April 20, 2010 / 11:59 PM / 10 years ago

UPDATE 1-LA mayor proposes deepest city cuts in decades

* Budget plan would cut nearly 10 percent of work force

* Proposal anticipates modest increase in revenues

* City projects reserve balance of $284 million next year

By Steve Gorman

LOS ANGELES, April 20 (Reuters) - After weeks of budget strife that eroded the city’s credit rating and sparked talk of insolvency, Los Angeles’ mayor on Tuesday unveiled a plan to close a $485 million deficit with the city’s most drastic downsizing in three decades.

The plan would fill the bulk of the shortfall projected for the fiscal year that starts in July with a mix of across-the-board job cuts, sweeping furloughs and revenue collections expected to exceed earlier forecasts.

The proposal was outlined in a midday briefing for reporters by budget analysts for America’s second-largest city hours before Mayor Antonio Villaraigosa was due to formally present his fiscal 2010-2011 budget plan to the City Council.

More than a third of his proposed deficit reduction, $176 million, would come from the permanent elimination of 3,546 jobs — nearly 10 percent of Los Angeles’ municipal work force — representing the most sweeping scale-back of the city’s government since the late 1970s.

Under the mayor’s plan, as many as 750 positions would be cut through layoffs. The rest would come from early retirement incentives, attrition or transfers of workers to openings in self-supporting city agencies, such as LA’s public utility.

A modest increase in revenues from property tax collections and fees, most of that stemming from an improved economic outlook since the city’s previous revenue estimates, would provide another $154 million toward closing the shortfall.

And a one-month furlough imposed on nearly all employees due to receive a cost-of-living adjustment under the city’s labor contract will save an additional $63 million. A freeze on capital expenditures would save $39 million and $53 million would be gained by a one-time bump in parking revenue.

FREEZE ON CAPITAL IMPROVEMENTS

The mayor and other city officials have repeatedly said that layoffs and furloughs could be mostly avoided if the unions representing 98 percent of municipal employees would agree to pay cuts or other concessions.

While labor leaders and some City Council members have said the proposed cuts would lead to considerable reduction in services, Los Angeles budget chief Miguel Santana said municipal officials “started ahead of the game” in confronting the budget shortfall.

“Forty percent of the solutions in next year’s budget already had been adopted this fiscal year,” he said. If the revenue picture grows brighter, “hopefully we’ll be coming back recommending restoration of some services, rather than coming back and recommending additional curtailments.”

One area slated for an increase is the city’s reserve fund, which municipal officials say will end the coming year with a $284 million balance, about 6.5 percent of the general fund and more than double the sum forecast for the current fiscal year.

“Given the economic uncertainties, a healthy reserve is at the very top of the priorities in this budget,” said Matt Szabo, the mayor’s deputy chief of staff, addressing a major concern of credit-rating agencies.

The $120 million reserve balance now projected for the end of the 2009-2010 fiscal year is well below the level considered adequate but higher than was earlier anticipated, because of a compromise reached last week with the city’s public utility on an electricity rate increase.

The agreement paves the way for the Department of Water and Power (DWP), the nation’s largest municipal utility, to make good on a $73 million surplus-revenue payment the city was counting on to help close its $200 million-plus deficit forecast for the current fiscal year.

Previous concerns that the DWP lacked the cash to make the transfer payment, and the impact that posed for the city’s fiscal reserves, led the city’s comptroller to warn earlier this month that the city risked running short of cash. Wall Street reacted with a further downgrading of the city’s credit-worthiness by Moody’s Investors Services.

Reporting by Steve Gorman; Editing by Dan Whitcomb, Phil Berlowitz

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