May 7, 2004 - From the April, 2002 issue

L.A. CAO Releases County Budget––As Of Now, 98% Of Programs Preserved

With last year's energy crisis, a downturn in the local and national economy, the still lingering effects of Sept. 11, and a state deficit that had grown to over $17 billion, many inside and outside of government have made predictions that a drastic elimination of services at all levels of government may be looming. Those concerns, compounded with the persisting problems re: the L.A. County Health Department, make the job of L.A. County Chief Administrative Officer one of the hardest at any level of government. MIR was pleased to talk with David Janssen, L.A. County CAO who sheds light on the precarious situation the state budget is in, what that might mean for his recently proposed County budget and how both of those factors may lead to a true attempt at fixing the state-local fiscal relationship.


David Janssen

David, before we get into your proposed budget, let's play an association game. When I say "Homeland Security" or "Governor Ridge" what do you think of? And what do those terms have to do with your responsibility as L.A. County CAO?

Both of those terms make me think of terrorism and its relation to L.A. County. We have a number of different responsibilities related to homeland security-from the Sheriff's Department and its involvement with intelligence work; to the Health Department and its oversight of hospitals, emergency services, medical; and even the Animal Control Department where they keep an eye on the potential of dead animals to be suffering from some type of chemical or biological agent.

And how does the federal government blend with your responsibility re: security? How should they be meeting the increased responsibilities placed on the departments you mention?

It's easy to say that the aforementioned items should be the entire responsibility of the federal government because they relate to national security. And since national security is one of the few things that is clearly the responsibility of the federal government they should be paying for everything.

However, the County does have an obligation to provide for the protection of its citizens. So somewhere in between the day-to-day obligations of our departments and the new duties of this post-9/11 society we must find a funding balance that allows us to continue to fulfill our obligations.

Give our readers a sense of the increase in incremental costs since 9/11 on the County and its ability to provide for its citizens.

We didn't track the overtime costs that existed after the first couple months following Sept. 11, but I believe those have declined significantly. So I would estimate that an additional $7-10 million was spent by L.A. County because of the events of 9/11.

Now you've just quantified how 9/11 affected the finances of L.A. County. Give us a sense of how that translates into new priorities and challenges for the next budget. Give us some insight into the nuts and bolts of your recently released budget proposal.

Like most municipalities, L.A. County is seeing the impact of both 9/11 and the current recession on the economy. And because of that we've had to trim over $200 million from our budget and had to eliminate over 2000 positions (most of which will remain unfilled).

In addition, we have a number of departments that may be hard hit: Mental Health, Probation, Libraries, Sheriff's Department, CalWorks, etc. But these problems are not singular to L.A. County. These are the problems facing everyone.

And what do you think will be the most challenging aspects of your proposed budget for the Supervisors to deal with? What challenges should our readership pay particular attention to?

Frankly we will be discussing the whole panoply of county services. But some of the more difficult issues will be in the Probation Department where we are proposing the closure of one of our camps and the elimination of our work furlough-a program that helps keep people out of jail.

With regard to the Library Department we may be forced to reduce hours and consolidate or even close some facilities.

In the Mental Health Department we may have to cut back on programs for the poor.

And the possible cuts to the Sheriff's Department may impact public safety.

As of right now, those are a sampling of the problems the Board will be faced with.

Let's delve a little deeper into that which has always been such a big part of your job-the health challenges of Los Angeles. How is L.A. County doing with respect to that particular issue?

The Health Department is projected to have a $295 million deficit next year. The department has committed to produce a plan to deal with that deficit by June. But as of right now, the health budget is being balanced using a $295 million set-aside in the health department reserve.

However if you look past next year, that department will have to reduce its operations by at least 20 percent over the next three years unless they find a new source of revenue. And as far as we can see, there simply are no new revenue sources out there.

That fact makes me very concerned because a 20 percent reduction is just not imaginable. The entire health system in Los Angeles as we know it will melt. If we start closing hospitals people will be forced to go to private hospitals. And that overflow will cause private hospitals to close their emergency facilities. Addressing that deficit will cause a ripple effect across the County that will be insurmountable.

How do those specific, local expenditures relate to the macro-level issues happening at the state level? Give us a sense of the balance sheet. What are your projected revenues for the next fiscal year?

We are projecting a $57 million shortfall next year in general revenue. I've proposed that we cover it with one-time monies. And given the potential loss of $200 million in departmental allocations, I believe that tapping into our existing reserves is prudent and preferable particularly since the economy is not really all that bad.

We are in a very peculiar state where the cities, counties and state are all being impacted differently. It's the first time in my memory that I have seen: The state have a $17 billion deficit caused almost entirely by personal income tax; The cities have lower sales tax and tourist occupancy tax because of 9/11 and the resulting recession; and yet counties still have strong revenues because of their reliance on property tax and vehicle license fees. So in comparison our revenue stream is in pretty good shape.

However, with the state having addressed $3 billion out of a $17 billion deficit, local governments are extremely concerned that the state will withhold the $4 billion Vehicle License Fee backfill. We're really holding our breath with regard to the damage they could do to our budget between now and the end of June.

How do the politics play out given this mix of interests in the state, county and cities? What are the politics of that to respond to the problem?

When the state has its own budget problem, there's no hope for local government to get any kind of bailout. Which means the cities will be on their own and the counties will merely have to wait and see how much property tax the state will keep to deal with its problems.

There is a glimmer of hope in that many of the Legislators in Sacramento are former locally elected officials and are strongly opposed to balancing the state problem on the backs of local government. The dynamics are very different than they've been in the past. We'll just have to wait and see whether our Legislators' opposition holds up down the stretch.

