Ron Deaton Assesses Los Angeles' City Budget & State Fiscal Reform

Ron, when MIR last interviewed you, some three years ago, you characterized the Riordan legacy as follows: "The last eight years provided City Hall with a lot of energy and excitement. Unfortunately, a lot of that energy was lost to needless internal fighting between the City Council and the mayor. This translates into a legacy of good intentions, but with the lack of an ability to implement." This interview comes at the end of Mayor Hahn's first term as mayor; and your early assessment of his legacy would be equally valuable.

I think the major problem has been that both the mayor and the Council have been grappling with the budgetary problems, both at the city level and the state level, and it's resulted in service impacts. A year ago, there was a major confrontation between the mayor and the Council on the budget. It comes down to the fact that we're not unlike the state currently, we have a structural deficit and there's a desire to provide more services. But, when you're sitting in essentially a deficit position, there are some rough choices, and all those rough choices aren't over with yet.

What needs to be done, given the local structural deficit you reference, for the city, which is far from a sovereign re control of its revenues, to secure a better grip on the balancing of it's budgets?

Well, there are only two ways to balance the city's budget. One is to reduce expenditures and the other is to increase revenues. Before it's over with, you'll see a combination of both. Some of the things we're doing now we won't continue to do. And in order to continue some of the things we're doing now, we're going to have to increase some revenues.

What are the City's revenue enhancement options?

In order to get more police, some of the members of the Council and the mayor and Chief Bratton are actively involved in the campaign for the half-cent sales tax increase. Probably the only other major revenue that the city has some ability to do something about is a refuse collection charge. There are some other minor revenue items that might be considered; and then, of course, there are expenditure reductions.

In your earlier MIR interview you were quite cynical of the many contemporary attempts to reform our dysfunctional state-local fiscal arrangement. You cited your 25 years of experience of seeing very little reform approved by the legislature and governor. What's your assessment today of both the newly adopted state budget and the Governor's agreement with the League of Cities & CSAC to exchange some constitutional protection for local budgets for less state budgetary support for cities and counties in the next two years? How will this new fiscal compact benefit, if at all, the city of Los Angeles?

The one thing that Proposition 1A, which will be on the November ballot, will bring to local governments is much more certainty. Not total certainty, but considerably more certainty than has been the case in the past. And that's a very big positive. The only part of it that is not as big a plus, but it's what comes with the program, is that it does freeze in place the existing fiscal situation constitutionally-sales tax and, essentially, property tax in its current form.

So, those people who thought that there should be some adjustments for incentives for housing or manufacturing on property tax vis-à-vis sales tax will have to do that at the ballot box, not in Sacramento. But I might hasten to point out that those efforts had not made much progress in Sacramento either, so maybe it's not much of a change.

And your assessment of how state representatives will embrace the reforms contained in Prop 1A?

Clearly, if you're a legislative body or an executive and you now have the ability to exercise control over local government - the amount of money they have and how they get it - and you're being asked to give that up, it's done reluctantly.

With the success more than four years ago of charter reform in Los Angeles, intergovernmental relations and City lobbying in Sacramento and Washington were placed under the mayor's jurisdiction rather than the Council's. How successful, in your opinion, was the City in advancing it's agenda re this year's State Budget and re the terms of the Governor's agreement with the League of Cities?

The Mayor and the President of the Council were actively involved with the League and the big city mayors. Lengthy conference calls at all times of the morning and all times of the evening, trips to Sacramento, the give and take was at least a daily exercise. And so, both the Mayor and the President of the Council played significant roles in that process.

Let's turn now to the City's besieged Department of Water and Power. Can you give our readers an assessment of DWP management; what the challenges are going forward; and, what DWP needs to do to right its ship?

Fundamentally, the Department of Water and Power still provides the most reliable electricity at the lowest cost anywhere in the state of California. The water is equally a good bargain, reliable and of good quality. When the citizens of Los Angeles read in the newspaper about a state power crisis, they don't have to worry about a crisis in the city of Los Angeles because we, for a variety of reasons, are not in the same boat as the rest of the public utilities in the state. Hence, the rest of the citizens are at much more jeopardy than ours. Currently, there are disputes relative to public relations firms and other fiscal matters. What is important for the image of the department is to have some strong, permanent management that will be able to convey what I consider the very strong pluses of that Department, and to get some of the housekeeping in order so that it doesn't become a news article every day.

