March 8, 2013 / 12:00 AM / 7 years ago

Los Angeles looks to more cuts after sales tax increase rejected

* City budget deficit projected at $216 million

* Top city official says cuts to police payroll on the table

* Credit rating analysts expect more austerity

By Jim Christie

SAN FRANCISCO, March 7 (Reuters) - It’s back to the chopping block for Los Angeles after voters rejected a tax increase to help close a projected budget deficit of $216 million.

Voters in a local election on Tuesday rejected an increase in the city’s sales tax by a 55 percent to 45 percent margin. City officials had said that the tax hike, to 9.5 percent from 9.0 percent, would raise revenue needed to prevent more spending reductions, including cuts to police payrolls.

Los Angeles’ police chief said before the election that his department could lose 500 officers from a total force of nearly 10,000 officers without new revenue.

Now, cuts to their ranks must be considered to help balance Los Angeles’ next fiscal year budget, according to City Administrative Officer Miguel Santana, chief fiscal adviser to Mayor Antonio Villaraigosa and the city council.

“Anything that’s been spared from cuts will be back on the table,” Santana told Reuters on Thursday in a telephone interview. “It includes the police, both on the sworn side and civilian side.”

“The reality is there aren’t too many options,” Santana said. “The voters made it clear they aren’t, basically, interested in paying more.”

Shedding police officers always is a touchy political issue, but violent crime in Los Angeles is on the decline.

Villaraigosa last month said crime in Los Angeles is at its lowest level since the 1950s. In January he said Los Angeles posted fewer than 300 homicides for the third consecutive year, helping give the city of 3.8 million the lowest level of violent crime per capita of any big U.S. city.


Spending cuts will be under review as voters pick a successor to Villaraigosa, who is leaving office after two terms. Voters on Tuesday selected City Controller Wendy Greuel and City Councilman Eric Garcetti to square off in a runoff election in May. Garcetti, Greuel and Villaraigosa are Democrats.

The winner will take office in July with Los Angeles’ finances greatly improved in recent years, Santana said.

Cutting more than 5,000 city jobs in recent years, eliminating and consolidating some departments, and reducing pension and retired city workers’ health care expenses have helped decrease the city’s structural budget deficit.

Spending is projected to exceed revenue over the next four fiscal years, which would leave Los Angeles with a deficit of $265 million in its 2016-2017 year.

Credit rating agencies base their stable outlook for Los Angeles on more belt-tightening.

“We are expecting ... that they’ll continue to pay very close attention to their expenditures,” said Alan Gibson, a director at Fitch, which rates Los Angeles general obligation debt double-A-minus.

Standard & Poor’s also expects more cuts, said Sussan Corson, a director in the rating agency’s local government group. S&P also rates Los Angeles’ general obligation debt double-A-minus.

The general obligation debt of New York, the largest U.S. city, is rated double-A by S&P and Fitch and double-A-2 by Moody’s Investors Service.

Santana said Los Angeles, the second most populous U.S. city, also plans to set aside 5 percent of its revenue and amass one-time revenues of $70 million to $80 million for its rainy day fund.

“Revenue is actually growing. The challenge is that expenditures are growing at a faster rate,” Santana added. “So I’m recommending the mayor and council do everything they can to eliminate the structural deficit.”

To narrow shortfalls, Santana proposes all city employees contribute to their healthcare as 70 percent pay nothing toward the cost of medical premiums. He estimates that if each employee paid 10 percent of a monthly premium - averaging less than $100 per month - Los Angeles would save about $40 million to $50 million a year.

Los Angeles needs to bear down on employee compensation to put its finances on stronger footing as the city is seeing only modest economic growth, said Kevin Klowden, director of the Milken Institute’s California Center: “This city is not in a position where it can rely on growth alone.”

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