In the wake of several California cities seeking bankruptcy protection, San Bernardino being the most recent, TPR spoke with Gerry Miller, the Chief Legislative Analyst for the City of LA, to discuss if LA’s fiscal deficits portend bankruptcy. Miller addresses the challenges, including how the City Council plans to press forward with finding solutions for filling the void that the CRA has left and the 'successes' to date of the City Council in stabilizing year-to-year structural deficits.
“I think pension reform is going to be an important element in achieving long-term structural balance. It doesn’t generate immediate returns because we’re not hiring.” -Gerry Miller
Gerry, let’s begin with your commenting upon news of San Bernardino becoming the third city in California to seek bankruptcy, after Stockton and Mammoth Lakes. Given your role advising the City Council of LA, how do you interpret this news and incorporate it into your recommendations and the Council’s fiscal responsibilities going forward?
Gerry Miller: Well, I don’t know any of the details of San Bernardino’s finances, but I think it’s very unfortunate on a lot of levels. From the City of Los Angeles’ standpoint, bankruptcy is not an option. We have challenges going forward, but we have made significant progress in getting our budget in balance and those efforts will continue.
It was reported that a structural deficit contributed to San Bernardino's decision to consider bankruptcy. TPR/MIR interviewed former CLA Ron Deaton more than 8 years ago on the emerging challenges of Los Angeles’ structural deficit. What progress has the Council made since then?
It has been cut by more than half already, and the City Council and Mayor continue to make structural solutions to the budget. We had a substantial challenge with the current year budget, and more than two thirds of that was addressed with structural solutions. Reaching structural balance is something that needs to be worked in over time, but we have made significant progress. Our staff is down by more than 5,000 over the last few years. Nearly all our employees are now contributing four percent more in their salaries towards pensions, which has helped reduce our pension obligations. Our budget is addressing staffing levels, salary levels, pension obligations, and workers’ comp. Those will take time, but we are making progress.
In TPR's recent interviewed of LA City Councilman Paul Krekorian—now the city’s Budget and Finance Chair—he noted the challenge of the city's structural deficit. Perhaps you could compliment his interview and address with more specificity the challenges for the city council to confront between now and July of 2013.
Again, the current year budget is balanced. We are, at least with the last projections, facing a more than $200 million deficit in the next fiscal year, which again, has been less than what we’ve had to address. Where that is going to end up will depend on our revenue conditions. There are positive signs in the sales tax, and there’s additional real estate movement occurring, which will help our documentary transfer tax. The deficit we’re actually going to face next year won’t be known until the end of the calendar year.
In terms of the challenges, this year it is a matter of close monitoring and making sure that departments stay within their means. In terms of next spring, there has been a lot of discussion about the need to implement additional revenues to help reach structural balance. We have not had any additional general fund ongoing revenues in many years, other than an increase in the solid waste fee, which was spent entirely on the LAPD. However, the cost of other services has risen. Primarily because of Prop 218, we have not been able to implement any significant revenue solutions. We need to combine reducing our expenditures and seeing what opportunities we have to generate revenue.
No doubt the challenges are great. How much greater will the challenge be if the Governor’s tax proposal fails in the November election?
There would be very little direct impact. The largest direct impact on the city was the dissolution of the redevelopment agencies, which has already happened. Little of that went to the general fund. It’s really a matter of the loss of substantial funding for economic development to grow our revenue base and create jobs. The direct impact from the state on the city is relatively minimal; we have strong protections now under the state constitution from the state taking our revenues.
However, there is an indirect impact on the City's budget to the extent that the county is cut. For example, if the jail system is under funded and there’s an increase in crime and homelessness, there are indirect impacts on the city.
Taking into account both the demise of redevelopment in California - which you describe as really the loss of the City's wherewithal to enact economic development initiatives - and the fact that over the last 25 years the City of LA, unlike LA County, has generated no new net jobs, how does the current city council advance an economic growth strategy?
As a matter of fact, just before the Council break, the Council approved a conceptual framework for economic development going forward. The CAO and I are going to be coming back within 45 days with a status report on how to put the meat on the bones of the proposed structure.
Clearly there are challenges. The city will be receiving some additional property tax from money that would have gone to the CRA, so that’s one area that we’re looking at in order to fund the broader economic development focus. I think there’s also an opportunity to holistically look at what economic development means and to try to put a structure in place that isn’t necessarily project related, one that identifies the kinds of businesses that align with our competitive strengths and that provides us with the tools to attract and retain them here. It’s a huge challenge, but there are opportunities there.
Could you put a little flesh on the bones of what you and the LA City Council are considering?
What the Council approved is the establishment of a centralized economic development department in the city and the conceptual establishment of a non-profit economic corporation that would be on the ground doing the legwork in creating business growth. It is patterned, to some degree, after New York, San Diego, and Austin. So it would be a broader approach without the tax increment, but it’s also a broader approach to raising private equity to invest in business and for connecting ideas with the money to fund those ideas. The challenge will be developing something by next spring that is firm enough that it can be part of next year’s budget.
Economic development in Los Angeles is a function that has been played mostly by the Los Angeles County Economic Development Corporation, with whom the city has actively partnered. Does the Council's establishment of a new department mean that you’ve lost confidence in the LAEDC?
Absolutely not; they’re terrific. I see this as complimentary and think they’ll continue to play an important role. The contemplated non-profit would be an entity that is on the ground doing project delivery, finding money from a variety of sources, putting financial packages together to make the projects happen, and advising on a broader economic development strategy and on the types of industries we should be attracting.