Skipping by the Fleishman Hillard billing problems and their political implications, let's turn to the recent decision by Mayor Hahn to have the City & DWP withdraw from reliance on its coal powered Inter-Mountain plant in Utah. That's a 5¢ a kilowatt-hour power producing plant. Is giving up access to such cheap energy a good financial decision for the City? Is the City able to do so without materially costing ratepayers more in years to come?

In the case of the third unit at Inter-Mountain, the question, even to some of the Department people, was how much that was needed. The answer depends on a lot of other factors-whether or not we continue to keep out interest in the Mojave, Navajo, and the other two units at Inter-Mountain.

The real issue is how do we look at our power mix. The base power for the city comes primarily from those three coal plants of Navajo, Mojave, and Inter-Mountain. We use the gas-powered plants in the basin for intermediate type power to meet large blocks of power demand. What confuses people about these options is that your base power is coming primarily from natural gas and from some coal, your intermediate power is coming primarily from natural gas, and your peak power is coming sometimes from renewables and sometimes from hydro. Those things are not interchangeable. You cannot turn on and off a coal plant as quickly as you can turn on and off a combined cycle natural gas plant. So, it's in the mix of things, and the place for that third unit was unclear at this point. But long-term, you have to look at getting your lowest possible cost for that base power, which in the last 20 years or so has been coal.

So are you comfortable with the Mayor's decision to begin withdrawing from dependence on the Inter-Mountain power plant?

I'm okay with it.

And you think that 5¢ per kilowatt-hour can be easily replaced?

I don't know that we could have used it. If you're assuming some of the other coal plants are going to go away, then the third unit would be more important. If your assuming that we keep Mojave, Navajo, and Inter-Mountain, then I think the decision, as it relates to the usage of power within the city, is okay.

Let's turn to modernization of LAX, one of the fundamental building blocks of the economic engine of Los Angeles. Plans for modernization of the airport have been in environmental review for years. Is an end now in sight? Will there be a positive outcome based on the consensus agreement engineered by councilwoman Miscikowski?

I believe that Consensus agreement will be approved before the end of the year.

And how many votes will that take?

It appears 12. And I believe that when it's over with, the votes will be there to approve..

Let's turn then to growing challenges posed by the Port of Los Angeles. While there are ethical investigations eminating out of the Harbor Commission on pay to play, perhaps more importantly there is a set of bills before the Governor authored by Assemblyman Lowenthal which force port stakeholders to better balance environment and economic growth objectives. Is the city supportive of Lowenthal's bills, most especially AB 2041?

The mayor and Council supported that bill. How it plays out remains to be seen, and we're going to have to watch it closely. It'll be a constraint with trade-offs, but we're just going to have to figure out how to make it work.

Do you see a practicable political strategy emanating from the Council and the Mayor's Office which will give both the business community and local residents comfort that a balance between environmental livability & economic growth will be struck in the next ten years ?

It's always been interesting to me that-for both the Port and LAX-the benefit to these assets oftentimes are not within the city of Los Angles. But the environmental effects and the traffic are centered on our citizens. So, this balance has got to be worked out.

Returning again to MIR's last interview with you, you offered a preliminary assessment of L.A. City Charter Reform and the promise of neighborhood councils. You said re the latter: "these councils are likely to create a more level playing field between regional and neighborhood issues." Now three years later, could you update your assessment of both?

I still think that's a work in process. There was much more involvement by neighborhood councils in the last water rate increase and other issues. Yet on a regular basis, they're still coming along and the process is still in its early stages. So, we're still looking for their major impact to be in the future.

You also discussed, in that interview, how with charter reform greater power is given to the mayor over general managers, and how less secure that position was under the new charter. We've see a number of general managers leave under Mayor Hahn in the last three years. Are we getting the accountability we expected from Charter Reform or have we created an unhealthy professional working environment for our GM's?

You're getting what is in the charter. I don't know what people expected when they voted for it, but this gives more control directly to the chief executive. And in many cases, he's exercising it.

In closing, there's obviously a very heated and competitive race taking place to be L.A.s next mayor in '05. In order for citizens to thoughtfully consider their alternatives, what would you like the candidates or Mayor to be addressing?

Why that person believes that he is better to lead this city over the next four years in order to provide better law enforcement, better fire protection, better library service, and better recreation opportunities while keeping the city fiscally sound in doing so.