension liabilities ($15 billion) and deferred maintenance ($10 billion). This is Intergenerational Theft. The following recommendations by the Neighborhood Council Budget Advocates are meant to increase transparency into the City’s budget process that will hopefully mark the beginning of the process of restoring Angelenos trust and confidence in City Hall. 1. Update the Four Year Budget Outlook to reflect the current budget reality including the projected deficits. 2. Require the Mayor to submit the budget to the City Council on or before February 1 rather than the current deadline of April 20. Each Department will then present its proposed budget and priorities to the appropriate City Council Committee. Afterwards, the Budget and Finance Committee will conduct hearings on each Department’s budget. 3. All labor negotiations shall be open and transparent. Furthermore, the City shall solicit an independent opinion that analyzes the fiscal impact of any new labor contracts. Beginning 2 30 days after the release of the independent opinion and prior to approval, the City Council will conduct a series of public meetings to discuss the new labor contracts. Any new labor agreements shall not result in deficits. 4. Create a Pension Commission to review and analyze the City’s pension and Other Post- retirement Employment Benefit (OPEB) plans and develop recommendations to eliminate the unfunded liability over time. 5. Implement multiyear budgeting. 6. Develop a ten year infrastructure plan that includes, but is not limited to, streets, sidewalks, parks and their restrooms, trees, buildings, and vehicles. This will include plans for the Los Angeles River, the Civic Center, and the Convention Center. 7. Benchmark the efficiency of the City’s Departments and operations. 8. Implement a plan to increase the City’s Reserve and Budget Stabilization Funds to an amount equal to 10% of its General Fund Revenues. 9. Establish an independent Office of Transparency and Accountability to oversee the budget and other related matters in real time. 10. Develop solutions to balance the budget over the next four years and eliminate the Structural Deficit. The Budget Despite record revenues, the City is projecting a $200 million deficit this year. The City is working on solutions to balance this year’s budget. More information will be provided in the Mid-Year Financial Status Report. Next year, the budget deficit is anticipated to be $200 million. This will require a reduction in expenditures of about 3%. But this reduction cannot be spread evenly across all Departments because the City has priorities such as homelessness and climate change that require additional resources. The Mayor and his budget team, in conjunction with the City Council, need to allocate the City’s finite resources to reflect their priorities. This will result in selected Departments receiving more resources with other Departments required to reduce expenditures by more than 3%. This allocation of resources should be made available to the public early in the budget process. Four Year Budget Outlook Updating the Four Year Budget Outlook to reflect the projected deficits will quantify the Structural Deficit and increase transparency. At the same time, the City can begin the process of developing 3 policies and solutions to eliminate the Structural Deficit, where expenditures increase faster than revenues. The Four Year Budget Outlook should also include an alternative scenario that assumes a slowdown in the economy. February 1 Budget Submission The City Charter requires the Mayor to submit the budget to the City Council on April 20. With the Mayor submitting the budget on February 1, Angelenos and the media will have an additional 80 days to review and analyze the thousands of pages of budget related material. Each Department will also present its budget to the appropriate City Council Committee prior to meeting with the Budget and Finance Committee. This will result in greater transparency. The current policy does not allow sufficient time to review and analyze the budget and make meaningful comments. Open Labor Negotiations Personnel expense is the City’s largest expense, yet it is not transparent. New labor agreements in the current fiscal year resulted in large multiyear budget deficits that jeopardized the City’s finances and its ability to deliver adequate services. This is not the first time this happened. The City also lived through this in 2007 and it’s time to make sure this does not happen again. In line with the Mayor’s Back to Basics principles, any increases in salaries and benefits must not result in any current or future budget deficits. The Budget Advocates request that the City Administrative Officer prepare an analysis of the recent labor agreements and the annual impact on salaries and benefits and the overall budget. Pension Commission Unfunded pension liabilities are by far the City’s largest liability. While this debt like obligation must be paid by the City, our elected officials and Angelenos do not understand pensions and this massive liability and its implications. The City has not developed a realistic plan to eliminate this liability. Furthermore, this liability is understated because of the reliance on an overly optimistic investment rate assumption of 7¼%. A Pension Commission would review and analyze the City’s two pension plans and develop recommendations to eliminate the pension and OPEB liabilities over time. This was recommended by the LA 2020 Commission, but not implemented. Multiyear Budgeting Multiyear year budgeting is a common practice with many municipalities and allows elected officials and the public to have a better understanding of the impact of current policies in future years. This was recommended by the LA 2020 Commission, but not implemented. The City should also develop a long range operating and financial plan. 4 Benchmarking The City should benchmark the efficiency of its operations. This is a standard operating procedure for any large enterprise, especially one the size of the City. It can also be the foundation for improving the City’s operations. This would especially benefit Public Works (Sanitation, Street Services, Street Lighting), Transportation, and the Police and Fire Departments. Reserves Despite record revenues, the City has shortchanged the Budget Stabilization Fund by diverting money to fund capital expenditures, an ordinary operating expense. Despite the projected deficits, the City needs to establish a policy to increase the balance in the Reserve and Budget Stabilization Funds to an amount equal to 10% of General Fund revenues, a level recommended by the City Administrative Officer. This would involve the expenditure of $50 million a year for the next four years. Office of Transparency and Accountability The proposed Office of Transparency and Accountability would be independent of the City Council and Mayor and would oversee the City’s budget and finances in real time. This would result in increased transparency into the City’s budget, operations, and finances. This was recommended by the LA 2020 Commission, but not implemented.
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