In July of 2013, a year from today, most of the city's collective bargaining contracts of significance come up for renewal. Likewise, pension reform may be on the ballot in the form of an initiative. Could you share the advice you are providing the council regarding these significant 2013 fiscal challenges?
I cannot comment on any specifics related to labor negotiations. That is handled by the CAO. There is wide recognition that we have to get our expenditures under control, including recognition by our labor partners, who have been active participants in trying to resolve this problem.
In terms of pension reform, it is being discussed. As you know, the Mayor announced a plan, and I think pension reform is going to be an important element in achieving long-term structural balance. It doesn’t generate immediate returns because we’re really not hiring. I note, there has been pension reform with our sworn LAPD and LAFD pension system, and LAPD is one area in which we continue to hire to attrition. But in the long term, structural reform of City pensions is going to be important, and I think it’s very important that we drive that conversation rather than react to a potential initiative that may show up on the 2014 ballot.
Of like importance for the coming fiscal year, has the alignment between DWP, its commission and leadership, and the LA City Council been improved?
I’m very pleased with the interface with Water and Power. I think things are going extremely well.
Please take a half step back from the specific challenges addressed above and address how you actually serve 15 elected representatives on the city council. How much of a balancing act is it?
I report to all 15 of them, and report exclusively to the Council. I don’t know if balancing act is the right word. It’s vital to my office to have credibility with all 15. There are times when some of them don’t agree with recommendations we present. Indeed, it’s not unusual for the Council not to accept a recommendation we present. But it is vital for the effectiveness of my office that they understand that it is our best thinking and is an objective recommendation on how to move forward. That’s been the approach of my predecessors over the years, and I think that’s really what makes the office function well.
Have the city's budget fixes significantly impacting the staffing of your office and the office of the CAO?
I’m down about 25 percent in my analytical staff. I don’t know where the CAO is on this—you’d have to talk to Miguel on that.
Given the fiscal challenges for the city today and going forward, do you think the city is sufficiently staffed and experienced? Is the council well served by the choices they have made to date regarding staffing and priorities? What new directions are you recommending be taken?
Well, the LA City Council’s clear priority has been public safety, and to some degree the Council has taken a relatively broad view on that. It is not strictly enforcement. It has also, to the greatest extent possible, included trying to maintain the appropriations for recreation and parks, which is important for youth. The voters passed the charter amendment ensuring funding for the libraries, which is also important. Public safety has been their primary focus.
The reality is that we certainly have seen service impacts, and it is up to the Council to ultimately decide as a matter of policy what those impacts will be. We’re at the point now where further reductions in staffing levels would erode services. I think that’s one of the important reasons for looking at additional revenues because, being down 5,000 General Fund employees, we’re at lower staff levels than in the early 1990s. At some point there are unacceptable impacts on broader services.
Perhaps you could offer some perspective on TPR/MIR interviews that we’ve publshed over the last two years. More than one has lamented that most of the 5,000 employees that no longer work for the city either took early retirement or took other positions in the proprietary departments where they are not paid with general fund revenues. Was funneling former employees into either early retirement or the proprietary deparments, in hindsight, a good strategic decision?
Yes, it was a good decision. In terms of the early retirement program, the vast majority of it is being paid for through additional contributions from the remaining staff. It’s also important to recognize that our layoff process, in terms of laying off 5,000 people, would have been extraordinarily disruptive to services. The folks on the ground providing services to the public are not largely those that took early retirement but would largely be those that would be impacted by layoffs. Since the positions impacted by layoffs would also be lower paid than those taking early retirement, more positions would have had to be eliminated to balance the budget. It was a balancing act, but certainly the rapidity of our reduction in staff could not have been achieved in the same fashion through layoffs. In terms of transfers to other departments, those are voluntary transfers, so it didn’t result in the displacement that layoffs would require. The proprietaries were hiring, thus it helped ensure that people were employed, which is helping the economy as well. There were in excess of 400 people that actually hit the street.
As CLA, you have had to adjust recently to a new council president, a change in council committee chairs, and to the addition of a new Council member. In performing your role as CLA, how, if at all, do such changes in the council and their new responsibilities affect your priorities and work load? For example, does it matter who the LA City Council's Budget and Finance Chair is?
Again, I don’t know quite how I would answer that. From the function of my office, it hasn’t.
We work with all 155 members and committees, and the tone and directionis set by the committee chairs, Ultimately, what occurs is upt ot the full Council. Our role is to support the people who are elected and we are held accountable by the public. Regardless of who the committe chairs are, our roles remain the same.
Fair enough. To conclude, if we were to interview you again in July of 2013, what accomplishments do expect the City Council to be most proud of?
One would be making continued substantial progress on resolving the structural deficit. A second: getting a viable, efficient, and effective economic structure in place. I think those are the two highest priorities on the agenda right now that will help us going forward.
What would be the consequences of the Council failing to do the aforementiioned in the next fiscal year?
The failure to implement an effective economic development structure is certainly going to mean the failure to generate jobs, and the continued erosion of our tax base and the quality of life in the city. There is no alternative to addressing our structural imbalance. It has to occur.
Lastly, what public policies will the Council likely make over the next year that, while important, will garner little media attention.
Planning and land use issues are always important but are sometimes so complicated that their implications are difficult to grasp. I think those issues—planning, land use, community plans that work within communities and also foster economic development—are important going forward. The roles of neighborhood councils are going to continue to evolve and strengthen. Finally, Water and Power issues going forward: we need to invest in our water and power infrastructure. Power has gotten a lot of attention over the last number of years, but our water infrastructure and regulations involving water quality are going to be very important issues in the coming years.