I know you read in the last month's MIR, the exchange over AB 680 between Chris McKenzie, Exec. Director of the League of California Cities and Rick Cole, City Manager of Azusa. That regional tax-sharing bill is currently in the State Senate. What are your thoughts and commentary about the bill and that exchange?

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Rick Cole's arguments were personally much more persuasive particularly his argument that the problem has been caused by "cash box decision-making."

The League, however, seemed to deal with the issue on more of an abstract basis believing the problem needed to be fixed, but flinching when a potentially divisive solution arises.

Maybe AB 680 doesn't represent the best solution, it is certainly not the only solution proposed. But it does have the potential to start dealing with the state/local financial problem. At least it starts to address local government's over-reliance on sales tax.

Would the idea of a swap of tax revenues between the county and cities have any appeal to you as CAO?

The answer to that question is always difficult because it varies depending on the current economic state. Right now, I wouldn't give up property tax for anything. But a few years ago property tax growth was negative.

However, because of ERAF almost 20% of our property tax now goes into a fund that didn't exist 10 years ago. And that fund is having the consequence of diverting over $1 billion with only a fraction returning to the county through Prop. 172. That's another aspect of the state/local financial problem that is also not being dealt with.

In light of that answer, what about AB 2681 introduced by Asm. Leonard (R- Rancho Cucamonga) capping ERAF at the FY2000-2001 level and transferring the growth to an emergency response augmentation fund for local public health and safety. Is this a bill you support?

My knowledge of that bill is limited, but my reaction is that property tax is one of the few discretionary revenues that counties still have. And it is simply not fair to curtail its distribution with strings. But this sort of thing happens all the time. In trial court funding they took our revenues, turned them into state dollars, gave them to the courts and took credit for funding the courts. Now they're going to take our property tax, call it state money and give it back to us for a specific purpose. You may not be able to argue with the purpose, but it sure isn't consistent with the whole idea of local control.

Now, a court decision in Orange County was recently offered re: the collection of property taxes. There hasn't been much commentary about it from the press, but is it on your radar screen?

We're very concerned about that verdict because it has the potential to cause L.A. County to lose $200 million per year. That combined with the fact that there is talk about another initiative on this issue and we are very concerned. The dynamics of the issue are still a little unclear to me, but anything that costs L.A. County $200 million a year is a real concern.

David, again I wanted to divert for a second. A large segment of the public doesn't feel like it's getting its money's worth, even after 9/11. Is this because the story isn't told about the nature of the services that are delivered or the quality of their importance? What leads to that conclusion?

There is no simple answer to that question. When one turns on the water at home and it comes out clean, it is taken for granted. One never thinks that it must be obtained, purified, transported and pressurized. The simple fact is that we take a lot of what government provides for granted.

Another possible answer is that people tend to focus on the 8-10 percent of items that are problems-juvenile delinquency, child abuse, crime, etc. No one focuses on the 90 percent of things that are positive in the County.

Frankly, the cost of civilization is expensive. California has historically had the best road system in the world. And it's "free" to use, but it is obvious that it is not free to maintain. But people only notice when they run over a pothole. Only then do you give any thought to who maintains the roads.

Let's stay on this theme because of the bills, bond measures and initiatives that may be appearing on the ballot later this year. There's a transportation infrastructure bond measure that will likely be put on the November ballot linking the sales tax on automobiles to transportation projects exclusively. What are your thoughts about balkanizing more and more of the budget toward specific projects? What are the pros and cons?

Two years ago, when the state had a surplus of $14 billion, the Governor transferred the state sales tax to roads. Transportation people are concerned that with the current deficit, that money will be put back into the general fund from whence it came. Hence the initiative to capture that money forever.

This is not creating a new revenue source for transportation. And the initiative will not be implemented for five to eight years. So it will not put one additional penny into transportation. And this money will come out of the state general fund and will not be available for health care, parks, jails or education.

However, as I said before, civilization is expensive. And roads don't maintain themselves. They are very expensive to maintain and they do need money. This initiative merely says that California's roads are higher priorities than those I mentioned.

Continuing on these themes. You've addressed your peers in the profession very actively and graduate students interested in careers in public administration, given the travails that you have on your plate in this county an urban county, what do you say to encourage people to succeed you as Chief Administrative Officer in these kinds of fiscal conditions?

Government continues to be where the action is. And as much criticism as government gets, we're not Enron or Lincoln Savings.

Government is a very challenging and exciting place to be. We deal with issues that are very challenging and do not exist in any particular business venture.

Additionally, an unanticipated consequence of 9/11 has been that the feeling toward government workers has changed. The heroic work that goes on every day is now seen and appreciated. People are really beginning to realize that heroic deeds are not reserved for police and fire, but that there are heroes throughout government.

One last question relating to the reporting about the Brown Act and the Board. What's the significance for you in the resolution and opening of the processes to the press as others are demanding? What's the impact on you as getting the business done of the County?

There isn't anybody in the county who doesn't want to comply with the Brown Act as it was intended. But, the Brown Act was never intended to apply to administrative operations. The Governor certainly doesn't have open meetings with his department heads nor do mayors and their city department heads. No one does.

The problem is that in county governance, there is no executive branch, so the Board acts as both the legislative and administrative body. What is important is that when the Board is acting in its legislative capacity, everything needs to be done in public. And I think from that standpoint, the actions that the Supervisors have taken will be beneficial to the County.

However, operating in the county is a very complex undertaking. And it will be more so if the Board or the public believes that implementation issues and administrative issues should somehow be done in a public forum. It's difficult enough to administer the County as it is, and if you have to do it a public forum all the time the problem of doing the business of the County will only be compounded.

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